#241 Eric Larchevêque: Ledger – How to Build an Industry-Leading Cryptocurrency Security Company

Transcript

[Music] this episode of epicenter is brought to you by shape-shift Oh the easiest fastest and most secure way to swap your digital assets don't run the risk of leaving your funds on centralized exchange visit shape-shift IO to get started hi welcome to epicenter to show which talks about the technologies projects in startups decentralization and the global blockchain revolution my name is Sebastian Cujo and my name is Ryan Faran crane we're here today with

Eric Levesque he's the CEO and co-founder of ledger of course ledger many of your listeners will be aware of because they've been a longtime sponsor of the podcast and actually Eric we I'd totally forgotten about it but he was on the podcast before which was in 2014 episode 40 so that's like 200 episodes away when ledger was just getting started four years ago and and of course epicenter also just getting started I guess it was about the same time so yeah thanks so much for joining us today Eric hello thank you thank you for having me I'm very glad to be back four years ago it's true that it's a lot of time that

has passed and amazing things have happened since then at this time yeah I mean ledger has grown tremendously as a company at the back end it was a little startup and today I mean you were mentioning right you already moved to new offices over how many people there are now and already need to move to the next place cuz it's not big enough so you've had the cause a big impact on the industry but maybe looking back so tell us how do you originally become involved in the Bitcoin space well I have been an entrepreneur most of my life I made my first company in 96 I did so if you start up and in 2013 five years ago I

saw the price comparison engine and I was looking for my next name my next adventure and I stumbled onto Bitcoin the beginning I really did not understand anything about it but I was curious and so I spent time to read it about the white paper the blockchain technology the mining and I got with me I got straightened by by likely for me it was clear that it was the force visual revolution that it would change everything and I had to do something in the space but I didn't know what to do it's like doing a Internet start-up or mobile app you know it's very wide and I didn't knew I didn't know the ecosystem

very very well at the time so with my co-founder come up to my house we decided we decided to start by something very horizontal and we opened the physical center in Paris lemis only bit go in the house of Bitcoin with the idea of just being there doing stuff having meetup Agathon and we still hope that something will happen because there wasn't any business modellist was just taking position on the subject and transmitting people and letting the flow go that's that's how it sorry the original and what happened is that since we were doing these hackathons meetups we met a

few startups and there was two startups that we that we met that was quite interesting the first one was baited ship from Nicole Ibaka with now our CTO II he and his team were coming from the smart card industry the security industry and they were doing this first version of the hardware wallet which was called hw1 which was at the time extremely technical very very difficult to to use no documentation no user interface but very interesting because it was really starting to solve the problem the issue of endpoint security and there was another startup from Joanne Nevada with now our co-founder and it was selling Bitcoin through

postal services through ups to solve the care YC and make sure that they couldn't be any fraud with credit card when you were paying and he needed a media I needed something to send the private keys and he did not want to use a USB stick because it wasn't secure and so they started to work together and they did the first implementation of hardware wallet that you could use and it was really really the beginning and I saw them working together we did Agathon and then we saw that we not only we were all working well together but we share the same ID the same vision that blockchain technology cryptocurrency couldn't scale

without endpoint security and so we decided to merge the three startups the three teams and this is how ledger was born end of 2014 yeah I mean I remember those early days in Paris I mean I was in living in Paris at the time but I mean I I this is exactly the same time that I was getting involved with blockchain and there's starting epicenter with Brian and I remember those really days of coming coming at some nasal to be going and it was sort of like the the hub in France of like where everybody would just sort of come together you know there were meetups there you're there were a couple of companies sort of starting there and in in in sort of my also getting into this space it was it was very

pivotal and in that time so it was still it's terrible it's still there today although ledger has moved up from there obviously so what what role does lemons want to Bitcoin play now in in sort of a broader larger strategy so when we created ledger we created a new business model and line of products which was not really related to a bit conspire or become broker and what happened is that we Amazon you Bitcoin is now a spin-off of ledger so it's not the same company it's a different company with some of the shareholders that are shared with

ledger but they are really distinct and sole Amazon the Bitcoin which has been rebranded Cohen house because it's more international is now living its as its own lives there is a team ICU and the strategy is completely decorrelated from from ledger so really we we branched out because it was too complex but to a completely different business model in one and and so now ledger is living its life and the kind house meets its life on its own but there's still a there's still a physical exchange counter there there are events and like regular

meetups and regular educational events they are happening yes Amazon to Bitcoin can house its continued to fulfilling its mission of Education of kidding and easy access to cryptocurrencies so now they are 27 working there and also working on the website on Cohen house and they are still doing ever and still doing as meetups and also doing a lot of education on Bitcoin and cryptocurrencies in general so there are really continuing their mission in the same ways that said well it said that what we started almost four years ago one of two being some curious about so you started ledger back then right which was a hardware wallet and I

can't remember maybe that this lot of people have this conception that you know hardware is hard to scale and you know it's it's hard to make a profitable business out of it and you're doing kind of software based businesses you have much more potential did you also have concerns like that when you started ledger or how did you think about the choice of you know doing a ledger and his Hardware wallets versus I don't know maybe other ideas that you considered back then well we really understood quickly that called the identity system or the security of Bitcoin and cryptocurrencies was based on the

