The man who co-wrote HTTP/2 just IPO'd a crypto bank, with Mike Belshe, CEO of BitGo

Thank you. Good to be here.

Well, thank you. I should have you read off our statement more often. It's great.

Well, I guess I'm proud of where we've gotten. So, we started in 2013. I guess I first heard about Bitcoin probably 2011, 2012. Like many, you first hear about it and you're like, ah, that'll never work. It must be a scam. And then eventually you kind of dig in and look, I really encourage anybody to look into it. I was never really very interested in how our monetary systems work, how our markets work, any of that. It's been a fascinating set of times since then where you just have to dive into all of these aspects and there's a lot to it and there's a lot we can change and make better. Back in, you know, 2014, 2015, it was definitely more fringe, as you say. And at the time, we kind of wondered, you know, is history going to record us as geniuses or fools? And at the time, I think it was a 50/50, could be either way. These days, I think less fools. And I think people are seeing more of the value and the benefit. And I'm also actually really proud that the industry is making an impact. You know, you mentioned HTTP and I did that when I was lucky to be at Google. I was one of the first 10 guys on the Chrome team and kind of towards the end of that we were focused on how to make the web itself, the protocols we use, faster. The origin of Chrome was that there were standards for how to make browsers work better so you could run desktop apps on your browser like this one right now. We're in a browser doing full video conferencing and that wasn't possible back in I guess it was 2008ish when we were getting started, 2006, 2008, and we just wanted to make it so that you could do it. And you think about crypto, it's having an impact on traditional markets already. You know, we have the New York Stock Exchange saying they're going to go 24/7. Other markets starting to move towards those types of things. And then of course we've got the largest asset managers with Larry Fink as the head of BlackRock, Abigail Johnson, the head of Fidelity, they're fully in on this. They believe that pretty much all assets are going to go digital. So, it's exciting to see that these early primitive ideas that were fringe are now being considered by the top brains in the entire global economy. And you know, I didn't even mention the government yet because I don't think that much about the government, but obviously there's a lot of crypto on their minds, too.

Well, I never wanted to go build a custody service. I never wanted to be a banker. Yet here I find myself, I guess, as the head of like seven banks-ish. The goal at the beginning was how do we make this secure? So people were losing their Bitcoin, you know, sometimes it was simple things like you forget your password, sometimes it was losing a hard disk, sometimes it was getting hacked. So we pioneered this thing called two out of three multi-sig, which is still the gold standard of how you secure Bitcoin to this day. We've expanded not just multi-sig, but we do MPC and all kinds of other technologies as well now. But the goal was let's make it so people don't lose the money. And what fascinated me in those early days was really the concept of self-custody. If you look at our financial systems and pretty much any jurisdiction, you know, people are not super satisfied with the innovation and what they get out of their banks. And on one hand, that sounds like an indictment of the banking system. It's probably as much of an indictment of the regulatory overload that's been put on to these companies. But what I liked about self-custody is this concept that you and the bank can both participate in the same system on equal footing. And I think this is probably the most underrated and yet most important part of digital assets as we go forward. Fundamentally, I believe most individuals and businesses will opt in to use digital banks like BitGo in the future. And that's because securing money is hard. It's always been hard. You have the option today to store cash for all of your wealth if you wish. And you could build a vault, I guess, and put bars on your windows and hire a security guard. I'm guessing you don't do that. I'm guessing you have a bank account because it provides a whole bunch of safety. So, most people are going to gravitate that way. And if we are not careful, we could lose the self-custody access. To some degree, this will make regulators' jobs much easier. It's that peer-to-peer part which is the hardest part. I'm not saying it's a bad part. It's the hardest part. But by having that peer-to-peer component, that's what allows us to always keep the financial institutions, the middlemen, on their toes in a way that they have to be doing a good job. Otherwise, you can just pull your money out and you're on equal footing with them. So, anyway, I'm excited about what we can change there. There's transparency aspects to what we're doing. There's openness to what we're doing. We're in a global economy. Of course, we need a global financial system. All of these things are true. There's a lot of exciting, you know, problems. So yeah, it's an exciting time.

