The changing face of crypto custody
04 September 2019
Demetrios Skalkotos of Ledger Vault discusses the importance of digital in the financial industry and highlights where he thinks cryptocurrency is heading
Image: Shutterstock
What developments are you seeing in the technology space right now? How is Ledger Vault taking advantage of these opportunities?
The market is definitely starting to realise the importance of having a strong digital infrastructure. Fintech and financial services are also developing securities, governance, insurance and regulation protocols in order for this to be a mainstream asset class similar to others in the space. These are all key areas that we are spending time on to change the shape of this industry. One key development is the entrance of traditional trading firms into this space. The Facebook-Libra announcement has definitely brought a spotlight to this space for several reasons, more positive than not.
We’re seeing many of the traditional players moving into cryptocurrency and blockchain. It’s definitely an evolution, not a revolution. As each stage evolves, we will only see more of that type of investor enter the space. End-to-end security at both rest and in transit is essential—it’s what we are providing and what the industry needs to see.
The technology powering digital assets is changing at a rapid pace. What changes have you seen working with Ledger Vault in recent years?
We’re hearing about the traditional prime brokerage services appearing in the crypto space. There’s a lot of conversation around things like lending, staking, escrow, margin, custody, insurance, trade execution and fiat/crypto management. A lot of people are talking about the potential of blockchain and evaluating the services being offered on both the retail side and the institutional side. We’re doing a lot of work in anticipating long-term market needs and how to leverage technology to meet security and operational challenges as well as talking directly to customers and influencers to determine their short- and long-term plans.
Globally, countries are looking into regulating crypto. How will regulation affect the crypto industry and what effects will that have on custody?
Regulation is obviously key. We have spent a great deal of time with the US, Europe, the Middle East and Africa and the Asia Pacific region regulators, and from this, we will continue to spend more time working with and collaborating with the regulatory community over the course of this year and next year.
There is a great deal of education that needs to be had, to understand the intricacies of the capabilities and potential of blockchain and cryptocurrency. What people want is collaboration, direction and clear opinion.
We need the existing regulatory bodies in their respective jurisdictions to come together globally and work out the best way to move forward.
The Vault platform enables institutions to securely perform transactions. What steps has Ledger taken to ensure all crypto assets are safe in the modern climate—one that is constantly facing different threats from hackers?
We provide an end-to-end security infrastructure for firms to completely manage and control their assets, by allowing them to securely store and trade those currencies. We also provide a security operating system that is purposefully built for digital assets, called Blockchain Open Ledger Operating System (BOLOS).
BOLOS is the key on both sides, so we really feel that we have solved this problem with the securities operating system and hardware security devices. Those secure element devices are similar to what we have in our credit cards and smart passports. Combining those elements is what we are really focused on, to ensure that the elements that protect the assets are highly secure.
And in relation to this, can you tell me more about the Personal Security Device (PSD)?
Each user requires a personal security device to interact with the Vault platform. What-You-See-Is-What-You-Sign is the fundamental principle governing the approval of operations on the Vault platform. The PSD is one of the critical components of the security design of the platform. Every time anyone performs an action or makes any changes to the platform it shows on both the computer screen and the PSD to be verified by your operations team. The PSD secures an encrypted channel in connection with the hardware security module and certifies the user to allow them access to that particular wallet and that particular transaction.
With Facebook’s blockchain and crypto announcement along with bitcoin soaring at its highest level in more than 400 days, what changes do you expect to see across crypto custody in the next six to twelve months?
My background is on Wall Street—from this, I know that the market fluctuates and is difficult to predict. But I do think the Ledger retail business correlates with the price of bitcoin. It’s good to see some momentum back in the market; it definitely lifts people’s spirits and can be seen as an opportunity to continue the work toward executing our business plan.
It’s a positive for those trying to build a large infrastructure company that services the institutional and financial industries. Our priority is to focus on delivering what our customers require for their businesses to succeed.
What are you hearing from institutional investors? Where do you think cryptocurrency is headed in an institutional finance sense?
We are hearing a number of things; from an institutional side, people are focused on development and evaluation and permission-based blockchains primarily for streamlining their back-office systems. Each asset class has its own backend workflow. Blockchain technology could potentially save a great deal of time, effort and money in the back-office. If you could consolidate that, and streamline and integrate all the backend workflow processes to a blockchain process, you could potentially save millions.