security of private keys that basically it was a bearer bond and you had to secure it and the only way to secure it is through a few hardware and so it was clear first that it was needed to have this Hardware wallet that there wasn't any good alternative and that's also true because we had this vision because from a long time in friends we have this chip and pin credit cards we use the smart card technology for decades so it's a little bit in our culture to understand the importance of CTO hardware but from the point of view of early customers or even investors at the time no one really thought that you to

work because you were we are speaking about the cloud about so-called virtual currencies and so everyone was saying why do you need a hard way why do you need a piece of hardware when everything now is completely the materialist everything is in the cloud so we had a hard time at the beginning to to convince consumers and and investors because it's hardware so hardware is also not very popular it's hard to scale and it it wasn't at all fashionable so I would say that for the first years of nature it was quite difficult we didn't encounter the success

immediately we spent two to three years to do a lot of education regarding the importance of hardware and in during that time period I mean I so I I sort of you know based in Paris and and and you know you personally you know sort of followed the the the evolution of ledger and solid ledger go through different phases can you talk about some of the I mean obviously now you're on a good track now to become success in this space can you talk about some of the things that you learned along the way perhaps some failures that you can point to where you thought you know okay we're going in this direction but in the end turned out to be not the good strategy or the good direction to take well the key learnings are about resilience it's

about not dropping the ball not dropping the project even though everyone is telling me that it's not going to work that everyone is not telling you that hardware is not good that's Bitcoin is dead we had a very hard time in 2016 it was you know the time where we had this blockchain good Bitcoin bad and to survive we had to do like everyone know we had to pitch blockchain we had to pitch about all insurances company banks are going to to change the way they work using the blockchain technology so it was a lot of of and but it was

the only way for us to survive and it was a hard hard year because we we had to stop speaking about hardware we had to stop speaking about security we have to speak about blockchain and we all knew that it didn't make a lot of sense but that was the only way to capture the imagination of investors and potential customers we were still selling of course our hardware wallets but the revenues were quite well not really material and so we had to we did a first seed round in early 2015 but soon we had again to raise some money

the service a and this is at this time that we had to pitch our investors and we had to pitch the blockchain story and what happened is we found some investors who were quite interested about the blockchain technology and not so much about cryptocurrencies and at the time it looked like it was the only way forward so we had to adapt a little bit our strategy to close the round and what happened is that a few months after we closed our series around it was in early 2017 the world of cryptocurrency started to scale it was everything about IC or Bitcoin was growing and so our lead

investor was a big insurance big French insurance legacy got quite scared scared because they saw that they invested into a blockchain company and the business of crypto and hardware wallets and ICO and everything started to scale so they very got scared and exited the company very quickly so it's just a story about it's about the importance of resilience and when we did our series be one year after the deck was exactly the same than the seed and it was striking because our series a deck was a little bit you know

a blockchain and because we did not have any other choice we had to mask real IDs but the series B and the seed was identical so it's it's good to see that at the end we didn't pivot at all we adapt it of course our products and technology but the vision was exactly on spot on from the beginning and at some time we almost went out of it because we didn't we felt that we didn't have any choice but luckily we were able to come back on that and now scanning really focusing on end point hardware security are this fascinating super interesting I mean I remember that time well right then I think

you know I was also working sort of an enterprise blockchain thing and save us here also is all right I think we all had we all had some time in that but what's striking just to point out what's striking is that going back I mean I don't know how you feel about it but going back I think that in my mind for a while I actually did think that this was the way that things were gonna go right there like enterprise adoption was gonna be like how watching would come to mass adoption when but yeah we have to like keep keep our focus on the true vision yeah no no absolutely it was the same with me I mean I did I just felt like the first there would be this enterprise adoption and and that was more where you could get to like revenues and business

models and then later that it would more like branch out and to into consumer use cases but if you Eric it seems like you you always felt actually with cryptocurrencies and and the more of a consumer focused thing was where it was most interesting so you knew you never fool you never ever like sold on the kind of blockchain story so right well we we always we are true believers at ledger of the decentralization of cryptocurrencies of Bitcoin and what we can call the vision of Satoshi Nakamoto

even if it's hard to see exactly what was his endgame and it's true that enterprise blockchain was not really something that we really liked because it didn't feel like it makes made a lot of sense however we always thought that enterprises or banks or financial institutions were was part of the equation and today we having products that are catering for enterprises but in a different way it's more about helping these enterprises these financial institutions to go into cryptocurrencies and it's less about enterprise blockchain

but ultimately we think that they are going to be some use cases and valid use cases where to see this consortium blockchain or things we start going to have real help on some business model but it may take a while to go - it may take a while to go to market yeah I agree there's a lot of pieces that need to come into play that before that starts to happen and I think it's quite likely that when that does happen there'll be a lot of components of that infrastructure that will be more on the decentralized side that will be facilitating or helping or somehow taking part in building other ecosystems that are more permissioned or a consortium based so let's come back to this this period of 2017 end of 2017

early 2018 the price of cryptocurrencies reaches new all-time highs you know Bitcoin reaches almost $20,000 and all of a sudden you're faced with this influx of new customers can you talk about that period and what was it like within Ledger to go from selling maybe a couple of hundred or a couple thousand units a month to you know that order of magnitude on a daily level on a daily basis yeah it has been a crazy and amazing year that was that surprised us a lot because of course we are we are always a believer of crypto and our

