Individuals and institutions have different solutions when it comes to protecting cryptocurrency wallet keys, said Diogo Monica, president of Anchorage.
What are cyber security concerns around cryptocurrencies? Is Bitcoin a safe asset to invest in? What happens if you lose your wallet? Diogo, Monica, founder and president of Anchorage is here to address all this and more. Do yoga your first time on Kitco. I'm very excited to speak with you. Welcome to the show.
Thank you for having me. Okay. First of all, let's talk about Anchorage and what your company is about. Can you give us an introduction? And courage is the premier digital asset platform. We allow institutions to build products in crypto. So we provide both the services and the infrastructure that companies need to lend, borrow trade custody, and in general participate in blockchain activities.
Okay. And what was the impetus behind, uh, Founding and co-founding Anchorage. I said, ah, you told me offline, you founded the company three years ago. So what was the inspiration behind that move? Yeah, it's a fun story. And it comes from what you started with, which is turns out that private keys and specifically Bitcoin is very hard to protect.
And so, and courage was started because there were people in the industry that were reaching out to myself and my co-founder for help. Why did they need help? They needed help because they had lost the passphrase to, in that particular case, a $1.5 million Bitcoin wallet and were offering me 20%. If I could break into it.
And so this asset class is very different than any other asset class. Okay. When you say break into it, what does that mean? Like you don't like hack his account. Like, what does that, what did you, what did that mean? Well, it means that they have lost the passphrase to the wallet itself and they were looking for help to break into the wallet.
And these are institutional investors. They have LPs money. It's not their own money. And so you, you, you can imagine the next question is okay, but what are you doing with the rest of the $90 million that you fundraised from your LPs? And obviously the answers were terrible. And so Bitcoin is a bearer instrument.
Think about it as, you know, a gold bar. If you lose your gold bar, there's no recovery. There's no one for you to ask it back. You lost it. You lost it. Bitcoin, in a way, in a very simplistic way can be thought of as a very long password that you have to have and safety. And as we, you and I know people are terrible at remembering their password.
And so a lot of people have actually lost access to their Bitcoin, especially people that have Bitcoin from the early days when it wasn't very valuable and then ended up finding out that Bitcoin was now worth a thousand times more. And they did not remember how to access this anymore. So your company is kind of like a crypto locksmith.
If I get locked out of my home, I call a locksmith. Hey, open the door for me. Hey, I got locked out of my wallet. Yoga. Can you help me out? Is that, is that a good way to say it? In fact, no. In fact, we do the opposite. We prevent institutions from losing the keys in the first place. I understand you should never be in a situation where you lost your key and you're locked out of your house.
And you can't, you can't, if you are a large institution, like the clients of Anchorage are, we have, um, we have big crypto funds. We have big VC firms, like Hendra, recent, our weights. We have clients like visa just yesterday. We announced a partnership with visa that allows any Neo bank or bank to integrate with crypto APIs and be able to offer crypto to their, to their consumers.
So that's what we do. We provide safe, regulated platform for institutions to build their products on. Okay. All right. Let's let's, let's talk about that in regulation just a bit, but going back to the keys now, I'd like to address this issue. I think it's, uh, it's more common than you might think. I have a friend at work.
I'm not going to name him, but he knows who he is. He's probably watching now. And, uh, what he did with his crypto key is he wrote it on a piece of paper. He printed it out and he had it in several. He put that in several different bank faults and uh, he said, look, if I lose one, I have, I can go to another bank vault of her treatment.
Is that something you would suggest doing? How can people protect their keys? I think it is a combination of factors. One of them is I have a hardware wallet. There are hardware wallets that consumers can use to actually store their Bitcoin and do exactly that store a safety backup seed in paper, or better yet get in metal in a safe deposit box, either at a bank or at home.
But as you can see, this is a individual solution. Institutions cannot rely on such solutions like having a paper written down manually and stored in the bank. Especially, because if anyone is able to read that paper, they're able to steal your cryptocurrencies. And so the mechanisms that you need to store $10,000, a Bitcoin are fundamentally different than what you need to store hundreds of millions or billions of dollars in Bitcoin.
