“We are in the midst of the digital revolution. The number of transactions that a global company completes every day is huge. Naturally, it is all conducted automatically using billing systems etc. However, all communications with a commercial entity begin with an agreement on the terms and conditions of the agreement and as long as this is formulated in human language, there will always be points that are overlooked and room for different interpretation of the text,” says Dror Bin, CEO of the Israel Innovation Authority. “Blockchain’s digital smart contracts lead us to a new era thanks to the dramatic increase in the efficiency of transaction management and the high level of trust that can be created between the parties. Nevertheless, this field’s great potential is accompanied by several risks. We are proud of the privilege we have had to support companies engaged in the core of this technology that is building trust between business entities in tomorrow’s world”.
“Already today, it’s clear that blockchain is the next generation of the financial system”, declares Eran Haggiag, CEO of Clear. Blockchain is a sophisticated computer technology that was invented by developers of the first virtual currency – Bitcoin. It is a method for encoding data (cryptography) in a way that enables visible and secure business activity via the internet and verification of transactions without the need for a central controlling entity.
“At the most basic level, the blockchain network allows us to change the reality in which we need central entities that everyone trusts (such as government entities or banks) to create agreement and trust around information like identity as well as ownership of assets and real estate etc.”, Haggiag explains. The blockchain network enables the verification of all these details, not via a central entity, but rather, with a network that is operated by many different entities. By using advanced algorithms and cryptographic signatures, the network facilitates complete authenticity of information and prevents its deliberate disruption. As a result, in many ways, this system is more secure than centrally controlled systems. One day, all the world’s financial records will migrate to this infrastructure – it’s a real revolution”.
Dror Bin, CEO of the Innovation Authority. Photo: RAD
Haggiag, who has been an entrepreneur in the worlds of programing for years, founded Clear in January 2018 together with Gal Hochberg. The goal was to understand how blockchain technology could be harnessed in order to significantly assist companies in conducting business in a better, more efficient way, as well as in reducing the scope of manual activity in areas that are currently difficult to automate.
Haggiag mentions two of blockchain’s primary innovations: the first is Bitcoin – an invention he defines as brilliant – that is the realization of a currency on the blockchain network. The second generation is what he calls a “smart contract” that is produced on the Ethereum network. The smart contract enables users to agree among themselves on anything that can be encoded and signed digitally. For example, a large company and a distributor who share a complex agreement can write it in the form of a smart contract that they both run, and which serves as their agreed single source of truth. The result is that there is no more need for two separate systems (one for each company) that manage comparisons and perform a manually assisted reconciliation process between them at the end of each month and they can, instead, use a single common system. Continuous flow of information to the system allows for quick identification of disparities between the companies, and ongoing accounting and distribution of money.
“We generally work on a private Ethereum network, but our technology can also use other blockchain networks”, says Haggiag. “It is difficult to predict which network will become the world’s most common blockchain infrastructure, so we developed the capability to work with whatever infrastructure our clients request”.
Over 99.8% Precision
In practice, the company developed a platform that allows enterprises to automate complex commercial contracts, and to perform automatic settlement and reconciliation of accounts. In other words, any agreement can be uploaded to the system, with each of the parties signed to the agreement receiving both a copy on the blockchain and a legal copy, while the smart contract is, in effect, the realization of the legal contract in the form of a file of computer commands. If, in the future, smart contracts are recognized as legal contracts, they will become the primary means for writing agreements between companies. According to Haggiag, today’s legal systems do not know how to contend with smart contracts; however, in time, this will change. Regulation reacts slowly to technological innovations.
Furthermore, Haggiag claims that as more companies make the transition towards using crypto-currencies and stable-coins, they will also be able to execute the payment process directly via the same contract i.e., to simply implement the terms of the contract using crypto payment. “Unlike crypto-oriented companies, we also know how to work with, and offer, added value to clients in the existing regulatory setup. As of now, our focus is to sign up as many companies as possible to our platform, and to create maximum value for them. For our customers, this presents a whole new world”, he stresses.