technology and everything but I would never have thought that it would have gone that fast and in 2017 we were forecasting to sell about maybe 60,000 nano s you know 60,000 units of our hardware wallets and ultimately we sold about 1 million units so it's it's an order of magnitude difference and it has been mayhem I mean we had to scale the company in mounts in weeks we had to hire a lot of people we had to change the way we were working and also it's not just about software it's not about you know piling servers and ranking new servers it's also about industrial

production it's about shipping it's about people putting stuff into boxes and then shipping them and it's about supply chain is about being able to source all the chips and everything so it was very hard to scale and that's why we had a lot of weeks and months where we were completely out of stock where basically the Nano s this device the the price of because it was rare and it was very demanded you could find some Nano s at $500 on eBay or even on Amazon the normal price is about $100 so it was really crazy and everything had to scale

the customer support our infrastructure we will all the time having a lot of problem because it was impossible to scale as fast as the market was but it was amazing it was last six months of craziness where you know you are energized like like crazy because when you you know they say you built you you build it and they will come you know this is something what we say about products but yes they did come and they did come in masses in a way that we could never have predicted and so I think it was maybe so far the best six months of my entrepreneur life because when you build the products that become

some kind of worldwide phenomenon that everyone is trying to buy we had to shut down our phone lines we had to remove our address from the website we had to relate to to hide because people were taking place and remember there is one trainee from a hedge fund in New York there Boston told him to take the plane to go to Paris to go to our office and to buy a box of 100 nano s you know so the guy had to do take and go and and we didn't have the stock because we were completely sold out so the poor guy did all this trip for nothing and we had a lot of people like that trying to enter to call to to to to source our devices because there was so much in demand that

it was also an easy profits we had tutorial on a Russian website about how you can buy from our web and resell at double or triple the prices so to make money it was completely crazy at this time now the situation is different of course because the market has flowed down and now we have stock and we are in completely in position to fulfill the market demand but at some point in February in December I couldn't believe my eyes when I was saying the level of orders it was it was madness but it was a very it was a very good time man for sure yeah of course like as a as any sort of Bitcoin blockchain or people are

coming to you at this time saying like how do I secure my crypto I remember at this time like quite a few people were asking me saying oh you know Eric you know ledger you know can you just go to their office and try to get some extra units like there's no units there's nothing everybody's sold out and actually I wasn't I was in Asia recently and I walked into someone's office and they had a stack of about 25 or 30 Ledger's just there on a shelf I think there may be a bottom prior and never ended up selling them but they're holding them for a rainy day if ever you need extra leather stock some guy named Joe has a bunch on his office yeah that's fascinating and so what are the if you have any other interesting anecdotes about sort of some crazy

things that happened during that period well we we had to scale we had to to hire because basically when when the craziness started we were about I guess 20 or 22 now we are 140 in the company and what is incredible is that we we added more than 100 person and in fact we are more or less serving the same amount of customers than we were before it's just to say that we we were so merchants in stretching that we were able it's a miracle that we didn't explode it you know because when you

have too much traction you can just die as a company because you take the orders and you cannot fulfill and then you lose the confidence of your customers and then you spiral down and so it was very intense and I think that one of the rich that we we were able to survive is because we on bodied Pascal Gucci which is from from one of the co-founder of Crete EO which has already seen how to scale a company from 20 to 1000% an IPO company and it was an early investor business angel but I remember we went into consensus of 2017 so it was in May I think of 2017 like

one year ago and he was here because he was in that story was also interested into Bitcoin and you told him ok let's come with us you know you are going to see because it was already starting you know to to to sell more and more and we I think this is this day that we understood that everything changed because we had like I think 100 nano s that we put the conference because we always always come with devices and we sell them but usually you know we sell them a few it's not like crazy and there was a lot of people at the booth like waiting do you have nano as you have to know s and I say ok we are going to start to sell them at 10:00 a.m. and and

then there was a lot of people Halloween we started to sell and the first guy asked me ok how much how many do you have I say ok I think we have 100 units and guy said ok I take them all and this is where Pascal's also that something's changed and we agreed that you will come as president and help us scale the company and he has been instrumental in to helping us to to build all the support function of leisure and today at leisure for instance there are 10 lawyers then in-house lawyers just to check everything about no certification in politics or taxes corporate security everything it's just to say that the

level of support functions that you need for a consumer company with selling in 165 countries is is tremendous so that's also why we decided to do a big series be round because the level of investment that you need if you want to scale the company is very big and we have like large very large ambitions for leisure because the hardware wallet is just one side of our business is just one pillar and we have others to build and it's going to take a lot of energy and now we are really focusing on execution to to

have this vision moving forward so you talk about this crazy girl going from 20 people to 140 people now how did you do that like how did you hire so many people like what did you look for in people and like what what went well about that and what were some of the struggles with growing so quickly well the struggle is that you not only you need to execute and do your day-to-day job and solve all the issues and and and just cope with everything which is happening but also you need to hire so it needs you need to spend a lot of time in interviews because one thing which is very important is culture because when you need to hire 100 person you cannot make mistakes because if you