And that's why our technology is so special because we have done something that has a very high safety guarantees, but still is accessible for institutions to use on a day-to-day basis. Okay. So what happens if you don't remember your password, if you can't access it, like you hear stories all the time.
Stephen Thomas made headlines. He was an early adopter and he has an estimated $300 million worth of Bitcoin. He has two attempts left before he gets locked out. What's his next step? I think the good news use for Stefan is the fact that he has hundreds of millions, of dollars of Bitcoin. And therefore people are willing to spend quite a bit of time trying to break into it.
And so we offer a 10% say 15%, maybe even 5% to security experts. I'm sure that somebody will be able to come up with a way of recovering the private key, either through side channel attacks or some bug in the hardware, um, and find the key for him. I think the problem are people that have a lot less than that.
And therefore it is not worth it for somebody to spend endless hours trying to break into, into the wallet itself. But, but he should have protected that differently from the beginning. Right. Absolutely. I think he should have had backup for the pin that he had for the hardware wallet. And this is a very common mistake that people do not using password managers.
And again, remember that this is the same type of issue that you have on your online social media accounts for consumers, except that on online social media accounts, you can usually recover your passphrase by using your email. And institutions can't obviously have that level of safety and, uh, individuals, if they don't have that backup, usually they're lost.
I think this is another concern that Bitcoin investors were skeptics of investing in Bitcoin have is that somebody could just hack my computer, my phone or whatnot, and access my password and then, and then steal my Bitcoin. How, how likely is that to happen? And is that a legitimate concern? It is a legitimate concern and it is exactly because of that, that are.
Specialized companies like Anchorage that allow you to save, keep your assets and buy and sell through the safety of the custodian and through the safety of the platform, because this is a real issue. And Bitcoin, if somebody gets a hold of your key or your passphrase, then all of the funds are gone. And so institutions cannot afford to lose.
Millions or hundreds of millions of dollars of assets, of their investors or of their own capital on the balance sheet. And so what they have to do is they have to use professional companies and platforms such as anchors. I wonder why financial institutions or not, to my knowledge, at least are accepting Bitcoin.
Like Anchorage is, you know, I can go and I can go to my bank deposit cash. And it's their, it's their responsibility as custodians to safeguard that cash in my account. Right. Why can't I go to them with a bunch of Bitcoin and say, Hey, here's my Bitcoin. Can you say, can you safeguard it for me? They have financial institutions taking that step yet.
Yes, there are actually, as of two weeks ago, Pritchard became the first federally chartered national bank. And so it is the first time that you have a company that both has the crypto technology and the regulatory clarity to allow anyone to do that. So institution can today come to Anchorage and come to a bank, a federally chartered bank regulated by the OCC and deposit their crypto assets with us.
So now we have that and we didn't really have that until two weeks ago. Okay, let's talk about regulation now, since you brought it up, what are some of the major regulatory changes in the crypto environment over the last, let's say few weeks to months that you think will really have a dramatic impact on the industry.
I think the biggest ones really have been over the past few months, the guidance letters from the OCC, the OCC has made it very clear that national banks can custody digital assets. They can bank cryptocurrency, currencies, or companies that are in crypto. And they allow national banks to participate in de-centralized protocols.
So these are the three main points that were needed for national banks to know that they had the green light to operate in this space. And so that's part of the reason why it was. So exciting when Anchorage announced that we were the first national bank, because the OCC had been providing this guidance around national banks, being able to do these services.
And now having the first crypto company, having that national charter allows clarity for investors that they didn't have before. Now they know that there's a platform that meets a qualified custody that meets the highest threshold, which is a national bank. Are you seeing more adoption of blockchain technology and financial Institute institutions?
For example, stable coins. I've been talking to a guest about stable coins and how that's used as a payment method now. Um, are you seeing a lot more than that, of that? Absolutely. I think the difference from 2017 is dramatic. And 2017 people and specifically institutions were looking to do something in crypto and came to Anchorage to ask us what they should do in 2020 companies were coming to us with very specific products and services that they wanted to offer that they wanted to build.
