Crypto Vault 360°

Transcript

hi everyone it's uh so uh we will begin this uh this uh session dedicated to crypto vault um i'm very happy to uh to uh to introduce you this topic with emmy lawrence whom which i'm causing this event and um basically we were interested into the the notion of crypto vault because it's a catch-all term um it covers uh probably a wide variety of situations from the an external perspective however it's uh it's a very uh it's a very specific topic and um and we wanted to to have uh some specialists giving you

the the best uh uh the best view of the this problematic and some kind of uh highlight uh from their industry on how they they use and and what is actually a crypto vault um i guess it's one of the most swiss topics that we could choose uh especially because the two words first the word crypto that relates directly to to the secrecy to the privacy uh and that is actually dear to to us in switzerland and the name vault is also a symbol of switzerland so i'm pretty much uh very happy to to to uh to uh that we have come to the with the most swiss topic

uh for her from the cba that we could have found um as i said the objective today is to really understand what is the crypto vault what is a crypto vault and we're gonna take three main approaches we're gonna have uh some speaker coming from the the business side of this industry presenting us the opportunities and the governance of of such systems we will have some uh some authors that have a technical approach that will actually explain us what is technically a crypto level um and we'll have of course the the the legal uh the legal aspects uh that will be dealt with

um the idea is to keep it short to keep it qualitative and we'll do like that we'll have basically four presentation uh the first presentation will be held by adrian ricani uh from mexico and he's going to talk about the technical standards it will be a 10 minutes presentation something around that then we'll have some some q anonymization where you will be able to participate when you look at your chat you have a q and r um um you have a q and r uh uh wording on your band where you can ask the question and we will i will ask those questions for you so in

between all presentation you will have the possibility to ask the speakers uh one or two questions uh so the first presentation as i said would be presented by adrian from metacore the second will be will be held by marcus perderiza from the swiss crypto vault um and he's going to talk about the business opportunity that uh that relies in the in this industry the third presentation will be will be held by uh by vance he's a specialist at ledger and we will talk about the governance of a vault and the ux ui experience and the last presentation will will be held by tina abbasi at the pedigree she's going to talk

about the regulatory aspects of of the the custody of such of blockchain based assets basically um and this will be the first presentat the first part of our our reunion today and the second part will be uh um dedicated to a panel where amy uh will uh will uh host the the the four panelists and will ask them her question and and have hopefully a very lively debate where you will be also probably um able to participate so um don't forget uh type your type in your question and

without further uh delay i'll ask adrian regani to take the lead to share his screen so we can begin the presentation thank you thank you gabrielle it's a pleasure to start with the first presentation at this great event uh the objective for this test maybe 10 minutes is to cover some of the main topics in crypto custody one of the latest trends one of the main challenges and how we've got there all the progress we've made in the last 10 years i would like to start with a very quick review over the last 12 years bitcoin was originally invented and created to

entirely bypass any trusted custodian like a bank in 2008 satoshi nakamoto introduces bitcoin and you can essentially use bitcoin from your mobile phone from a usb stick or directly on an application on your computer many things have happened since then uh through you know bitcoin being used for criminal activities but then being much more legitimate uh to then other cryptocurrencies popping up and we have i think after a few bubbles and corrections reached a point where uh we reached this plateau where institutions are actually getting in and finding now uh important business cases where they can act as custodians as tokenizers essentially take a

first-class role in this economy and the main challenge that we've observed in the last five years i would say with these companies offering services is that it re-centralizes the risk such companies have to manage keys they have to essentially be liable for the assets of their clients and we've tried everything we could uh in this ecosystem to minimize the trust that we needed to have in these intermediaries or third parties and as you know the main trust that you need to have when dealing with such a company is around the way a custodian manages its keys you know as soon as we speak about cryptocurrencies or tokens or digital assets

in general everything is secured with the notion of secret key the secret key is like a long password and this password is the unique access to your cryptocurrencies and your digital assets so if lost or stolen so are the assets and it's critical that it is therefore maintained with high level of confidentiality but also that is properly backed up as you can see here there have been a lot of examples of both individuals and companies losing their keys or at least losing some of their assets it is estimated that 28 of all bitcoins have been lost or stolen to some degree and this is only speaking about bitcoin if you start

