Ledger CEO: Hardware Wallets Can't Scale for Institutional Adoption

Despite the many shortcomings of Bitcoin and most other Cryptocurrencies , the crypto ecosystem has come quite a long way since cryptocurrency was first invented ten years ago. Crypto and Blockchain have been adopted for use in banks, governments, and by countless individuals; despite high price volatility, billions of dollars have managed to stay in the crypto markets for several years.

One of the most significant factors that has allowed cryptocurrency markets to grow the way they have is access to secure storage.

Because banks that hold cryptocurrency aren’t widely available (and aren’t necessarily desired, either), entities that own cryptocurrency are solely responsible for it. This allows these entities to be free of the costs and regulations that come with typical banking services. However, it also means that if the crypto is lost, it’s almost impossible to get back.

Recently, Finance Magnates spoke with Eric Larchevêque, CEO of cryptocurrency hardware wallet firm Ledger, about the ways that secure crypto storage is evolving, and about how his company is working to support the cryptocurrency ecosystem.

Technology Is Important, But It's Not Enough

“The foundational technology of Ledger is based on secure hardware,” Larchevêque explained. “From the beginning, we wanted to build a professional solution that could get certified. We believe that the only way for the cryptocurrency industry to become professional (like to get more mature and really scale), we need to have standardization, we need to have certification, we need to have some kind of technological rules to build trust.”

“So, we’ve built everything on secure chips, because it’s possible to get certification--you can audit it and make sure it does what it says it does. This is based on this possibility and this promise that we have been able also to build solutions for enterprises. That’s one of the major points that differentiates us from our competition, because we have this approach based on secure chips and third-party certification.”

“Having the capacity to get certified and get audited is the only way to achieve maturity into the ecosystem,” he said.

However, Larchevêque acknowledged that technology in and of itself isn’t enough to keep the cryptocurrency ecosystem secure.

#Bitcoin has been around for 10 years already, leading to the crypto market we know nowadays.
Much has happened since that day - we'd like to take a look back at some of the key moments: https://t.co/clGOZGeW3V What was your most important moment in #crypto history? pic.twitter.com/TBLSFYlh3u — Ledger (@Ledger) March 20, 2019

He explained that regulators play an important role in the work that his company does, especially when it comes to enterprise-grade solutions. “All these security issues can mostly be solved by technology, but to make sure that people use the right technology, you need regulation. So, it’s a combination of both.”

“To solve the pure security aspect of the management of the keys, you need a technical solution that can be based on secure hardware, et cetera. But you also have to process--for instance, if you can put in place solutions where someone can issue a payment, and two officers need to validate, then you need to have the compliance and the regulation to make sure that the way the operators are making their decision is in accordance with the best practice for the company.

Smartphones are the Future of Cold Storage

“Right now, for sure, the best way to secure your cryptocurrencies is to use a hardware wallet, because it provides isolation--cold storage that you can always use.”

However, “the most difficult thing with hardware wallets for adoption is that you need to buy a hardware wallet. So it’s not something that everyone wants to do. It can work for the first million, or the first tens of millions of users, but it cannot scale for hundreds of millions or billions of users.”

“So, we are pretty sure that in five years--or ten years, but most probably in five years--smartphones will have the right technology to ensure the right level of security. So, hardware wallets will still be a thing--I guess for some specific applications or for some people who prefer to have a dedicated device to store their cryptocurrencies.”

Larchevêque did say that hardware wallets won’t totally disappear. “[They] will still exist, but if we think about the real adoption of cryptocurrencies--either through decentralized cryptocurrencies such as Bitcoin or tokenization, stablecoins, et cetera--it will go through smartphones.”

“Today, it’s not the case because the level of hardware security in smartphones is not yet good enough, and there is a lot of fragmentation. But, a lot of smartphone manufacturers want to offer their customers the possibility to own their data--to have their own sovereignty regarding data, and crypto assets is a very good example.”

Therefore, this is the future that smartphone manufacturers are planning for. “So, on their roadmap...product-wise, they want to add secure chips, they want to add the right trusted execution environment to guarantee the security of crypto assets in smartphones.”

Ledger is planning for this future as well. “So, in five years, Ledger will most probably license much more of its technology to smartphone providers rather than selling hardware wallets as a device.”

”...A hardware wallet can be very good for an individual, it can be used by an institution, but it doesn’t scale.”

“When you have a hardware wallet, it’s for one individual. If you are a company or a financial institution and you want to secure hundreds of billions of dollars in crypto, you could use a Nano S or a Nano X,” he said, referring to two of Ledger’s most popular products.

However, “then, the question is ‘to whom do you give control of the device? Who has control of the Bitcoins?’”

“What happens if you have a hostage situation, for instance, in the company--it would be like having a hundred million dollars in cash in the safe of the company. That’s why a hardware wallet can be very good for an individual, it can be used by an institution, but it doesn’t scale.”

“So, we have introduced the Ledger Vault [platform], the technological answer to provide institutions with governance when managing their crypto assets.”

We are thrilled to work with Legacy Trust to introduce a world-first institutional grade digital asset custody solution by leveraging the Ledger Vault - a multi-authorization wallet management tool for digital assets.
Read more here: https://t.co/SHjjRUDZRh pic.twitter.com/iffB62VBRD — Ledger (@Ledger) March 28, 2019

“So, basically, we offer all the solutions which are based on hardware security--so it can be on the server level, or it can be at the endpoint level; we offer all the solutions to be able to manage any kind of crypto assets with rules, such as someone can initiate the transaction, others can confirm it; you can have all the auditability, you can have all the trustability, you have all the connections to other kinds of back-offices.”

“So it allows an institution to build its cryptocurrency back-office. And it’s a technological layer - it’s really a technological response to the need of an enterprise to manage their crypto assets with teams and governance.”

Recently, Finance Magnates interviewed Alena Vranova, Head of Strategy at multi-signature wallet provider Casa. Although Casa also provides enterprise-grade cryptocurrency wallet and storage solutions, Larchevêque said that there were important differences between Casa and Ledger.

“Casa is a solution to do multi-signature,” Larchevêque explained. “What Ledger is providing is indeed multi-signature, but with much more rules. Casa is much more simple in its approach. The difference is more regarding the number of cryptocurrencies and the complexity of the rules that you can implement.”

“But Casa is using hardware wallet to make its multi-signature; some keys can be secured by a hardware wallet. With the Ledger Vault, the private keys are managed in what we call ‘hardware security modules.’ There are several sides which allow for much more flexibility - so I would say that the Ledger Vault is much more complex, and targets large financial institutions, or [any] institution that plans to manage a large amount of cryptocurrency.” Larchevêque said that Ledger Vault currently has roughly 30 customers.

This is an excerpt. To hear Finance Magnates’ full interview with Ledger CEO Eric Larchevêque, click the Soundcloud or Youtube links.