And so we have seen. A dramatic resurgence of interest. And in fact, all of these neobanks and challenger banks are coming to Anchorage because in 2020, it became obvious through square and PayPal that providing crypto to your consumers is no longer alongside equities. It is no longer. And if it's a win, it is a requirement.
Millennials have this affinity for cryptocurrencies. They want it from their banks. And so all of the new banks and all the challenger, banks and banks are talking to Anchorage, so we can actually help them provide these services for them. Uh, stepping back to it even broader level. Now go, we're talking about financial institutions.
What about financial? Institutions on a national level like central banks. Do you see blockchain and perhaps specific coins like Bitcoin being anchored? No pun intended there as sort of a reserve currency of national banks and central banks around the world. Yes. I think that is inevitable. What we're seeing no is the beginning of the path to doing that.
And there's a couple of things that are pretty interesting to note. Number one is, uh, the DM cryptocurrency, the rebranding of Libra. There are some very heavy hitters involved in that project and courage included. We were one of the original founding partners of Libra back then DM now. And that is a project that is coming in 2021 and is a project that is very ambitious, whose goal is to bank the unbanked and underbanked.
So that is the first step in having a stable asset that is massively distributed. There's also decentralized currencies, like USB-C that are on these centralized platforms. And so these are stable currencies that have allowed people to just have a wallet with us dollar equivalent. And so I think the next steps are going to be, to have the same type of assets, but issued by central banks.
And we've seen that China has started pilots and actually seem to have. Um, a digital version of their currency already up and running and production, all lift each other. All of the other countries are going to follow suit. There are so several established financial and government officials who oppose that idea.
Janet Yellen, for example, who was previous fed chair and now us treasury. Secretary. She is very vocal about her concerns about Bitcoin as being a reserve currency. In fact, she has stated that because of cybersecurity risks, because of its volatility, it's inherently unstable as a source of wealth storage of value, and therefore should be rejected as a reserve currency in any form.
If you were speaking with her right now, what would you say? How would you respond to that? I think we're actually not at odds. I think it's two different matters. Whether you want to have Bitcoin as a reverse a reserve currency, or if you want to have a CBDC. You know, um, uh, digital asset that is backed by a central bank.
Those are two completely distinct and both of them can simultaneously be true. You might believe that Bitcoin is not the right reserve asset and at the same time have a digital asset. So those two issues are distinct. And in terms of Bitcoin, What I've seen from her is statements around how exciting blockchain is and how exciting these new assets are in requests.
That there is focus on making sure that there's legitimate uses for this and that there are regulated entities that are participating in this space. And so that's actually what encourages doing. I mean, again, two weeks ago, we became the first crypto national bank. These are the stepping stones that we actually need to legitimize this space to legitimize Bitcoin.
And the other side is we're seeing progressively public traded companies in the United States, including micro strategy and square announcing that they're putting a percentage of their treasuries, their balance sheet into Bitcoin with the explicit goal of doing capital preservation. And it's not going to end with both of those entities.
We're seeing so many public traded companies come to Anchorage to help them do the same. And so it is a groundswell of movement that I don't think, I don't think it's going to stop anytime soon. What was the impetus, do you think behind the central bank digital currency movement? It's not just one bank.
It's several ECB. Chinese central bank. They've all indicated interests were having at least experimented already. Uh, I'm just trying to understand what the motivation is to start a CBDC on a, on a national and international level. And also, how is that different from let's say just the cash. I think the primary difference is that it's a lot easier.
Yeah. Innovate around a set of API or a set of de-centralized API APIs. And so if you are an entrepreneur, a founder of a company and you want to create a new product, if you have available code and API APIs that allow you to integrate directly with a financial system, Bitcoin being the perfect example of that, it is completely permissionless.
Nobody needs authorization to build a product on Bitcoin or a service on Bitcoin. That is the advantage here. It is the true innovation that is enabled when you lower the barriers of entry. And so imagine that the central banks want, and after COVID, and, and, and after the, you know, the sending of checks to American citizens, that the community, to the obvious, that would be really good for central banks to have a direct relationship with each American consumer.