speaking about other cryptocurrencies or d5 or altcoins uh the number would be very high too this has not really improved in the last few years some of the largest exchanges have been subject to technical issues to hacks or to frauds internal fraud being one of the important points and then we will see more and more demands coming from regulated and trusted banks to offer high quality custody services one of the first questions that you may ask yourself when you invested in cryptocurrencies for the first time was where do i put my key and the the first sort of decision factor is typically to decide

well am i going to store it on a connected device that we call a hot wallet which could be on the hard drive of your computer or which could be in a database in the case of a custodian versus what is called an early app or code wallet where the key is completely isolated from the network and there is a high guarantee that the only way to access this key is to actually physically access the key store which can be a piece of paper which can be a box uh which can be special hardware now the current practice today on the market is for custodians to put as much as they can in cold storage and typically exchanges would put 95 plus per cent of their assets under management in cold storage and

to still keep part of the assets in a hot storage reason being that uh obviously you have this trade-off between agility and uh and security and it is very hard to maintain agility and be able to transact at a high pace uh if you have your assets secured offline in a cold storage now this is not enough as you can imagine the question is first of all where do you put these keys even if they are cold or hot where do you put these keys and in the last 20 years if not more than that the standard practice has been to rely on so-called hardware security modules an hsm hardware security module is a special piece of hardware that provides a high level of guarantee that the keys

are confidential and they cannot be extracted out of the hardware without any kind of physical tempering to the box in fact some of these hardware modules even guarantee that with physical access to them they still will not leak the key material that they've been configured with hsm have been very well known in banking for many years and this has been also the basis of most cryptocustodians infrastructures however in the last couple of couple of years a field of cryptography which also is known for quite a long time but which is more recent in the in the context of digital assets has appeared as being an interesting new alternative in managing keys

multi-party computation or mpc is the idea that rather than trusting hardware a more efficient way again this is debated but the more efficient way could be to have the key split in multiple fragments and each of these fragments independently would be useless but together we'd be able to generate what is called a signature to authorize a transaction the security principle here is that you don't stress this single point of failure that is the hardware you don't have to trust a hardware manufacturer here you split the key and you assume that breaking these different keys fragments at the same time is extremely improbable and we've seen multiple companies uh moving to mp60 and at least

for the context of hot wallets leveraging hardware less or let's say without special hardware infrastructure to maintain their keys the advantage of npc arguably is that you don't have dependency on these low-level hardware architectures you can deploy this in the clouds and you can decentralize the risk by having multiple parties as its name indicates maintaining the whole key and never re-centralizing the whole key in a single place the disadvantage i would argue and of course it is yet again something that is debated is there are multiple weak points sometimes in terms of rotating the keys uh regenerating new keys and in particular it is you know because these key fragments are

stored directly in the cloud generally or in a virtual machine the security the attack surface around each of these fragments may be much wider than what you generally have with special hardware but at the same time we see that even the largest companies on the market uh whether it's coinbase uh have moved to into providing some level of mpc technology for the hot wallet so it's becoming more and more relevant now whatever key store the custodian is leveraging the keystore as its name suggests is nothing more than a way to store the keys and potentially use them to sign a transaction a transaction that then is executed and broadcast on the chain but the weak point quite often is not

the key itself if you think about an hsm this hardware box it is nothing more than a stupid signing box stupid in the sense that it exposes an api it exposes an entry point and you can use this entry point to ask the box to sign arbitrary things and even if you're not able to extract the key if this api is compromised potentially the attacker can ask the box to sign any bitcoin or ether or a token transaction whatsoever so the weak point of such a system quite often is not the key itself if you do have a strong key store whether it's an hsm or npc technology the weak point quite often is around what governance layer you have put

