We can’t talk about money today without mentioning virtual currencies and the blockchain technology that constitutes the infrastructure of this ‘virtual currency’. Two Israeli companies, Kirobo and ZenGo, have created solutions that seek to contend with the operational complexity and risks associated with the world of cryptocurrencies
The crypto market is a growing market, and many equate its innovation and future impact with that of the internet at the end of last century. Experts in the field forecast that blockchain technology will, in the years to come, become a part of every area of our lives, from a method of payment via means for tracing transportation of goods to registration of assets in blockchain.
Blockchain is a sophisticated computer technology that was invented by developers of the first virtual currency – the Bitcoin. Blockchain is a means of encoding data (cryptography) in a way that allows visible and secured business activity via the internet and the verification of transactions without the need for a central regulating entity.
The problem with blockchain is that although it is extremely secure, it is not as simple or secure to use as a bank. It is not backed by any government entity or bank that supervises the transfers and which can assist the users in case of human error or fraud.
In fact, blockchain is not backed by any government agency or other responsible entity. The ‘ledger’ in which the incoming transfers are registered is controlled by the community of users and is secured at an unprecedented level. This saves bureaucracy, lowers costs, and speeds up procedures (transfers between account holders in different countries within a few seconds instead of several days). Nevertheless, its initial period of use witnessed a number of worrying scenarios and several unfortunate events. For example, in the real world, it is relatively easy to deal with a lost wallet and credit card. If someone forgets his bank account number, he can contact the bank and retrieve the number after undergoing an identification process. However, in a similar scenario in the blockchain world, there is simply no central-responsible entity to turn to for assistance.
According to Asaf Naim, CEO of Kirobo, this is precisely the point at which the company he established in 2018 enters the picture: “We want to make blockchain activity as simple and secure as online banking. With the bank, customers know that they can stop a transfer of funds to a wrong account if they make a mistake. A customer depositing all his money in the bank, can be completely confident that after he dies, the court and state systems will supervise the transfer of his assets to his legal heirs.
The protection of the banking system does not exist with blockchain. Here, if a million dollars is sent by mistake to the wrong address, there is no one to call, no central entity to turn to. “In February 2021, for example, 682 thousand dollars were sent to incorrect addresses in 128 transactions. This money is lost. There is no way of even discovering the identity of the account owner to whom the money was transferred by mistake. This is a tremendous obstacle delaying the deployment and adoption of this technology”, Naim says.
Kirobo has developed a technology that enables, among others, to stop a transfer to a wrong account. This is done by providing the recipient with a security code (like an SMS code used today) when executing the transfer using virtual currency. To complete the transfer, the recipient must enter the code. If a transfer is made to the wrong person by mistake, he will be unable to complete the transfer without the verification code. The transfer will be cancelled after a designated period of time or once the person executing the transfer realizes his mistake and cancels it.
Kirobo has also developed further backup and inheritance solutions. “We provide backup for the assets rather than for the wallet itself”, Naim explains. “In other words, even if the wallet is lost, the assets do not. There are many stories of people who have large sums in Bitcoin but have lost access to them. Three years ago, a billionaire was killed and virtual currencies worth 500 million dollars are now stuck without his heirs being able to access the money. Our technology provides solutions for such eventualities”. Kirobo’s ‘Undo’ button operates in Atrium and Bitcoin, and we intend to add it to all the 20ERC currencies in the very near future i.e., 95 percent of all existing currencies.
Kirobo’s method creates a virtual wallet that ‘sits’ directly on the blockchain and is controlled by the physical wallet that created it. If access to a physical wallet is lost, so too is all the money it contains, but by adding a programmable ‘smart’ virtual wallet, this situation can be averted. For example, a person can determine that if the wallet is not opened for 6 months, its ownership will be transferred to another account owner he designates in advance. In this way, the assets can be backed up and bequeathed in a ‘will’ that is also kept in blockchain.
The Innovation Authority Rescued the Company
“In another five years, everyone will use cryptographic currencies”, Naim claims. “We already see many countries and large companies operating in this field as are all the large banks. Everyone understands that this is where the market is heading.
“Today, the banks pay almost no interest on money that people keep in their accounts because there is no other safe place to keep their money. The alternative of the blockchain-based virtual currency alongside the smart digital wallet, will cause the banks to raise interest rates and fight for every customer. I believe this is the direction of the next few years”, he claims.