do mistakes and if you hire anybody on the spot like that because it just feel ok then you can destroy the company from from reason it's not that people are not good or they won't do the job properly but if they don't share the same culture if they are not a fit for the company it can completely destroy you so it was important to spend some times with the candidate with every candidate that we were hiring just to make sure that they had two good fit and at léger we're looking for people who are very autonomous who are ok to take charge of of their different tasks because we don't we don't micromanage the trust is given it's not wall so it's mean that

when someone arrives ok we give them all all the trust that they need and we let them do their their their things so they need to so to work well into this environment there is a lot of you know matrix management in the sense that a lot of the support functions are horizontal in the company so they need to to work well with a lot of different people and they also need to have this kind of fire and passion about about the project about the vision because it's quite demanding to work at leisure especially in an environment where you have so much growth and each time that we have some people arrived immediately was

completely overrun by things and so you need to have people with a lot of energy a lot of goodwill and that was one of the important aspects of the recruitment to find people with internal fire and an energy this episode is brought to you by shape-shift the world's leading trustless digital assets change quickly swap between dozens of leading cryptocurrencies cluding bitcoin ethers e cash gnosis manera golem walker and so many more when you go to shape-shift dot io you simply select your currency pair give me receiving adders sent the coins and boom shape-shift is not your traditional

cryptocurrency change you don't need to create an account you don't need to give them your personal information and they don't hold your coins so you are never at risk from a hacker or other malicious actor shape-shift has competitive rates and is even integrated in some of your favorite wallet apps like Jack's so you can swap your digital assets directly within your wallet just as easily as putting on your slippers whenever you see that good-looking Fox you know that's where shape-shift is so to get started visit shape-shift oh oh and start trading and we'd like to thank shape-shift for their support of epicenter so we talked a little bit about the funding round one point that I wanted to bring up is just so the series B that you closed I believe it was

earlier this year in 2018 it was in January 2018 and we closed seventy-five million dollars right so seventy-five million dollar u.s. round and so you you raise this money right when well I guess you were doing the fundraising when when cryptocurrency and Bitcoin and everything was sort of ramping up this to this pivotal point at the 20:17 talked about some of the challenges about raising that much money in this nascent industry and also particularly in France and given the types of investors that you have that are institutional investors like like Kathy what are some of the challenges

there yeah we decided to raise to raise money raised a big round quite in December of 2017 we decided that we needed to raise large now so why so the company is is profitable and when we did a lot of sales we could think that why not trying to just grow organically and not have a dilution but they were to think that we were looking for the first of course class 1a because it's important to have a war chest a lot of other players was also raising large rounds and when you are in hardware when

you are in security research and development you need a lot of cash because cash is fuel cash is life and you don't know when the market is is going down and because we were sure that at some points the craziness will cool down I mean it's only logical we couldn't know when or how but it was important for us to have this war chest to make sure that even if we had some kind of nuclear winter we wouldn't have to change our to change the strategy of the company and and the second the second reason we could about raising money is that we wanted to have partners partners to help us to for the

internationalization of the company to help us on hacia to help us on the US because we have customers everywhere we sell in hundred and sixty five countries and we want to partners we can rely on and not just money and that's why also we didn't do a nice you because everyone was ask us asking us why why are not you doing a nice view well first of all utility token would not make I guess any sense for ledger but more than that it was not just about money it's about finding the right partners and so we ended raising with Draper Asbury Tim Draper Kathy capital which has a lot of you on China kaalia which is also about South Korea

first mark in the US which is a German friend can help us also structure in New York and and in diffusers and so it was instrumental to help us to get all the right vision and the cash amounts to deploy our vision because as I said it's not just about consumer electronics and hardware wallet it's also about enterprise solutions for financial institutions the vault which is enterprise key management and it's also about everything that we can call IOT machine to machine transactions and payments where we can see very big features and on that we need to invest a lot for instance we are investing 10 million dollars into facility in France

for the production for the shipping because right now we are doing a lot of production in China but one of our objective is to relocate the production in France because we believe it's if it's important for not just about the quality because you can have good quality in China but we can have a lot of flexibility by producing locally and also is part of the mission of Leger to be socially responsible and it's always better to create work into into friendly to all regions especially that we are in the center of France where they are not that many jobs so it's also in line with the stories and what we are trying to do

at Leger but also is going to help us have let's say more efficient management and production line for for the future so we're also investing a lot into security we are building a security lab to make sure that everything is working well and that we have like six to eight security experts attacking all the time our firmware or devices to make sure that everything is really shot and tie t-shirt regarding security well we need to hire a lot of workforce internationally we are in San Francisco we have up in New York we opening Hong Kong so we need to be

present on the ground and we need to build a set for task force our SAS product for enterprise we need to hire also for IOT so it costs a lot of money it's a lot of investments and that's why despite the fact that the company is profitable we need to move forward quickly because it's about execution it's about taking the global market as fast as possible because our ultimate ambition is really to build a very large technological company which is going to provide with all solutions for security and infrastructure for cryptocurrency and blockchain applications quick thanks so much I mean it's really fascinating

to hear you know just how ledger grew and in this process so I'm really glad you sharing this so I'd love to I would love to speak a bit about sort of the aspect of building products you know in the blockchain space and the unique challenges around that so you built a bunch of companies before what do you think are there are some you know big fundamental differences in blockchain or what are some unique challenges in building you know cryptocurrency product well I would say that one of the specific aspects of all these cryptocurrency space is the fact that there are strong communities and it's sometimes not always not always easy to