The institutions are constantly evaluating, learning and developing a plan for how they would like to approach the market. The vast majority of them are also waiting for clarity as it pertains to regulation. They are looking for regulatory guidance while considering their strategic path forward.
The market is definitely starting to realise the importance of having a strong digital infrastructure. Fintech and financial services are also developing securities, governance, insurance and regulation protocols in order for this to be a mainstream asset class similar to others in the space. These are all key areas that we are spending time on to change the shape of this industry. One key development is the entrance of traditional trading firms into this space. The Facebook-Libra announcement has definitely brought a spotlight to this space for several reasons, more positive than not.
We’re seeing many of the traditional players moving into cryptocurrency and blockchain. It’s definitely an evolution, not a revolution. As each stage evolves, we will only see more of that type of investor enter the space. End-to-end security at both rest and in transit is essential—it’s what we are providing and what the industry needs to see.
The technology powering digital assets is changing at a rapid pace. What changes have you seen working with Ledger Vault in recent years?
We’re hearing about the traditional prime brokerage services appearing in the crypto space. There’s a lot of conversation around things like lending, staking, escrow, margin, custody, insurance, trade execution and fiat/crypto management. A lot of people are talking about the potential of blockchain and evaluating the services being offered on both the retail side and the institutional side. We’re doing a lot of work in anticipating long-term market needs and how to leverage technology to meet security and operational challenges as well as talking directly to customers and influencers to determine their short- and long-term plans.
Globally, countries are looking into regulating crypto. How will regulation affect the crypto industry and what effects will that have on custody?
Regulation is obviously key. We have spent a great deal of time with the US, Europe, the Middle East and Africa and the Asia Pacific region regulators, and from this, we will continue to spend more time working with and collaborating with the regulatory community over the course of this year and next year.
There is a great deal of education that needs to be had, to understand the intricacies of the capabilities and potential of blockchain and cryptocurrency. What people want is collaboration, direction and clear opinion.
We need the existing regulatory bodies in their respective jurisdictions to come together globally and work out the best way to move forward.
The Vault platform enables institutions to securely perform transactions. What steps has Ledger taken to ensure all crypto assets are safe in the modern climate—one that is constantly facing different threats from hackers?
We provide an end-to-end security infrastructure for firms to completely manage and control their assets, by allowing them to securely store and trade those currencies. We also provide a security operating system that is purposefully built for digital assets, called Blockchain Open Ledger Operating System (BOLOS).
BOLOS is the key on both sides, so we really feel that we have solved this problem with the securities operating system and hardware security devices. Those secure element devices are similar to what we have in our credit cards and smart passports. Combining those elements is what we are really focused on, to ensure that the elements that protect the assets are highly secure.
And in relation to this, can you tell me more about the Personal Security Device (PSD)?
Each user requires a personal security device to interact with the Vault platform. What-You-See-Is-What-You-Sign is the fundamental principle governing the approval of operations on the Vault platform. The PSD is one of the critical components of the security design of the platform. Every time anyone performs an action or makes any changes to the platform it shows on both the computer screen and the PSD to be verified by your operations team. The PSD secures an encrypted channel in connection with the hardware security module and certifies the user to allow them access to that particular wallet and that particular transaction.
With Facebook’s blockchain and crypto announcement along with bitcoin soaring at its highest level in more than 400 days, what changes do you expect to see across crypto custody in the next six to twelve months?
My background is on Wall Street—from this, I know that the market fluctuates and is difficult to predict. But I do think the Ledger retail business correlates with the price of bitcoin. It’s good to see some momentum back in the market; it definitely lifts people’s spirits and can be seen as an opportunity to continue the work toward executing our business plan.
It’s a positive for those trying to build a large infrastructure company that services the institutional and financial industries. Our priority is to focus on delivering what our customers require for their businesses to succeed.
What are you hearing from institutional investors? Where do you think cryptocurrency is headed in an institutional finance sense?
We are hearing a number of things; from an institutional side, people are focused on development and evaluation and permission-based blockchains primarily for streamlining their back-office systems. Each asset class has its own backend workflow. Blockchain technology could potentially save a great deal of time, effort and money in the back-office. If you could consolidate that, and streamline and integrate all the backend workflow processes to a blockchain process, you could potentially save millions.
The institutions are constantly evaluating, learning and developing a plan for how they would like to approach the market. The vast majority of them are also waiting for clarity as it pertains to regulation. They are looking for regulatory guidance while considering their strategic path forward.
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