Well, actually it doesn't change as much as you might think. We are the oldest standing digital asset custodian of all. So, we were the first ones to build it all the way back 2018. You know, what happened was we started very much on this technological journey of how do you secure the assets and really expected that the traditional financial system would take that technology and deploy it underneath their own regulatory frameworks and licenses etc. We had this little company called CME Group, you might have heard of them, as a client and we didn't have any custody. They really didn't want to hold the keys at that time. They had an ambitious project that they were working on and there was just nobody that would hold the keys. Banks wouldn't touch it. There were no custodians that would touch it. They ended up holding the keys on their own. And the project went very well. That was where we really kind of said this is the last straw. We had heard this kind of over and over again and we said look if we want to be the master of our own domain, we want to be in control of our own future, we just have to take on this step. So that was when we went into full regulatory status. I remember having an all hands at the company when we got our first license. Our first license was a South Dakota state license. And told the company, look, this is a big change. We are no longer a technology company. We're a financial services firm. And we had to do that shift. It's an important mindset to shift. Look, we are now fiduciaries for other people's money. And what you do as a fiduciary when you're taking care of people's money is different than a technology firm, especially here in Silicon Valley where I think Facebook made the mantra of move fast and break things to be popular. On one hand there is a place where that's the appropriate answer, when it comes to people's money, not so much. So you know it changes the way we think about things. Anyway the OCC charter really it's the best license that we can get here in the US. It removes any question from anybody being able to work with us. It also politically there's still a little bit going on with, you know, some anti-crypto. So having it at the federal level instead of having it at the state level makes it so we don't have to fight 50 different states with different types of views. That's kind of an American thing. And other than that, it didn't really change that much. We've already been doing it. So, we've known that as a digital asset bank, I mean, you know, we have a target on our back from some people that are concerned about, you know, digital assets breaking their industry or whatever. And so, we've always run at the highest highest caliber. I think we run above the standards that are set by some of our competitors and peers that have been in the business of banking for much longer than we have. And then lastly it's not the only custodial license that we have. We have seven around the planet. We run them here in the US. We run them in Europe. We run them in Middle East. We run them in Singapore. So we have a playbook which aggregates all of the requirements from those regulators and puts it together into our platform. I mean there's a few jurisdictional differences of course but in general we've been doing this for a long time. It doesn't change anything, but it does give us the status that frankly the next wave of institutional investors need. So we're excited about that.

Sure. Well, to be clear, it's not like we had some excitement about let's go be a custodian. I think that's a fairly boring place to be. It's a means to an end, but not the end. It was never the end. Really, it's been an evolution of how do we build really good handling of financial services for crypto. That's always been the mission. And when you look at the industry, not everyone has spent as much time on the foundation as we have. And again, this is money. If you ever needed a strong foundation is when it comes to money. At the bottom layer, we have a very serious two out of three commitment to everything we do. That's basically a super high security level. That's the self-custody wallet platform. We run I don't know 80 layer 1, layer 2s. We run thousands of tokens, but we provide a very strong commitment to the security of that bottom layer. And then on top of that, we put this custodial layer. And from there we can build. Remember the foundation of the traditional financial world. The custodians there, they're a hundred years old each. State Street, BNY Mellon, JP Morgan, these are not companies that are only 10 years old. We've had to build in a 13-year period. And we're one of the oldest firms in the space, but we've taken the time to build that foundation. With that foundation in play, we're able to finally do, I think, the more interesting things. We pioneer market structure before the law even has to be set. And we're doing these things because it provides our clients better safety and better value. But now we get to kind of that next layer. We've also had a firsthand view of what happens when you don't have market structure. So you know by having built this foundation first, initially we built that people like what we do. Now we're dedicated to cold storage. It's internet money but you know the way you secure it is you take it off the internet. Now by the way we still have a duty of great service to our clients. People associate cold storage with being slow. It is a little bit slow. Guess what? For billions of dollars you kind of want that part. But we also still have to be fast. So, we've built ways that we can get money out within minutes out of the custodian and there's a whole bunch of security things that go around that. But once you build that, you're kind of an island if you don't have market structure and we don't have market structure for crypto. So what that means is like people choose BitGo, they did the security analysis, they did the SOC audits, they did the regulatory audits, they looked at us in every single way, they decide they like us, but if they stored money with us and then they wanted to do something as simple as say trade it and to take it out and put it on some rickety exchange somewhere and we've seen exchange after exchange, you know, fail because they didn't have that good foundation. Well, that's a terrible trade-off. Market structure is what solves this problem. You should be able to have both security and liquidity and you should be able to have choice of where you store it, who is your bank and who is your broker. And yet what's happened in crypto without market structure, you don't get any of those things. You have to pick one vendor. He's the same vendor for the buyer and the seller. He takes care of all the plumbing in between. As long as it works, I guess it works okay. But obviously there's been a number of cases where it failed. So anyway, we see that we've been building to solve that problem. I think more than anybody else in the industry.