to manage these communities and and the people because you can have strong opinions and to just take an example it's like Bitcoin versus Bitcoin cash we are technology provider it's not our point to take sides you know it's because we secure endpoint and we are not here to say that this is bad or this is better because that's not the mission of ledger but sometime when you try to do things or if you are not delivering the latest update about this crypto or this version of the crypto no people start to really become crazy and think that we are trying to sabotage thing and there are all these ideas that

we are we want these or we want that and it's it's sometimes it's it takes a lot of energy the other aspect is that in cryptocurrency it's everything you are your own bank you have a lot of responsibilities so you have to be cautious about what you do and it's very hard to close the gap between let's say people who do not understand what they are doing because a lot of people recently have invested in crypto currency without on this thing what they what what it is but they still want to secure it and security so you need to explain to people who do not understand

IT that if they do something stupid they can lose everything that they have it's like you know sometimes when I when I talk to customers would it's like say to take cash you know real cash they put a gasoline on it delighted and it's and they say why is burning why is it burning you know and and it's very hard to to find the right way to explain to people how they can secure their assets because it's part of our mission to basically bring something easy and simple to to users but that's the biggest challenge and because what we tries to remove anxiety from our customers because when they are not

secure they feel bad at night you know they have nightmares and and and the right is one day by later devices they have to feel much more calm and they have to feel good and so we need to provide with the best experience possible and we know that we have a lot of work to do on that and one of the next milestones is to provide with a new version of our wallet software which is going to go live on July 9th and we hope that is going to also to help new users and newbies to go into the crypt occur space securely and with a lot of with much more easiness because we know that

with segways and the forks and everything that we have now sometimes people don't understand anything and that's quite that's quite challenging for for everyone yeah well let's speak about that application exactly so I'm very excited about this right because ledger so far has used basically Chrome apps or Chrome apps are well Sebastian would know better but yeah you basically can get this through the Chrome App Store and then you had this different application side so there was a bitcoin application in a theorem application you know a Ripper application a bunch of different currency and then there was also alleged manager so you had all of these separate applications and it's interesting because I feel like in the beginning you

know the ledger user experience was really good and then over time it kind of like got more and more ads I think the complexity grew so much and you guys had to handle all of these different for these different things it you know it became harder to accommodate that I think in your initial initial kind of setup and you know an example would be that okay you can only have a limited amount of applications and now now it asks okay okay can you update the applications but there's not enough space I'd have to so a lot of there's a lot of these like challenges have grown up and now there's this new application that you talked about which which is you know desktop and mobile application and the screenshot it looks fantastic what about one unified application so how is how is that new application gonna work

can you share a bit more about that yeah of course so you're totally right the chrome apps which was the beginning quite well received became more and more complexed because we had to hack it and had all these Forks and segwayed and everything and it became not easy to use and then it was after the theorem app the ripple app and the managers were people started to get lost into all that so the new application is going to be a single app for everything we are going to release in steps are not going to have all the feature on the first version of the app which is going on the July 9th but basically you will have the possibility

to have all your accounts in one app so you can scan all your different Bitcoin is your beacon cash or Ripple etc pick up accounts is going to add them into the application the desktop app and you will have all your portfolio and easy to click let's say send receive with added security features to make sure that you can verify your address we have also an onboarding procedure which is going to make sure that everything is alright we ask a lot of security question there is the manager which is integrated so you can add and remove application quite easily and in the in the next release of the application we are going to see like

easy auto install of apps like you want to manage different different Kryptos it's going to remove the labs install the apps automatically you will not have to think about all that to do that on your on your device you will have Auto scan functionality it will be much better and ultimately you will be able to follow all your crypto in only one application so not only it will be useful as a wallet but it also can be useful as some kind of portfolio manager and right now we're going we are going to publish the desktop app so work on Windows on Mac on Linux and we are going

then to follow up a few months after with the mobile app which will give you a pseudo possibility to see your accounts and spend from from your Android or iOS application so it's going to be I think a very well-deserved let's say improvement of user experience for our customers we know that we took a lot of time to release it because it's this application is on our world map for a while but all the crazy scalability the crazy growth that we had to go through last year completely changed all our initial plans and we had to work in priority

into scaling on our infrastructure and then only we had the time to work on the new versions of our application that's that's really good news I can't wait to try the new application the new wallet and and see how how that experience is being improved by this unified desktop application I think I think a lot of people are gonna like it so let's let's talk a little bit about the product so we've talked a lot about the company but let's talk about your product lineup so I believe right now looking at the website there are so three main products to the ledger 9os the ledger blue and the vault product which is something that's quite new to me can you talk

about these different products of broadly what what they do and who they're for so the 9us is our best seller hardware wallet so basically it's a digital safe to manage and sexually cryptocurrencies so it catters for any individuals on Kryptos and wants to secure them so it's really a consumer facing product it can be used by professionals but basically it's for individuals the sense that you have one person one one device the blue is like an OS whiz but with it's an improve user experience with the touch screen so it's

it's easier to use for people who liked big screens but we are going to sell a latch last batch of of the blue and then we are going to retire it from the consumer market and use it only for our vault product and I'm going to explain what it is because it's the the blue is really a premium product and it's very hard to scale and we we couldn't really improve all the production without raising the price too much and into run makes sense for a consumer product so it's going to get well going to continue to support it but it will not be possible to buy it anymore