around your system and if you think about the quadrica hack that happened a few a couple of years ago um for those of you familiar it is this canadian exchange where the founder was the only person to know the passwords uh to the main wallets of the company and uh allegedly he died at some point and therefore they could not recover the funds of the wallets because he was the only one to know the password and therefore to be able to use the funds it was then demonstrated to some degree that he probably didn't die he probably actually used the funds way before the he he announced his death or his wife announced his death and the the intuition is that he probably used the funds for himself to

get richer himself way before just because he was this single point of trust this really shows how important it is that the trust around the using the system itself is also distributed there is no single point of trust you have a strict protocol around who can do what um typically for large transactions you would involve more people in the company to authorize the transfer and this is something that banks know very well that they've been doing for the for many years way before cryptocurrencies were institutionalized what we see today is that these same frameworks that have been known by banks for a long time are now appearing for cryptocurrencies and becoming best practices and i would say required practices because of all of

the risks we've seen in the last few years the main challenge we we start seeing on the market is it's one thing to be able to store and occasionally process the transfer but what was maybe five years ago an objective to store securely has moved very much into interacting with assets you know we started we know we just need to store bitcoins and we want we don't want to lose them but today it's more than just storing bitcoins you want to be able to pay you want to be able to move libra you want to be able to stake potentially and the more use cases we start uh seeing appearing in this with distributed ledgers in particular related to tokenization staking or decentralized

finance all of these new protocols which for some of them are sources of potential revenues you know you can generate a yield with staking for instance they require some dynamic interaction they are not so easy to to deal with if you only have a cold storage uh so what we see more and more is a need for agility and this agility you don't get it with a cold storage so i think a big topic today and some of my colleagues are going to jump on this topic also is going to be to pretty much give a solution to how we can maintain a high level of security as a custodian as a bank as a regulated company providing digital asset services

secure services which at the same time do not isolate the clients from all of these incredible opportunities which are popping up on the market today and so i will conclude on this medical we are a swiss company based in lausanne we've been now for almost five years on the market providing enterprise solutions for the management of digital assets most of the topics that are presented today are things that we know very well to do we have solutions for hot coal storage uh for for the street governance layer for hardware and mpc and obviously with applications to tokenization to de-spy into staking so thank you for attention

thank you adriano for uh for this presentation um there are no questions i'll just uh remember the audience that they can always ask questions but i have one for you um i wanted to know if you could you could tell us in uh in one minute whether uh there were a lot of uh standardization with regard to the the custody of assets and uh whether the the they were um a lot of difference maybe um that is made with regard to the asset that is actually in custodial i think the market is moving in multiple countries and it's always hard to answer it with a generic response to that question

because it's uh it is completely different in germany than it is in switzerland that is in singapore and obviously in the u.s um so i would say that yes standards best practices are appearing pretty much everywhere um but we also see that regulators and advisors sometimes are taking very hard decisions on what the best practice should be if you think about singapore or some countries in southeast asia in particular they have imposed that most of the assets are in code storage and although i would argue that maybe there is some goods to it it also puts the regulator in a position where the regulator takes a very hard decision on what is the right approach

to deal with security and i think that we've seen that in other fields but it is still quite interesting to see how the market is moving where best practices become potentially mandatory practices thank you for this answer um i'll now give the leads to uh to uh to uh marcus and uh he will talk to us about the business opportunity um marcus you have the lead you can uh you can begin talking thank you gabrielle and good afternoon ladies and gentlemen my name is marcus perdueza and i'm the ceo of swiss crypto vault and head custody at bitcoin swiss before joining bitcoin swiss i led pwc's

blockchain competence center for the last four years and i'm also a co-chair of the crypto valley association's cybersecurity working group by the way if you don't see a presentation then that's because there is none we'll have to take this face to face as in the past first let's take a step back to understand what is a crypto vault we need to understand what is custody costly is when you give me something and i keep it for you until you request it back like this you give me a hat i'll keep it for you until you request it

back and then i get it back to you but custody in crypto is different look at this it's a vault a crypto vault it's a bit box too a swiss product by the way in cryptocustody you don't give me anything but you do send assets into an address that's associated with a private key that is managed in this device and i provide you with a system that will allow you to get it back when you need it so you heard from atria that we do store something in the vault and that's obviously the private key and we have an elaborate rule set

