Building the best product possible with Ledger CEO Pascal Gauthier | EP #149

We're trying to design products for everybody because everybody should feel welcome into this game, and even now if it's my mother or your grandmother or whatnot. And so this is why you just said it. You know, there is a big focus on UX and UI, but there is a big focus on product. Prior to starting the recording of the show, we were discussing, you know, the difference between technology and product. And I think when you start an industry like Bitcoin and cryptocurrencies, first there is a focus on technology and everybody talks about technology, except that the mass and the consumers don't really think about technology. They think about product. It's like, what does it do for me? I don't really care what the underlying technology. Everybody loves their iPhone, nobody understands how the worldwide web exactly works, and nobody cares. What should matter is whether you have an app to book your flight on your iPhone. That matters. It's not so much how that app is connected to the web and how data is being transferred back and forth, etc. And so the same needs to happen with crypto. You know, I hear too many companies or too many protocols talk about the tech, and it's okay because for developers, they want to hear about the tech because that's how they think about developing around protocol and developing apps, etc. So there is an audience to speak about technology. Now, if you want to become a B2C business, if you want to reach the consumer, then you need to talk about product. And so I guess what we've tried to do with the Stax and Flex at Ledger is to talk more about the product and what the product can do for you, rather than talking about what's the tech inside.

Happy to be here, and happy to hold my mic like this. I appreciate you working with me on the fly, kind of in true startup mode, so to speak.

No, it's fine. Look, I was the first investor in Ledger. I led the seed round, co-led the A round. And when I did it, it's because I thought the founding team was great and they had this vision of security using the chip and PIN technology basically to do it. And chip and PIN technology being a French invention, I was convinced that it was actually the best technology to secure secrets. I was convinced because I was told so, and now after 10 years of working on the matter, I know so. Now I know that actually what we have is actually the best and maybe the only way to really secure your secrets. First I was an investor, I was a board member, then I became president of the company, co-leading it with the founder CEO Éric. And then in 2019, the board and Éric decided to appoint me CEO of the company, and I've been CEO for the past five years. What Ledger is, is a security company at heart. We secure secrets. We started by securing cryptocurrency secrets, so your Bitcoin first, and then your Ethereum, and then every other coin that there is in the book. But we are a security company, and we will secure everything that is a secret for you online. The goal for Ledger is to say that if you have digital secrets, they will be secured by Ledger. And why do you need this? You need this for two reasons: one, hackers are more and more aggressive, and two, you have more and more digital secrets. Those digital secrets are directly attached to value, such as Bitcoin and other coins, or it's your passkey to log on to your favorite applications, or it's your digital identity, or all of these things that have value for us that are our secrets and that we want to safeguard. And so for that, you will need a Ledger. And why this is new and interesting is because before online, first you had very few secrets, and new secrets had little value. As time goes by, now secrets have more value, primarily because of Bitcoin and cryptocurrency. But you can see why now having access to Instagram, if your job is to do Instagram, has a lot of value. And so protecting your access to Instagram with a passkey is important. Now the question is, do you want to delegate your value to a third party, or do you want to hold it yourself? With Bitcoin, that was the question: do you want your money to be at the bank, or do you want to hold it yourself? But now the same with your secrets: do you want Apple to hold your passkeys, or do you want to hold your passkeys yourself? There are a lot of pros and cons if you want to hold them yourself or delegate to Apple, but basically it's this idea that now, if you want to be a sovereign individual and if you want to hold what's dear to you, you actually can, versus before where you couldn't.

Yeah, and I will just say something. You just said, like, not being online — actually, that was the reason for the device, because you have to be online. There is a misconception in security. Our industry calls this cold storage. There is a misconception that as soon as you're connected to the internet, you're at risk, and so therefore being offline is the only way to be secure. That's not true. And actually, our devices and the reason for Ledger to exist, from the beginning and to the inception of the first device, was to say that whether you're connected or not to the internet doesn't change the security model. With your Ledger, if you're sort of offline, meaning you don't do anything with your coins, you're secure. But if you connect your Ledger to do a transaction with Ledger Live, and so you connect your Ledger to your phone or to your computer, basically you connect your Ledger to the internet, you are as secure. Because it would be crazy to think that Bitcoin or cryptocurrencies will scale if as soon as you touch them and want to do something with them, you lose your maximum security level. That would be crazy, and that wouldn't scale. And so Ledger has developed products thanks to the chip and PIN technology that from the beginning allows you to do any kind of online transaction without your private key, your secret, being revealed totally to the web. Because when you do a transaction, you have to sign the transaction. To sign the transaction, you have to prove that you know your secret. You have two ways of doing it: either you flash your secret entirely for that transaction, but then you're at risk of someone taking it from you, or you flash your secret partially, which is what the Ledger device does. It flashes enough so the protocol knows that you know the full secret, but not enough so an attacker can steal the secret from you. So this is really what we've been doing from the beginning. I guess the first success the company had was really with the Nano S that was released in 2016. That's still working to date.

And then we released the X, the S Plus, and now of course we have Stax and Flex that are the two new products that just came out in the market, where we really tried to do something around UX and UI. So it's much easier to onboard into self-custody with Flex and Stax. Most reviews that are coming out are really around that, to say, oh finally, crypto self-custody made easy to use, which is exactly what the goal was.