after the last batch and the vault so the vault is an enterprise product it's it makes sense when you have let's say a minimum of 15 million dollars of crypto - - to secure because it's it's an expensive solution it's an enterprise key management SAS products which basically solved the need for professionals to manage large amount with governance because let's say that you are a hedge fund and you have 100 million dollars to secure in Bitcoin you could use an NOS key but then the question is to whom do you give the device is it the CEO the CFO

where do you store it what happens is the CFO becomes crazy and run with the money what happens if people with guns go into your office and ask you for the device I mean you can have cyber security protection but you do not have any protection against this kind of physical risk and threats which are quite big when you start to have a large amounts so the idea of the vault is to provide with governance which is multi signature multi authorization time locks delayed opening rate limiters etc all the features which are required by professionals and it's a SAS solution in the sense that we manage everything for

the customer the customer keeps the ownership of the keys so it's not a full custodian solution this is for self custody ledger is never the owner of the private keys we provide with all the infrastructures with so the private keys can be managed securely using multi signatures and it works for any kind of cryptocurrency even if they don't have the blockchain based multi signature because we do a multi signature which is enforced by hardware so on the server side we use what we call hardware security modules HSMs which basically are very secure server some kind of very large hardware wallets ends on the endpoints each of the operators are

the vault which can have as many accounts at the wish have a ledger blue which is used as an alternator to either request payment request the transaction or to approve transactions and then transactions are ultimately approved by the hsm by the server when they have the quorum of the signature at the end point or if enough time has come by because you can have this delayed opening and so our customers are hedge funds familiar faeces investment banks we have in Europe in the US in in Asia the pricing is based on the assets under management it's basically 48 basepoint per year and it is an enabler for all

these enterprise all these financial institutions to come into the cryptocurrency world because without security without the property management it's not possible for them to scale because investors or LPS limited partners are not going to put more money if the fund the hedge fund cannot provide with with good security solutions so the we have launched the the solution a months ago it is quite successful and now we are trying to onboard as fast as we can all our new enterprise customers and and our objective our ambition is really to

secure billions and billions of assets using our our our technology for these institutions earlier we talked about so the and enterprise blind optimism that we had there right in terms of in terms of adoption but as a company seems to know now leisure is is building products for hedge funds asset management firms limited partnerships cetera talk about perhaps like what what are the particular traits of these types of customers as opposed to soar the enterprise and also give us a sense of the need there so like how what's the

scale of the of the need so the customer base here that you have potentially for this product so all our customers are believers in cryptocurrency so it's really about cryptocurrency it's not about blockchain or some kind of private blockchain ELT is or it's video about cryptocurrency so that's why it makes a lot of sense and there is like real use cases because financial institutions really want to move forward into crypto because it's an asset which is now which has now a lot of legitimacy I think everyone is convinced that these assets

are here to stay and there is no way that this asset manager hedge fund manager or financial institutions are not going to take a share of the pie because they are here to make profits and so they want to play to play the game of crypto but the only way to do it is if they have the proper infrastructure to manage that because if you want to buy stocks bonds or everything you always have the custodians you always have third party banks who are going to keep this assets for you secure so it's you don't think about how you are going to secure them and if you buy gold physical gold you are going to find depository where you can put the gold in the vault and everything is insured etc in crypto all that doesn't exist so the biggest

problem that all these institutions have is how can they hold and secure the cryptos and the ledger vault is an answer to that so we are talking about the scale of hundreds of customers it's not yet in mm but it's in the hundreds of potential let's say hedge funds and family offices who wants to go into crypto I guess maybe in one two years it can move to the 2000s because now this is the early adopters that we are seeing moving forward to crypto and we have seen more than one hedge fund or investment bank once individually to put at least one or two billion dollars into

crypto so all combined we can see an influx of tens of billions easily in crypto so I'm pretty convinced that next year we are going to see these massive investments especially now that the price is low it's a better opportunity for these financial institutions to enter because they are not entering at the highest of the market which wouldn't be good for them I thought initially that we will see all this financial institution investment this year but I thought that you know everything is taking always more time that you that you think especially to just the time to deploy

default solutions and others but for sure in 2000 the first semester of 2019 is going to be interesting because we are going to see a lot of movements from the financial in this industry into into cryptocurrencies and in what was the choice so the ledger vault it's actually the first time I'm here of a product you know that's like hardware based kind of you know non-custodial large key management system you know as a management system because they are you know other companies are also trying to offer kind of custodial solutions for or they're trying to offer more custodial solutions for you know for some of these

funds and where they actually you know manage the key so what do you think are some of the you know pros and cons of the latter approach versus and sort of more purely custodial approach so you have example for instance with a Bitcoin question were shown it's quality into securing assets you have bid go with also providing with some kind of custodian solution you also have coin base which is a full custodian but the solution is not ready yet and I would say that the drawback see if I can call them like that is that

it's very limited in the number of crypto for instance bid go can only manage cryptocurrencies which have built in multi signature like Bitcoin like a light coin and a few others but they cannot manage all the other crypto example is doing only Bitcoin and coin base is also limited to the number of crypto they can add because they are heavily regulated and so the the vault is really a very flexible and powerful solution for self custody which is not exactly the same than for custodian because basically with the world customers they still stayed the owner of their phones for full custodian because