around who can access it that's the secure rules engine and that sounds very similar to safe deposit boxes a traditional bank business and also a swiss specialty and it is indeed similar the safe company operates a system consisting of a process and technical security measures and you can bring or send your stuff into it and you can extract it again following a defined protocol the approval rules so let's look at the safe deposit box the bank operates the vault the safe according to specific procedure you as their client you're able to

enter the room gain access to the safe and then you have the key to the box and only you have to key nobody else and that way you can put stuff into the vault and remove it again that is actually similar in cryptocustody and cryptovolts and for what it's worth in a proper third-party custody system don't accept a device like this because when i hold it i have access to its transactions and i'm potentially able to extract the private key you don't want to have that in a proper

cryptable solution a proper volt system is locking down access to transactions and private cts such that nobody of the volt operators is ever able to access your transactions or the private key and only authorized clients are able to initiate and approve transactions this is just like with safe deposit boxes there is a huge tradition of safe asset custody in switzerland going back hundreds of years and that's why the crypto custody business is also big in switzerland it's a trust business you need to trust the vault operator that they won't lose the private keys

and that they won't be able to run away with your assets obviously one way to reduce the trust and bring in transparency is audits and control reports that just as a slight notice switzerland has a long tradition and a very good reputation in the trust business and that is one of the key value propositions also for crypto vault businesses in switzerland now we are all here because we believe in the power of decentralization and the need for digital and programmable money we're here because we believe there will be an explosion of digital assets and everything will become digital that

is the primary business opportunity for crypto vaults people need to store their digital assets companies need to store their digital assets and even digital autonomous organizations need to store their digital assets it's a huge market it's much bigger than everything that people are storing bank holds today having a crypto vault is required infrastructure to do any kind of business in crypto and digital assets as more and more assets are digitalized they will need to be stored in digital worlds as more and more companies digitalize their business models they will need to sort their

assets in a digital world but you know what the ability to store digital assets is not the end of all means you also need to be able to buy and sell these digital assets to transfer them so the brokerage and the access to liquidity is just as important to digital assets as his custody brokerage is also part of the base crypto infrastructure once you can buy sell and hold crypto assets then you start to become a full citizen in the decentralized world and if you are not already there today then now is the time to invest

in building this infrastructure for the digital age banks institutions funds and all kinds of startups are now starting to build on digital assets and the first step they need to take is to build the infrastructure for digital assets we've seen startups building on blockchain for the last 12 years and we see a massive influx of traditional financial institutions now they start to enter the crypto assets and tokenization space heck even dbs in singapore and a lot of swiss continental banks are working on crypto asset projects now all of them are starting by building the infrastructure first

to build the custody and payments and liquidity rails that is the increasing business opportunity for custody providers vaults and crypto brokers now for the longest time being able to buy and hold was all it took to be happy in crypto prices increased and by virtue of huddling people got very rich however luckily that is no longer the case now the smart money is working to earn more money financial products are living on the blockchain this is staking this is decentralized landing

yield farming this is rv maker and all the other d5 protocols that are out there and this is great finally my digital crypto assets are earning money while i sleep just the same way as in traditional banking but it's a challenge for us in the vault business because it requires a smart vault what is a smart vault it's one that allows the smart money to work while it's stored in a high security vault for the longest time cryptovolts were happy to just provide the secure holding of crypto assets that is the huddle use case

and this is changing bitcoin swiss vault provided by swisscryptovolt was the first fully audited custody system to offer staking earlier this year and will continue on the path of the smart vault walls are not only in the structure walls need to be smart infrastructure i think we can fairly say that as a sector we have solved the challenges of securing large amount of crypto assets but what we have not solved across the board yet is to provide a system that unlocks the full potential of smart money while keeping it in the high security of a crypto vault