According to Naim, the banks will not collapse as a result but will be forced to economize and give more – more interest on savings and more credit. Furthermore, blockchain technology can be harnessed to preventing money laundering via the transparency that exists in the ‘ledger’ which is open to the public and where information about all transactions is kept. This means less preservation of privacy, but this regression is not unique to blockchain. Due to the nature of the technology, everything will be more accessible and transparent compared to today.
Naim explains Karibo’s uniqueness: “Some companies use MPC (Multi-Party Computation) technology. These companies provide a solution for the problem of losing an account’s ‘private key’ but not for problems of inheritance and mistaken transaction cancellation (Undo). MPC companies are, in fact, a kind of bank and that is a very big disadvantage. We have no competitors in the Undo field. There are ‘simple’ backup solutions for virtual currencies where the account holder simply transfers the money to the account of a “trustee” but with our solution, the company has absolutely no contact with the money itself”.
Kirobo’s target audience uses crypto on a permanent basis and trades Bitcoin and other currencies. Whereas until two years ago, most people held crypto in exchanges (money exchange companies) where they were traded, about a year ago the market shifted, and these exchanges are now executed via the web itself (known as DeFi).
In other words, the user no longer needs to enter an exchange where he is identified but rather to simply trade via the web itself. Previously, if you traded a million and held an exchange, you knew that if something happened you could turn to the exchange. Today, everything is held in the wallet and so the need for Kirobo’s product is increasing daily, both by traders and people holding currencies.
“There are about one billion blockchain transfers a year. Each blockchain transaction requires public authorization via computers that check the details and legality of the transfer (including a sufficient balance). The person executing a transaction pays a fee that is divided between everyone who participates in checking the transaction. These are called “miners” because they operate computers connected to the blockchain and earn or “mine” money. An expensive computer infrastructure is required to be a miner. Kirobo plans to charge a small fee for each transaction, similar to the miners, but without the need for investing in an expensive computerized system. “Our vision is for our technology to be at the heart of the blockchain so that every significant transfer of ‘virtual money’ will be done using our technology”, says Naim. Kirobo’s system is accessible via a Web interface and an app will also be launched in the near future. “We are not trying to educate the market. You don’t have to transfer management of your money to Kirobo’s wallet to use our product”, Naim claims. “You can connect to our system with every wallet”.
“As of today, over 1.6 billion dollars have passed through the system in tens of thousands of transfers”, Naim says. “Transactions valued at approximately 6.5 million dollars – about 2.2% of the total transactions – were cancelled because people realized they had made a mistake. On the assumption that there are about 1 billion transactions a year in Bitcoin and Ethereum, using our system can prevent mistakes and loss of money in about 22 million different blockchain transactions”.
The Innovation Authority’s support for Kirobo included two grants. “In reality, our company wouldn’t exist without the Authority”, says Naim. “It is important to understand that blockchain is a development-intensive technology. It takes many years and significant resources to achieve a working product – high-level coders and large investments. It is very difficult to raise capital in this field. The Innovation Authority’s program rescued the company from closure twice”. And indeed, following participation in the Authority’s program, Kirobo raised the supplementary funding.
“Today we can see the whole world moving from hardware to software. The companies with the highest market value are software companies. Everything is web-based. We are at the same point with blockchain – in another five years, everyone will need wallets and protection from transactions and human error”, Naim stresses. “As part of blockchain’s transition to the mainstream, solutions must be found for existing gaps in this field”.
20 Seconds and the Digital Wallet is Operational
Another Israeli company active in the crypto market and supported by the Innovation Authority is ZenGo that was founded in June 2018 by Ouriel Ohayon, Tal Beery, Omer Shlomovits, and Gary Ben-Atar.
“We noticed that all the digital wallets created until today were too complicated and not safe enough. There are many kinds of wallets, but all were based on a private key which, if lost, meant that the customer loses all the money it contains”, explains Ouriel Ohayon, the company’s CEO. “Bitcoin, for example, operates on an anonymous network. There is no way to track the identity of the sender or the recipient. Bitcoin’s limitation is that it is only on my computer. If I forget the key or throw away the hard disk, all the money is lost. In the same way, hackers can take control of my computer”.
ZenGo succeeded in creating a new category that enables people to create a keyless wallet via the telephone. Creating the wallet does not require any password and is built on a decentralized system that is based on things I don’t need to remember, for example, biometric data of different people.
The product developed by the company is called ZenGo and enables people to create a digital wallet easily and safely in seconds via their personal phone. Until now, the process of creating a digital wallet was very complicated and took much longer and, in most cases, was not even possible with a cellphone.
