This Startup Is Fixing The Biggest Security Hole In Bitcoin Exchanges

Throughout Bitcoin’s ten year history, one of the common issues has been the fact that the centralized exchanges where people are able to buy and sell the crypto asset are susceptible to hacks. In fact, research by hardware wallet manufacturer Ledger estimates more than $1.5 billion worth of crypto assets has been stolen from these exchanges over the years.

However, new crypto startup Arwen (formerly Commonwealth Crypto) thinks they’ve come up with a solution to this problem. Today, Arwen announced the launch of a testnet version of their platform, which allows traders to keep control of their crypto assets while they’re trading on exchanges via a layer-two blockchain asset transfer protocol.

A Lightning Network for Traders

Many Bitcoin enthusiasts have heard about the Lightning Network, which is a layer-two solution for making bitcoin-denominated payments in a decentralized manner. Arwen has designed a protocol built on some of the same technology used in the Lightning Network to create a separate network specifically for traders and exchanges.

The idea is to give traders the best of both worlds in terms of the liquidity and speed of centralized exchanges and the security of holding on to one’s own private keys.

Similar to the Lightning Network, users are able to leave this secondary network layer and go back to the base Bitcoin blockchain in a situation where something goes wrong. In this way, the blockchain is used as a sort of digital court for smart contracts.

In a situation where an exchange is hacked, the hackers will not be able to access the crypto assets held by those who are using Arwen’s software. Arwen users can simply broadcast a special transaction on the blockchain, which would allow them to regain full access to their digital assets. This same type of special transaction is used when users misbehave on the Lightning Network.