the challenge of smart infrastructure the speed of innovation in defy is adults with the requirements for having a stable and highly secure vault as a base infrastructure and we are working hard to unlock that potential for our smart clients because at bitcoin swiss we are committed to building the smart infrastructure for the decentralized financial system and we're not alone in this we're in this together that's why we're all here as members of the crypto valley association and with that i'd like to hand over to gabrielle for questions thank you thank you thank you marcus uh

thank you for your presentation i especially like the the part where you talk about uh dematerializing the the bitcoin swiss cap uh three talk to me uh with regard to uh the chat people are still very shy but there is one question that someone wants to ask you um basically when you talk about custodials it means that there is no seed words that that is a that is made what do you do in case there is a legacy or a heredity case with those assets as a custodian we have a relationship with our client that is based in

traditional law and if our client disappears and leaves their heirs just as with any normal relationship their heirs will inherit what is stored in our world obviously they will need to know to access codes and access permissions of the person who set up the initial account okay so i hope this answered the question um i have a small other question

uh coming up um we we have a aml uh question coming up but we'll deal with that with tina um but with regard to to the the market that it represents does it does it represents a big market with regard to the to the institutional actors or um is it a retail market uh maybe you you heard of uh this uh this way the vincolvos brothers used to uh to uh store their assets like having uh one cryptographic key in uh in a in a in a safe uh in a few places around the world um i mean is it

is it a retail market really or do you need to have billions before you you invest in a crypto vault operating a crypto vault comes with a cost and we need to recover that cost from our clients as any other custody operator and frequently what volt operators charge is a small percentage of the assets on the management on a yearly basis we say that it's worth having a proper enterprise ready and high security vault for your assets when you don't want to worry

about how to store your assets and when they are a large enough amount of value that you would worry about did if you didn't store it in a world and on a numbers perspective that starts uh based on our fee starts about at one hundred thousand swiss francs but we recommend clients submit their assets into the bitcoins result okay thank you um in order to to to keep it uh to keep it uh on time to uh i will now ask vance on the best who works for a ledger uh who also develops a vault uh solution to take the lead and talk uh with uh

to talk about his presentation and what he wants to share with us today don't hesitate to to keep writing your questions and i will i'll try to make them fit within the the schedule we have thank you gabriel normally you should all see my screen so please shout if it's not the case um so um thank you very much for having me uh today uh thank you to the crypto valley association my name is monson vasana best i'm product manager at ledger based in paris um today i want to speak about the ledger volt solution our logical solution is our solution our

solution for institutional customers we want to adopt crypto assets it's live since september 2018. um what makes us different is that we are very strong believers of in hardware security uh like our my previous colleagues from the industry and uh we take that to an extreme we use hardware security module but we also use personal security device which are put in the hands of every user working on the platform as you know ledger is very present in the hardware space where we sell our hardware wallets and ledgervault is the solution which adds upon the security the governance layer that you need as a financial institution

i want to emphasize that we are a sas provider we provide the technology we are not a custodian so our customers are financial institutions either custodians or asset managers who want to secure the cryptocurrencies today i want to speak about the key considerations a custodian or an asset manager should have before selecting a technology vendor so it's mostly agnostic over technology solution i don't believe that there is a one-size-fits-all uh when it comes to technology for cryptocurrencies depending on your use case the best solution uh will vary and i just want to highlight what could

be the key question you would need to ask yourself before selecting either a partner or deciding to build a solution in-house um so moving moving on let's start by looking at the business considerations and this is basically an aggregate from discussion we had with our own customer prospects in the market so the first and again uh the business the business is really really important a lot of uh institutions are approaching this problem from the technology angle technology is important but business should be put at the center

for instance uh one of the first decisions that you will need to make is are you going to manage segregated wallets or omnibus accounts so depending on the regulation you might not have a choice but if you have to operate segregated wallets it means that for instance you will not be able to do transaction batching on bitcoin so your transaction fees will be five times higher so if you have an institutional customer base it will have a very little impact because they do large value transfers and the network fees of the blockchain are very small compared to the transfer size if you're going to address uh smaller customers in terms of asset value this network's fees will add up

