All right, Pascal. Great to have you at Digital Asset Summit.
Thank you. Yeah, great to be here. Hello everybody.
Hello everyone. How are we all feeling in the audience? Yeah. Woo. All right. We are going to be talking about institutional custody today. And I thought Pascal, you've been such a stalwart of the industry for so long. You've been here for so long. You've seen, you know, you were kind of there in the very early days of crypto and now you're at the forefront of helping secure billions of dollars worth of crypto today. So, one thing that I'm very curious to get your take on is, you know, I think one of the early tenets of crypto was, you know, not your keys, not your coins, right? And this idea of self-custody has been at the heart of this industry for a very long time and is still at the heart of Ledger's business today. But as we have more institutional money coming into the space, you know, there are very different compliance and regulatory needs and different preferences. So, help take us through the history of, you know, custody and how is this idea going to change as the industry becomes more institutional?
Okay. Well, that's a great question and I hope you have a sort of 45 minutes. Look, so first of all, you know, this industry exists because of the failure of Lehman Brothers in 2008 and, you know, Bitcoin was a reaction to that in a sense that nobody's too big to fail and you shouldn't put all your eggs in the same basket. And so to trust a third party is something that you don't have to do when you're in Bitcoin or crypto. You can actually hold the asset yourself and it's been designed to do so. It's a peer-to-peer electronic payment system, right? When they started in 2008. So it's not too long ago by the way, like, you know, we're still in the infancy of this but the use case of payment with Bitcoin is only sort of starting to bloom now and, you know, through probably, you know, so it's not directly linked but, you know, stablecoin has been like a great payment method and whereas with a layer 2 that is being built on Bitcoin and Lightning, etc., we can see, you know, payment with Bitcoin coming but as we all know the use case that really was there for a while was the new gold, you know, the digital gold. And so using Bitcoin as a store of value and so therefore when you use Bitcoin as a store of value, what do you do with your private keys? And up until now, there's not much that you can do with a Bitcoin private keys apart from sending, receiving, right? Yeah. And so the primary use case for Ledger at the beginning was I buy a Bitcoin, I put it on my Ledger, I put the Ledger on the drawer, and I forget about it. Which is not great because we need to upgrade the operating system from time to time and we need to upgrade it for security reasons etc. So to forget your Ledger is not a good idea and remember that, you know, it's a piece of consumer electronic. So if you put a piece of consumer electronic in the drawer and you excavate it like 40 years after, it's never a great idea because, you know, the world has moved on and your consumer electronic might not be working after 40 years of not using it. But since the main use case was buy and hold, then people were like, well, you know, if I have to buy and hold it, you know, maybe I just need to put it at the bank. And it's funny because, you know, for the first part of the existence of Ledger, we had to explain why not Coinbase. You know, we were introducing Ledger and to say, you know, self-custody and digital private property. And people were saying, yeah, but what about Coinbase? Like, you know, Coinbase, Coinbase do it and Coinbase is great. And they are great but then you have to trust a financial institution with your coins which sort of defeats the purpose of, you know, not your keys not your crypto but again since the only use case was buy and hold why bother having your private keys and I think this is how, you know, custody started. Coinbase acquired the business of Xapo. Xapo was actually the original custodian and Coinbase is in the custody business and is probably the biggest custodian today on the planet. And I think, you know, to the extent that now it becomes a problem. It's like, you know, the reflex is like if I have coins and I'm an institution I'm going to put it with Coinbase. Okay. So again nobody's too big to fail. We have reminders every now and then that nobody's too big to fail. We have Silicon Valley Bank, we have Bybit, we have FTX. We have Celsius. I mean you name it. And whether you fail because your business goes bankrupt or whether you fail because hackers are getting, you know, really good at what they do, it's not very good to put your eggs in the same basket. So right now we are in this world of you can keep the coins yourself and sometimes people hide themselves behind regulation to say that they can't but you actually can and there are many use cases, treasury management for example, you can't keep coins yourself and or you can leave them at the bank and I think the future is both, right? And the way that we see the world is it shouldn't make a difference in terms of security whether you want to keep them yourself or whether you want to leave them at the bank, you know. If you leave them at the bank, they should run on a security layer that is similar to Ledger. Actually, we have Ledger Enterprise for that reason to make sure that if you compromise on self-custody and you want to trust somebody with your coins, at least you should trust somebody that has a security layer that is the same as the one that you have if you keep the coins yourself. So, that's the landscape I think.
And what do you think? You know, we opened this conference with a speech or a talk with David Mercer actually from LMAX where he was describing, you know, there's a very different market structure in finance as in crypto today where, you know, in somewhere like a Coinbase or a Binance or something like that, it's almost the combination of a brokerage model and an exchange and custody, right? And there's potentially value for actually segregating out those different businesses within different companies for safety. And so, you know, when you look out into the future, you know, do you see a more tightly integrated world where these services are all bundled together in one business or do you see a world with separate custody, exchanges, brokerages, etc.?
To be honest for me the future is not this at all in a sense that why do we need to centralize everything? You know it defeats the purpose of why we building all of this in the first place. Like, you know, what's great about crypto is Bitcoin is not... You know, no offense, by the way, like Coinbase is a great business, but I'm trying to make the point of decentralization versus centralization. What's great is Bitcoin, the fact that, you know, it's censorship resistant, the fact that it's available 24/7 everywhere, the fact that you can program on top of it, you know, the fact that there is a layer 2 that is developed on top of it right now, that's a pretty significant move, I think, in the industry. So, I'm excited by that. Like, you know, I feel that why do we need to build the world, the new world the way it was before, like, you know, with segregation of duties, you have custodians on one side, you have exchange on the other, prime broker etc., apply or even beg for the same regulation, please give us regulation and please make it as hard as before, you know, I think it's a bit ludicrous. So I believe more in decentralization, I believe more in DeFi, I believe more that, you know, custody will be probably a mix between self-custody and custody the way that we see it today. Like for example, who has custody of the coins? If you shard a key and, you know, if we have like three shards, you have a shard, I have a shard, someone else has a shard and the three of us need to sign and with three different business entities and we need to sign all the three to move the coins. So who's got custody? And I think it's a safer world like this, you know, because if you give custody to someone again, nobody is too big to fail. So when it comes to institutional custody, I'm more in favor, not in favor, but I see more the future as something that is more decentralized and banking on sort of transparency rather than centralized because, you know, regulation comes when you have a black box, right? So you don't know what's in there. So but you understand the input and the output and regulation is here to make sure that the output is clean and the input is clean, right? Because they don't see what's in there. And so whatever you do in there, just make sure that input and output are what they're supposed to be. All these go through the window if you're open source and online and people can read the code, right? So I think that's the future.