The platform built by Clear enables large organizations to take the concept of a smart contract and transform it into something practical that they can run with, in compliance with all their security and privacy requirements in tandem with the many internal systems that exist in such organizations. “We can develop all the business models necessary to allow customers to ‘mix and match’ models, thereby creating custom smart contracts that cover all of the business terms of existing contracts, as well as to create more sophisticated agreements”, Haggiag explains. “Our goal is to make the infrastructure accessible to large companies around the world and to create a marketplace where the agreements between them are stored and money is distributed. This all occurs and is updated automatically so that each party involved knows the status of the agreement at any given moment, with calculations made according to a shared business logic encoded into the smart contract that is common to both parties. This prevents discrepancies and disagreements between the organizations and their different systems, and the resultant delays.
Clear’s most advanced decentralized marketplace is in the field of mobile roaming: when a person travels abroad with his cellphone, the operator in his country of origin and the overseas operator calculates the costs between them. There are approximately 800 such companies worldwide and the models for reconciling the costs between them are extremely complex. According to Haggiag, it currently takes them 4-6 months to perform reconciliation and settlement at the end of each year. “We built a practical solution for this industry and some of the world’s largest companies are now connected to our network”, he says. “In other words, over 20 percent of the roaming industry’s volume is already connected to our system. Tests performed by our clients reveal that we achieve a precision level of over 99.8%, in a fraction of the time it currently takes to perform these processes, therefore the level of trust in our system is constantly growing”.
Who will sign up next?
“We applied to the Innovation Authority’s Covid Program because the mobile roaming market – our central market – was hit badly when aviation and tourism activities stopped as result of the pandemic”, Haggiag explains. “We were concerned that the market slowdown would delay our ability to make rapid progress. I was pleasantly surprised at the work with the Innovation Authority – we had a very clever professional expert who asked a lot of questions and, after a thorough process, gave us approval for the support budget. This was vital assistance. It is great to see that a government authority knows how to act quickly and accurately”.
Clear’s vision is to build more ‘decentralized marketplaces’ on the infrastructure: “We began with the fields of subsea optic fibers, media content rights, and others”, says Haggiag, “and our goal is for the system to be used in every industry – even in provident funds and in commissions between agents and insurance companies. Any reconciliation between corporate parties can be automated”.
Regarding target audiences, Clear is currently focusing on enterprises: “The sales turnover of most of our clients is over ten billion dollars”, says Haggiag. “These companies have significant complexities and work volumes, and they encourage the smaller companies to sign up. We can work with companies of any size”.
Haggiag is convinced that in a matter of a few years, people will laugh at the thought that in the past contracts were signed on paper, rather than blockchain contracts that operate automatically, and he hopes that his company will help the business world achieve this goal. “For that to happen, there needs to be a critical mass of interested companies. In other words, mega organizations with tens of thousands of employees need to join the party”, Haggiag says. “We have taken some impressive steps with precisely these kinds of companies. You can say that we are well on our way to achieving this goal”.
The Vision: To Protect the New Economy
“One of blockchain’s advantages as a data systems infrastructure is that the public perceives it as a secure infrastructure because it is built on cryptographic foundations of extremely complex encoding, and the business processes that run on it are autonomous processes”, explains Kfir Nissan, CEO and founder of Valid Network.
Blockchain’s “smart contracts” contain all the qualities needed for the transaction to be executed without the need for human consideration or approval. Everything operates autonomously – entire processes without human input. Blockchain is a secure and encoded network, one of the foundations of which is that each transaction is recorded in an immutable ledger. Once something is written, it cannot be altered and there is a complete history of all the movements.
Nissan and his partner, Gilad Eisenberger, founded Valid Network in October 2018 with an initial investment from JVP and the Innovation Authority as part of the JVP Cyber Labs in Beer Sheva. So far, the company has raised 8 million dollars. “Our vision is to protect the new economy and the blockchain users”, Nissan says. We are a company that provides cybersecurity solutions and information aimed at protecting the players on blockchain networks – large companies, crypto traders, and companies that develop smart contracts for blockchain. Our security and information solutions are primarily at the applicative level – that of the smart contract and the transaction, however we are expanding to the network level. Furthermore, our advanced information and analysis capabilities are used not only for cybersecurity but also as beneficial information for crypto traders – similar to the information available on stock exchange trading systems”.