another question you want to ask yourself is what will be your transaction volume and i'm not speaking into a total amount but in number of transactions because depending on your transaction volumes a different solution might be relevant and it really depends on also on your willingness to automate everything or to have manual check in the transaction process if you automate too much you might include introduce too much operational risk in your platform if you don't automate enough uh you might have a competitive risk because it will be hard for you to comply with the slas when uh you have a bull run on the market and a lot of people are trying to

make transfers from your platform i want to illustrate with a concrete case um as you know if you have a hardware wallet doing a transaction is fairly simple you plug in your hardware wallet and you create the transaction on your platform and then you approve it on your device and it's sent um we spoke about multi-approvals multiple people having to prove a transaction and having such a process can make operations sometimes complicated so i'll take the example of doing a midterm transaction which is the illustrated here in the middle of my slide if when you do a transaction on dhrm

blockchain uh you need the nonce uh of the previous transaction in order to send a new one and if you're working with a solution for example uh npc what you are going to authorize is the raw transaction the one containing the inputs of the blockchain so it means that if you have three transactions to make you need to do the first one have it fully approved and sent to the blockchain then you need to then only you can start the second one so you have your transaction go which are going to be really sequential so if you have a lot of transaction to make and and and it's a manual process it can take a very long time if you are taking enough for a different approach like we do

uh with progressively module uh what you're going to approve is not the road transaction it's actually a request for transaction to a specific beneficiary with a specific amount and since it's only a request and not the raw transaction uh you don't have to think about uh the dependencies between this transaction the platform will manage for it for you so it can make the difference of doing free transaction in 20 minutes or two minutes and that's a major change if you uh and that's only possible if uh if you use something which uh works in this paradigm of first approved first time instead of first created for signed that's really a specific example um another example and and there are of course i'm

cherry picking an extreme example if you decide to opt for multisig on blockchain uh for example if you would have decided to uh uh use multi-sig smart contracts on ethereum um you could have uh uh leveraged it for a couple of years without too much issue but with the d5 credits we've seen the network getting more and more busy uh creating a wallet could cost up to 20 to 30 dollars uh depending on the price of uh uh of of ethereum and the business of the network while on an hsm or mpc for the matter creating an account would be free sending a transaction five times more expensive than a normal

transaction in terms of network fees and creating an address would also be something that you have to pay for uh while it's free on solution which do not do this directly on the blockchain so again depending on the size of your customers this fee can add up if you need to subsidize every wallet up to 30 dollars before your customer does anything um if your customer size doesn't allow to absorb uh this uh because uh basically they don't have so much value if you're looking more towards the retail space uh this might not be the right solution for you going back to uh the operational concerns um you need to think about what you will be your business owers your

transactional slas and will your solution enable you to work remotely um if you have a solution which is tied to a physical location we spoke about uh spoke about cold storage where things were really related to physical locations you might have a problem in the case of a pandemic so we could see for ourselves at ledger that two years ago uh being able to access the vote uh remotely wasn't that important in some cases and um and and we were really surprised by that and their the mindset completely changed of course during this last year where um our customers are asking their operators to be able to interact with the platforms

securely from their home so you really need to take that into account and even before speaking about the technology you need to think out how you can address these specific challenges uh last but not least depending on your use case you either want to solution for yourself or you want a solution which you will enable to expose the service to uh to your own customers and once it comes to extend this is extending this service to your end customer how do you make sure that this leg uh this exchange of information is secure as well um we have an answer at ledger but what we've seen from the market is that uh in in order to take withdrawal requests for

instance uh it's used to start with phone and video calls uh sometimes facts sometimes whatsapp a lot of solutions which are completely out of band of the solution um uh the crypto fault solution uh there are also for an application sometimes they make use of a secure and clear difference sometimes not that two-factor mechanism as well google google indicator sms based uh ub keys and we believe that the gold standard is really made for purpose uh dedicated hardware so at ledger uh each user operating uh on the level platform gets a device which is a a small tablet which contains his identity and which