That would be something that would be. Aided by this technology and will be aided by just simply having a wallet on each person's phone installed that would be capable of receiving digital asset. So those are the things that could be built and the federal reserve in the U S indicating a CBDC for the U S.
I think we're in the early stages. I don't think we're also seeing, you know, a complete aversion to the idea. I think we're seeing them seeing what's actually happening in this space, what the private companies are doing, allowing the space to catch up, allowing banks, to come into the space and offer services, allowing more track record of the companies that are in the space, allowing to see which technology is going to win out.
If you look out there right now in the industry, there's dozens, if not hundreds of blockchains, that all of them are legitimate and all of them have different purposes. And so I think there's a little bit of a wait and see strategy here, but we've also already seen quite a bit of interest. And I think in private they're most definitely having conversations around this topic.
Okay. Any, any thoughts about the Bitcoin price or the movement we've seen in the last few weeks? The run up to 40,000 and now it's kind of hit a resistance level around the 40,000 Mark. W w was that move surprising for you? First of all, I think that is the best thing for Bitcoin price is not if it's going up or down, it's for it to be right.
It is for institutions to have the liquidity and the price discovery capability to ensure that we have a safe market for our students who participate. So over the long run, I think it's going to go up. I think it is a digital store of value. I think people are recognizing the narrative of digital gold that is becoming the de facto standard for what Bitcoin means to a lot of people.
And so I think over the long run, it will definitely increase, but the volatility for some people is a good thing for some people is a bad thing. And it's definitely there. Let's talk about Bitcoin as digital gold and we'll wrap it up there. You know, it's interesting. I've been reading the comments in some of our gold videos and people are like gold.
What does that, is that a. That isn't a physical form of Bitcoin. I think people are, people are humorous that way, but can you, can you elaborate on the similarities here? Why, why are people saying that you think, I think the primary view on this is that gold is a scarce asset. Right. History has shown that has been limited and supply, even though there's obviously a little bit of inflation and gold that is found, there's a limited amount of gold in the world, and there might be more gold than asteroid.
So a lot of people also talk about that, but in the world right now on our there's a limited amount of gold that is waiting to be mined. I think the scarcity of Bitcoin is equivalent, except that it's actually better because we know they will never be issued more than 21 million Bitcoin total. And so if you believe in a deflationary asset that only increases in value because of its inherited scarcity.
And if you believe in this narrative, that that asset has properties of storage of value, and you recognize that Bitcoin is a digital asset and therefore you can move a hundred million dollars. And you don't actually have to carry a hundred million dollars worth of bars of gold. Then all of a sudden you start recognizing that if it does have the deflationary aspect and it's actually better for transfer, it's better.
Um, for lots of other lots of other purposes, then all of a sudden you realize that, Oh wow. It might actually be. A better goal. And so that's part of the reason why people are excited because it has better properties than what gold does. It has one of the inherited properties of gold, which is the deflationary, the deflationary asset.
And finally, how would you respond to the argument that? Well, gold has some industrial properties as well, whereas Bitcoin has no utility besides just speculation. How would you respond to that? I would say that the majority of the value of gold is speculation. We know that the industrial value is actually probably less than a fifth of what the gold value is and what gold is, is effectively an asset class that people run to when they're afraid of inflation.
And so it is an inflationary hedge. And Bitcoin is also an inflationary hedge people look at gold as an uncorrelated asset to their normal assets. And Bitcoin is proven to be a D correlated asset or uncorrelated asset to the normal assets. So all those characteristics that people look for in gold primarily are also present in between.
Okay, well, uh, I look forward to speaking with you about, uh CBDC and perhaps maybe one day we'll have a more in-depth discussion about physical Bitcoin or, I mean, gold and, uh, you know, uh, look forward to catching up. Thank you very much to Yoko. Thank you for having me and thank you for watching kiszko news.
I'm David Lynn. .