Although blockchain technology itself is viewed as safe, this is not really the case. Companies and private individuals have already lost billions of dollars in blockchain fraud. In 2020 alone, more than 4 billion dollars were hacked, stolen, or locked on the blockchain. The reason is simple: the smart contracts are written by humans, by developers who use different coding languages. When a code is written by a human, it is reasonable to assume that it contains mistakes, for example, logical problems that the developer mistakenly included or arithmetical errors. Furthermore, there are cases of malicious codes in smart contracts. Once there is human intervention, the basic assumption is that not everything is correct or safe. That is where Valid Network comes in – to check the smart contracts for example, to identify weaknesses and openings, as in the traditional world of communications and computers, but with tools that are suited to the new blockchain networks. It is known and understood among the blockchain community that smart contracts are one of the biggest weaknesses in blockchain.
Organizations Must Leave a Door Open, and That’s Dangerous
Valid Network has developed a unique technology that enables the first holistic security solution of its kind for blockchain applications with the goal of increasing security in blockchain and accelerating its use by large companies in the industry.
“We built a system of in-depth checks that scrutinize the smart contracts and identify exactly where a problem exists and its possible ramifications”, Nissan explains. “A comprehensive study conducted by Deloitte revealed that 70 percent of the managers of data systems and cybersecurity in large organizations said that one of the reasons they do not use blockchain technology is the problem of cybersecurity. We provide a solution for this problem.
“In today’s world of cybersecurity, there are amazing companies such as Checkpoint, Microsoft and others, and endless solutions. None of these solutions, however, can provide a solution for the new world of blockchain. One of the reasons for this is that this is a new technology that has yet to be adopted extensively by large organizations. Another reason is because this is a decentralized world which is built on two levels not directly connected to each other: an applicative level and an infrastructural level. We know how to monitor the risks on both levels”.
Today we have an international consulting company, three large global banks, and several smaller companies that use Valid Network’s service every day. “We are presently improving and developing the project according to market needs”, says Nissan, “and our customers are partners in planning the product. This year, we are entering the market and want to enable many more entities actively using or experimenting with blockchain to do so securely, with less risks”.
“The difference between us and most of the security companies is that we developed our detection capabilities from scratch”, Nissan explains. “We rely heavily on Machine Learning and Artificial Intelligence. One of the things we do when working with transactions is to identify behaviors that are an anomaly based on all the prior knowledge we have. We have scanned more than 400 thousand smart contracts and billions of transactions, analyzed, and indexed them. This is the foundation of our data”.
Valid Network detects most of the problems in real-time and this is one of its strengths: “We can provide a solution for things as they happen, and not after the event”, Nissan says. “Many companies offer very strong analytical tools but once an event has happened, it’s too late. Valid Network’s system is also capable of forecasting risks and predicting events based on the behavior of smart contracts and certain addresses in the network in the past”.
The Innovation Authority’s Assistance is Not Taken for Granted
When asked about the company’s vision, Nissan replies “We really want to build a large company. Among our investors are the JVP Fund owned by Erel Margalit whose entire investment thesis is to build large companies. The American investors who joined later – TenEleven Ventures – are also in the business of growing unicorns. I think that our market is new and that it still has a way to go. We are entering it early and are considered as market leaders in the field of blockchain networks’ security and in-depth analysis of the information that flows through them.
“The Innovation Authority supported us from the outset, and we wouldn’t exist without its support”, Nissan says. “It began with the initial investment in the JVP Incubator in Beer Sheva, and an additional recent investment as part of the Early-Stage Companies Program. We have a very good relationship with the Innovation Authority and are extremely grateful for the trust, support, and productive collaboration”.
As a serial entrepreneur, Nissan serves as a mentor for many startups and always recommends that they apply to the Innovation Authority. “They stand out as a special and professional entity on the global stage. Israel is one of the only countries with such an authority, that is so active, and that assists startups. As Israelis, we take it for granted but it certainly isn’t”.
The Innovation Authority’s ability to support an entrepreneur in his early stages and to train him as an entrepreneur, and even to assist him with funding via the Tnufa (Ideation) Program, provides him with an entrepreneurial mindset and the tools to succeed”.
The article was written in collaboration with the Israel Innovation Authority, responsible for the country’s innovation policy. Its role is to nurture and develop Israeli innovation resources, while creating and strengthening the infrastructure and framework needed to support the entire knowledge industry.