A wallet like this has mechanisms that enable to reconstruct the money, including in cases when the company disappears. After a person creates an account with facial identification, he can add someone else’s face so that the account will not be blocked if something happens to him.
At ZenGo, they began working on the project three years ago: “We only had an idea and the time we invested. We set up the company after a year and today we are operating with the complete product and more than 250 thousand clients worldwide. By the end of the year, we will have more than 40 employees”, Ohayon explains. He adds that “In 2020, 100 million dollars in virtual currencies passed through our wallet and another 100 million dollars in just the last month and a half. These are relatively small numbers in this industry, but we are growing rapidly, and they are expected to double. Today, we support five services and more than forty of the in-demand currencies. This covers about seventy percent of what the industry wants. We support any cryptography-based asset.
ZenGo is not just a wallet that allows to store currencies but rather, a product which allows banking activity such as buying, selling, and converting currencies. In the near future, the company will issue a credit card in the US in conjunction with VISA that will allow anyone to take his/her Bitcoin and convert it into real money at any location that accepts VISA cards.
“We based ZenGo’s entire security system on something called Multi-Party Computation (MPC)”, says Ohayon. MPC is part of the cryptographic world in which, instead of each single computer doing its computation – a kind of secret of its own – several unconnected separate computers can communicate with each other and sign on a secrecy principle together.
“The major difficulty is how to provide the end users with access to the complex MPC technology. Our uniqueness is that we knew how to turn MPC into an efficient cellphone program in the form of a cryptographic wallet. We make MPC transparent for the user who remains unaware of the tremendous complexity behind the scenes. The technology we developed is what enables all this simplicity”, Ohayon stresses.
“The user does not need to remember anything. He simply gives the app authorization to back up his account in the cloud and the app scans his face to verify his identity. This all occurs in twenty seconds and requires no passwords, after which the account is active. Security can subsequently be strengthened, and another person, email, or cloud can be added”.
Unlike other cryptographic wallets, with ZenGo, the user has complete control over the money and ZenGo does not manage his money. “We don’t possess the money – it sits on the web”, Ohayon explains. “Even if we want to access it, we can’t. We are not considered a company that transfers funds because the user has control over the transfer. In other words, we are in quite a simple position from a regulatory point of view.
“At the same time, each time a user wants to use his real money for an investment, there is an integration with another regulatory framework that performs an identification and AML (Anti-Money Laundering) check. There are actually two processes: creating the wallet which requires no form of regulatory procedure and a regulatory check for all activity related to investment of real money.
A Deposit in the Bank or Crypto in a Wallet?
“We applied to the Innovation Authority for assistance and support in development when we started operation”, says Ohayon. “They chose to support us for two consecutive years. It is important to understand that there is significant research and development (R&D) behind ZenGo’s simplicity as a cryptographic bank account which enables to reduce the level of mediation that exists in this industry, a process which entails high costs”.
According to Ohayon, Covid had a positive impact on ZenGo. The economic crisis damaged people’s trust in governments and they began looking for an investment avenue that was not dependent on government action.
Virtual currencies were one of the first alternatives because everyone knows that they are independent of any government or central entity. This awareness of the lack of trust in institutions and governments, the high level of uncertainty, and the realization that money which is supposed to be yours is not really yours, all led people to seek a parallel system that doesn’t belong to or rely on governments. This helped us greatly.
“Furthermore, many governments around the world, including the Israeli government, injected money into the economy and people sought avenues of investment”, Ohayon explains. “This all had a positive influence on our industry. All the large entities, including banks and public companies, now understand that it is worthwhile for them to build some kind of reserve, not just in gold or dollars, but also in Bitcoin”.
“Crypto is a world of money and applications that cannot be stopped. This is a lucrative money-making opportunity, and we need to acknowledge the existence of this area of speculation. Today, a bank deposit yields 0.1%-0.2% interest while in virtual currencies this figure stands at 2%-10%. In other words, it is more attractive than keeping money in the bank”.
Nevertheless, Ohayon wishes to stress that cryptographic currencies entail significant risk: “They are not backed by a government that is responsible for everything that happens and that is the reason it is attractive for people seeking high risk. In addition, it is very easy to send virtual money from one place to another anywhere in the world. Today, each country has a closed system for transferring funds but it’s a different story if you want to send money to someone in another country. With crypto, this transaction is much simpler and, sometimes, also much cheaper”.
This system is built for the global economy to which the world is advancing. Today’s young people are all there. They conduct their entire lives via screens – they don’t want to go to the bank. This is the future of the world”, Ohayon claims.