Well, you can do custody and you can do financial services. You know, one thing if you go back to my, you know, 13 years ago self, I would have been surprised to see how many affiliated companies there are in BitGo. So we've got BitGo Holdings which is our primary company and within that we've got subsidiaries and like I said we've got seven different trust companies. So those are organized somewhat geographically but those are all independent companies that are part of BitGo. It's not true. So the reason it's not true is because of the regulators. The regulators care very much that each one of those entities is operating in its own domain with its own controls, is not just under the thumb of some US controller that's doing whatever they want with it. So when we're regulated by BaFin in Germany, they take it very seriously that we have management and controls in Germany that are not just operating at the whim of BitGo US. All right. So the same thing applies even in the US as we do financial services whether it be trading or whatnot that's through affiliated parties, our own subsidiaries and those controls are all separate and our regulators care tremendously about it. So what's in the bank is banking activity and that's the custody, 100% reserve, all that, that is not influenced at all by what's going on elsewhere. And then maybe a little bit to my own personal belief and style. Look, we're trying to operate these things in a way that is safer than any bank that has ever come before. And so it's a 100% reserve bank. You haven't had a lot of those in US history. I think some of that is historical based on not having had computers and not having had the option. But other parts of it is about risk. And I do think when you look at how financial markets have moved over the past probably mostly the last 30 but 50 years there's a lot of risks being taken and I personally believe some of those probably ought to be looked at and scrutinized, things like how rehypothecation works if you're familiar with that term. But those are things that we don't partake in inside of these regulated entities at all. And we think that that makes us safer.

Well, let me talk about what that is. So we call it crypto as a service. We've been doing it here in the United States for quite some time and it's similar to software as a service, you're probably familiar with that. Software as a service, you know, we provide web services, we provide some client software, sometimes some hardware for the cold storage, we sell that to our clients. And the difference between SaaS, software as a service, and CAS, crypto as a service, is that when it comes to money, if you just apply software as a service to it, the client still has to have licenses and regulatory frameworks and compliance and AML, okay, all that kind of stuff. What happens with CAS is we take on that duty. So it's software as a service plus our regulatory capability that includes, and it varies in jurisdictions, the ability to custody assets, what type of assets you can custody. It includes the ability to trade assets. It includes customer understanding of AML, KYC, transaction monitoring, all of these things. We wrap those together into what we call crypto as a service. So now clients that might be new to digital assets, they can come to BitGo, they can sign up for this service and they can get both of these. So typically we're institutional-based, that means business-to-business based. We work with other businesses more than we work with retail. We work with retail only a tiny bit. But our clients, they have large retail bases. And so we're B2B to C. So they go and they sign up their clients. Their clients through API get a full regulated, down at the bottom, that foundational layer, that fiduciary protected, bankruptcy remote, segregated custodial account which is the maximum security and regulatory safety that you can get. It's all cold storage by the way. And then on top of that we can now do staking and we can do trading and we can do borrow and lend and things outside of the bank but through affiliate parties and then all of that can be enabled as well. So in Europe, it took a little longer to get some of the regulatory capability to offer this service, but it's the same service that we've been offering in the US. And allows businesses to grow and then leverage the regulatory capability that BitGo's built over the last 10 years.

Look, I think we all need to have a little bit of empathy for the regulators with digital assets. It's definitely very different than what happened in traditional types of assets. And so they're having to think about things they haven't had to think about before. Stable coins is a new innovation. Global access is a new issue. Peer-to-peer side by side like we were talking about earlier. These are all new concerns that the regulators haven't really had to confront before. So, it's no surprise that across the globe you see regulators picking different approaches. They're not quite sure what to do with these things. Do I need to have these assets actually stored on my soil? Is it okay to have them virtual? Some of these are issues that have been dealt with, you know, previously in other cases. Other times this is all new. So, we have to roll with the punches is the long and short of it. You know, in the US, the regulatory changed quite a bit. It was just 18 months ago that the OCC was closed for business. The SEC was closed for business. The FDIC was closed for business. And now all of a sudden they're here and they're working. So, what's exciting about the US changes, both Genius and then hopefully Clarity soon, is that it's a legislative path forward. And by the way, we just did this IPO road show and you know, as part of that, we talked to hundreds, interviewed literally hundreds of potential investors. All of those guys are traditional investors. You know, they invest in all kinds of companies from crypto to everything else. And their familiarity with digital assets is very little, but they overwhelmingly said to me, you must be really excited about Clarity. It's going to really increase your business. It kind of surprised me how much they said that, but it gives you a clue into their thought process. Their thought process is that hey as soon as the US government says that this has got a legislated path then all of a sudden your business grows. Look we've been growing our business without having that clarity so it will help. And then lastly to relate it to Europe again, licenses are different there. You've got the EMI license, electronic money, in Europe which is for stable coin stuff, it's different than what's in the US, it's got different rules. I think there's going to be some interesting things that happen globally where different regulators claim particular regulations which will be inconsistent with others. I fully expect there's going to be some point in time where like maybe just an example, it could be Europe and the US and Japan. You add up the three regulations and it's impossible to comply with all three at the same time. I'm sure this will happen at some point and it'll be a little bit comedic. It'll be a little bit painful. We'll roll with it. Look, we work with a lot of regulators. We're regulated in Singapore. We're regulated in Dubai. We're regulated in Germany, we're regulated in the US, Korea, we will figure it out and hopefully we get to a good result for the industry.