So I mean, yes and yes first, and then no. First of all, I don't think we're designing technology for our grandmothers. New technology is for the new generations, and we've seen this time and time again, which is the elder generation will never be the early adopter. They will eventually be the late bloomer or the late adopters of a technology, but never the first ones. If you start developing technology for your grandmother and your grandfather, then new technology never sees the light. I love my mother dearly, but when I see her using her phone, or my father using his phone, and they both have an iPhone, they don't know how to really use an iPhone. And it's okay, it doesn't mean that iPhone is a bad product, because the new generations and us, we cannot live without our iPhone or without our Samsung S23. So that's a misconception: you cannot make new technology easy enough so your grandfather can use it. Now, what you have to focus on is the new generation, because if you're 50, 60, 70, probably you won't care as much about cryptocurrency. And by the way, no offense to anyone, it's just the way that technology works. But if you're 18 today, probably you're already a cryptocurrency native, and for you, Bitcoin, NFTs, that's your everyday life, versus if you're of an elder generation. So we're trying to design products for everyone, really. So that was the no. And then now the yes: we're trying to design products for everybody because everybody should feel welcome into this game, even my mother or your grandmother or whatnot. And so this is why — you just said it — there is a big focus on UX and UI, but there is a big focus on product. Prior to starting the recording, we were discussing the difference between technology and product, and I think when you start an industry like Bitcoin and cryptocurrencies, first there is a focus on technology and everybody talks about technology, except that the mass and the consumers don't really think about technology. They think about product: what does it do for me? I don't really care about the underlying technology. Everybody loves their iPhone, nobody understands how the worldwide web exactly works, and nobody cares. What matters is whether you have an app to book your flight on your iPhone. That matters — not how that app is connected to the web and how data is being transferred back and forth. And so the same needs to happen with crypto. I hear too many companies or too many protocols talking about the tech, and it's okay because developers want to hear about the tech — that's how they think about developing around protocol and developing apps. So there is an audience to speak about technology. Now, if you want to become a B2C business, if you want to reach the consumer, then you need to talk about product. And so what we've tried to do with Stax and Flex at Ledger is to talk more about the product and what the product can do for you, rather than talking about what's the tech inside.

Yeah, so first, we built everything around a bigger screen and a different form factor, which was an ask that was coming from the customers themselves: give us a bigger screen because it's hard to see on the X and the S Plus. And also there is a need because, as we all know, crypto is evolving, so you have more and more bigger transactions, you have smart contracts, etc. From the receive and send Bitcoin of 2015 to, let's sign a transaction on a smart contract, sometimes you had multiple screens on the S Plus and the X to actually validate the transaction, where it's actually more human-friendly to have everything on one bigger screen, if you see what I mean. Sometimes it's just as simple as that. But when I say this, I'm already talking about product, because one of the big initiatives that we're taking alongside releasing these products is something called clear signing. Most of what people do in this industry right now is they blind sign most of what they do with smart contracts, and that's very dangerous. We know why: there are a lot of ways to actually hack a blind signing. You don't actually know what you're signing and you don't know where you're sending the money to. In a lot of cases it's okay, but in some cases money goes to the wrong address because some hackers have actually hacked your system, hacked your computer, hacked your phone, to transfer the money elsewhere. There was actually recently a warning sent by Binance to their users about a new Chrome extension that has malware inside and redirects funds to different addresses when you try to pull your funds out of the exchange. Those kinds of attacks happen every day, and they happen most of the time because of this blind signing bug — I don't think it's a feature. And so what Ledger is trying to do now is to bring to the industry clear signing, which is every time you sign a transaction, you have to clear sign, meaning you have to see what you sign on the secure screen. And the screen is bigger now, so all of our products have a secure screen — S Plus, X, Flex, Stax — but what Flex and Stax bring is that the screen is bigger, it's much easier to use, and so it's much easier to understand what you're signing in a clear manner. And so right now we're trying to onboard protocols with us, Ethereum first, and then a bunch of other protocols and dApps that want to join, because everybody understands that issue. And this only happens if you have the right device to do it. So this is one of the key features that comes with Stax and Flex.

I think we underestimate how early it is still for the industry, in terms of how many people are really in this industry, how many people are really using blockchain technology. The way that you connect to the internet — how many people connect really to blockchain technology to use an application that runs on a public blockchain? So what I'd really like to see is L1s, L2s, that protocol layer to be done and dry. I don't think we're completely there yet, but we're getting there. We're getting to the moment where suddenly you can develop a bunch of applications that run on top of a public blockchain that make the product — typically, Expedia is an application that runs on the internet. We're not yet at the Expedia moment necessarily for crypto. There is an embryo of the Expedia moment, a few things that are actually starting to work quite nicely. I think we're entering that movement, and especially on Bitcoin with the Layer 2s now being built on Bitcoin, where you have the best security, the biggest liquidity. It's going to be very interesting to see in the next two to five years the kind of applications that are going to be built on top of a public blockchain, where you will need your private keys to access those applications and eventually run all of this on a Ledger to make the security and usability of the whole thing work. Where suddenly users don't really think about crypto anymore, but they think about the product. Whether it's a super smooth DeFi experience where if you have dollars as a stablecoin, then you get five or X percent yield, and this is where you put your savings — the type of things where users won't come necessarily because it's crypto, but they will come because it's faster, it's cheaper, they make more money. Same with payments: the Bitcoin white paper was all about peer-to-peer payment network, which is not exactly the case yet. Tether yet has 200 million users, so you can see how all of this is progressing. Ideally, crypto should be a faster way and a cheaper way of paying, whether me to you, you to me, or even paying a business. So I think payments on public blockchain — we should see this happen at scale in the next five years.

Oh yeah, for sure. So we've sold over 7 million devices now. We passed that bar a few weeks or months ago.