some regulated hedge funds required to have to have a full custodian qualified custodian they cannot self custody then we have announced a partnership with Nomura which is one of the biggest bank in Japan with going to use our technology and provide a full custodian solution for all crypto so the idea is to be able to provide to have a go to market either for it's a smaller hedge fund or hedge fund who do not require this full custodian solution so they can self custody and use our solution cannot can work also for family offices or foundations or I SEOs you know have like

hundreds of millions and they need to governance and for hedge funds who need qualified custodians the idea will be to work with this consortium called Kamino on which we are working with Mora and other banks hopefully we are going to join to be able to provide with the best-in-class solution for the market so we talked a bit about security but I'd like to focus on this as we come to a close of our episode here so ledger is probably I guess be safe to say being attacked constantly I mean you also sort of promote that through bug bounties and contests and this sort of thing but

you're sitting in a very particular place where people are trying to hack your product all the time and there are billions of dollars worth of assets sitting on Ledger's devices all around the world talk about what that means sort of personally as a CEO and as a public person in the space but also as a company so how do you build that that that culture of security within the company first of all we are selling safes okay and sales are decentralized by nature so there is no central point of failure at leisure where someone could hack and run away with billions of

assets because most such things exist so it's not like we are an exchange with billions and we can get hacked so people are always trying to hack and our devices like it's like I came to trying to to open the safe you know to find a way a clever way to open a safe but usually if you can maybe try to hack one it will not open them all and so that's why there is not a central risk our customers what is central is the firmware update because you could think okay ledger could get hacked and could

release a firmware update that would let's say exfiltrate the private key is using side channels or something like that so we do have very strong security mechanisms to provide with the signature of our firmware updates because only a few more updates which has been signed let's say by a certificate of ledger can be accepted by the devices and so we are using the same level of governance that is used in the world which means that you're required multi signature from different persons and so even if as CEO I was kidnapped or held when Sun and everything it will activate some failsafe that would prevent anywhere the

signature to be done and regarding security in itself of course we take it very seriously we have a security lab where we have hired eight now security specialists who are working all the time into trying to hack our devices firmware technology website etc we also have a contest with bounties where we will pay all the security researchers you can find some vulnerabilities security is always a game of cat-and-mouse there is not searching our ultimate bulletproof

security is just on west question of all you can build the best product possible and there is always interation we have see we have had some let's say few more vulnerabilities that was more or less easy to to activate or find quite difficult to do to activate but that's why there is this possibility to update the firmware and our objective is always to stay ahead of the game and that's the work of ledger that's why that our main assets and that's why we have let's say the best specialist in the world that you can find in two embedded security secured ships that are

working constantly to to have the best possible security and it's always important to stay humble and to make sure that people can and and try to open the solution as much as possible so people can really act on it and we come from industry where there is a lot especially in the situation when the a lot of let's say security by obscurity and what we are trying what we are doing at leisure with all our by publishing some all this context and is hardware bounties and everything is going it's quite new into this environment and we are hoping that it's going to to help us

go to the highest level of security ever seen and the next stage is to create all the certifications all the standards because it's important for our customers to know that all the security targets that we have has been audited by third party it's not just only the good word of ledger and so to be able to do that first you need to write standards and this is what we are doing at leisure to to be able to have the same kind of standardization certifications that you can find in the legacy payment industry and can you talk about perhaps in your view what makes ledger more secure than other hardware solutions out there like why should someone choose a ledger for

its security aspects over something else that they can find in the market there are two kind of microprocessors because a hardware wallet this is this is a computer you know it's a secure computer and the objective of this computer is to make sure that the private key the assets which are inside cannot get extracted and to build this computer you have to twice either you use a regular microprocessor and just the same kind that you will find in in remote control microwave kettle little toys all you use a secure microprocessor which you can find in shipping credit card SIM cards

passports all critical you know applications and the advantage of the secured chips is that you cannot open them easily because if you take a regular microprocessor you just take it from the table you can open it you can extract very easily the secrets because it has not been designed with security in mind ledger is the only company in the world using secured chips because our core technology is an operating system designed for the citizenship and access to a secured ship is quite complex because it requires to show some kind of credentials to be able to access the underlying let's say

structure of the chip which you need to know to build this operating system etc and so it's a high very high barrier to entry so if you compare for instance trace row to ledger this is the main difference of course there are other things to take into account because like the uux to form factor and everything and for the end-user secured ship not secured ships they don't understand we need the difference but one thing is for sure is that trade or for instance will never be able to go on to enterprise market because it's impossible to give any level of certification for not secured ship and my prediction also is in a few years or when we are going to

see you know much more mainstream adoption of crypto that it will works a lot and a lot of people will have hardware wallets you will see some tools that will be able to extract very easily the private keys from trees or for instance because we can glitch the chip you can bug it and onion to make it extract the private key you are going to see a lot of contour fades tree source it will be very interesting for makers effect resource just to sell them on Amazon and and because there is no way to protect against forgery treszura right now is using these stickers you know ala graphic stickers but that's

just what we call security theater because you can it's very easy to duplicate them so in the end if right now I would say people do not understand believe why a secured shape is better than not a secured ship my prediction is that in a few years building security products on unsecure technology is going to create a big big problem and so on the long term that's why Leger president has a solution that can really scale and and and provide with release security that can get certified and audited by third party this is a surprise to me I was under the

assumption that other hardware wallet solutions were also using secured chips and I think I think most people that buy these solutions also assume so yeah because I guess people and I know people do not understand the difference and it's that's fine little because try to explain what is the situation it's very hard but resourced and keep key are not using secured chips it's they are not there are no solution right now in the market with real secure chips because it's it's hard you know hard way is hard six your hardware is even harder and and so it Tresor is not using security because it's not the choice by design

it's just that they cannot access secured ship anyway because it's like you want to to print not you know banknotes and so you call the central bank and you ask for you know the printer the inks no one is going to give you this information so it's the same to get access to section ships because it's a very protected industry and ledger is part of in this is part of this industry and we are trying also to change this industry which is working a lot on security by obscurity to evolve the models with more open source approach

which is very new into the secure industry and what nature is doing there is also let's say creating some some ripples and not always well understood but we are trying to to move also the secured ship industry into to open source and then we will have boss of best world what what is it that makes ledger different in terms of their access to this industry the access to chip makers I presume is what you're saying yes because in order to build the secured the operating system you need to have access to the let's say to do blueprint of the supership and this is highly classified

information because basically all the financial industry government identities everything is built on these chips so the only way to get access is to convince the chip manufacturers and others that you understand what you are doing that you are not going to provide with bug code which is going to create some reveals some underlying of the object ship infrastructure and basically why ledger managed to do that is thanks to Nicola back our CTO any steam was coming from this industry bitty chip which is the company with whom nature as birch had decades of experience of

working with secured chips so people coming from the big company like virtue or Gmail to bringing all this know and this is what makes the technology of ledger unique and that's why it's very hard to duplicate what we have done so far so I just wanted to understand maybe one last question on this I wanted to understand so exactly the difference between secure chip not and let's say something that's in treasurer so does that mean like let's say you had physical access to the trace or you would have some way of potentially extracting key material and and with a secure chip like with ledger you have

this authentication at every action there's the key check or can you explain because I didn't fully understand the difference yes of course there are different advantages security advantage of the secured ship if you have physical access then secured ships as a few it's a technology to prevent the the extraction of the of its secure information first of all for instance all the memory is equipped encrypted all the time and the location of the memory cell is a secret I mean even if you use a laser and you try to

decay open the chip you will not be able to it will be extremely difficult to let's say rebuild the secret inside there is a lot of countermeasures regarding let's say differential power attack or side-channel it means for instance that let's say that you want to enter a pin code ok you enter the pin code and then you verify that it's ok or not and if it's not ok you are going to decrement the number of of tries so you can have on three times ok if you are using unsecured chip we can what we call glitches we can just cut the power and

then it's not going to write down that you did this try you know this is a very basic example with the secured chip if you try to modify the clock if you try to glitch the chip it's not going to work it's not going you know to to be any help there will be also some control measures to make sure that there is no or the less possible of side channel attack because for instance when you do a cryptographic operation is going to emit some frequencies or some noise and if you read that with an oscilloscope you will be able to infer some data about what you do on a non-sexual chip there is no such control measures also if you take the chip you glitch it and

you put it in debug mode you will be able to dump all the memory there is no table Morgan it's not possible to debug a secured ship so basically it's it's like a safe that was built by five years old you know addressed in in cardboard and safe which is built with real reinforced steel with big difference between the two so you can use an unsecured ship to make it it's going to work and you can you can do many things with it but when it's come to security if you have physical access it is very easy just to extract

the information so as long as you have your ship with you or if you put a passphrase which means that you need to enter a bus trace on the ship each time that you are doing to use then you are safe but the advantage of ledger is you can have highest level of security and you do not have to enter a passphrase each time that you use each time that you used the device so this security features are very essential and with our attack laboratory we are going to demonstrate some let's say use cases or explain the differences so our customers or people

were curious about that can better understand we will have some some deal where basically we have we have attack labs with lasers in you just send send a laser beam on the on the chip at some point and it's going to give you all the all the secrets that that it contains so we are going to show some practical example of the differences between secured and unsecured ship because it's true that it's not an easy thing to understand and it's not an easy thing to market as well because people don't want to to have to understand that that's why ultimately the real difference will be in certification because we secured chip you can ensure certification and that

something that consumer can can really understand so cannot stamp of approval from third party audit company whether we can show that everything that you say is secure is really secure cool well thanks so much Eric for elaborating on this I wasn't really aware of this and that that was very very interesting to hear about that and and in general thanks so much for coming on I think it was super interesting here about legislature product in about this security technology as well thanks so much thank you thank you for having me and of course thanks so much for a listener for once again you need so we're gonna have of course in

the in the show notes you're gonna have some links to a ledger website to also some of the blog posts about the new the new desktop wall that's coming out soon and of course you can subscribe to our podcast you can scrap it via any podcast application use you can listen to it on soundcloud or you can watch the video on youtube.com slash episode of bitcoin and yeah so if you want to support the show you can also leave an iTunes for you for us that helps new people find show and we appreciate that very much so thanks so much and we approach to being back next week [Music] [Music]