enable them to validate on their device that this is the operation that they want to do this secure device communicates for a secure channel 2d hardware security module so you really have security end-to-end and you can distribute these devices to your own customers if you're a custodian so you're really secure the overall relationship with your platform now moving on to the technical aspects so uh how would you go about having a solution uh from a technology angle would it be best to buy or to build i don't have the solution for you uh out of the box it depends on your use case but now things

i can tell you you need to think about because we had to think about it while we were building our platform so in terms of day-to-day um how frequent will the updates be and that will also depend on how many cryptocurrencies you will support so uh for the last two years we have released a new version of the platform every month it's a sas platform so it's very easy for our customers to um to basically follow because we do everything on their behalf but will you be able to update as frequently also knowing that unlike our resolution outside of the cryptocurrencies market your update timeline might not be in your control for instance uh over the weekend you

might have seen on twitter all the noise around euphorium and some service providers of explorers being down because there was a change at protocol level which was miscommunicated to the key suppliers so basically the whole foreign system is to certain extent uh for some a bit centralized because it relies on a couple of critical providers uh but these providers they need to be to follow very actively what happens for each and every cryptocurrencies it's a huge challenge it also means that you need to change your planning very quickly and and and have the the uh the relevant competitive intelligence uh on all this blockchain in order to

react quickly are you ready to operate 24 7. these are not traditional financial markets it's not eight five or twenty four five it's 24 7. so you need to change your organization in order to achieve that and it requires some scale um before even thinking about maintenance do you will you build your own infrastructure so have you looked at the price of hosting hosting notes hosting explorers caging for your secure hardware um if you look at just basically that cost even without a human cost and and have you made the computation how much would it be in your country or in different distributed

geographical location can you maintain the technical knowledge for over 20 cryptocurrencies having the knowledge for 20 20 cryptocurrencies three years ago it was not so complicated now the top 20 is increasingly different there are less and less copycats of bitcoin the top 20 they all have original cryptography different mechanisms and so on so it's getting more and more complicated to support the top 20. supporting bitcoin and basic function of bitcoin it's easy if it's all the only thing you want to do probably that oh almost all solutions do it but now when you go outside of the top 1.2 the what is available open source

uh is the stable is this reliable and you really want to have people with deep expertise in order to help you how many suppliers will be will you be dependent on um there are there are a lot of suppliers for the different building blocks of a crypto vault will you be ready to manage all these suppliers knowing that your sla will depend on their estilas and you need to come to take all these factors into account and last but not least how advanced is your security and will you get certified so building a solution is the first step but uh having a stamp of approval from third parties in order to get insurance in order to

uh restore your own customers is as important this is complex because there is a lot of education going on when you undertake that journey and um also it takes quite a bit of time in order to have a third party evaluation like a common criteria on your on your platform so uh just in order to conclude really i wanted to highlight that there are a lot of details uh about each crypto currency a crypto vault solution each solution each technology will have its pros and cons and there is one number one size fits all but it's very important that you make

the right choices because your custody solution will be the foundation of your other activities like marquis highlighted it custody is not an end in itself you need to be able to provide uh value-added services on top of your custody offering and making um making sure that you've identified all the use cases which are relevant to you now and the future will make the difference i think and obviously i'm biased as a technology vendor that today the market has and related to the the question uh the before the market for institutional is still relatively small we're speaking about maybe up to 50 billion in

cryptocurrencies in the institutional space um so as i mentioned a couple of points where uh you need to maybe try to conclude in one minute because we are 20 seconds 20 seconds i think it's very important that you think about the economies of scales uh in in your solution and buying a solution might be your uh your your way to really enter the market and hit the ground running very quickly that's it thank you russell so sorry for the small interruption but i want to keep it on time um i have a question for you from the audience um regarding the the you talk about the low fees and uh someone who

was wondering whether regarding low fees and the compliance table bitcoin why do we only see a bitcoin swiss supporting the bsv and is it are we having a swiss neutral approach on the disregard are we are we being kind of neutral or is it a good environment to develop so i can only speak for for ourselves and we are not swiss we are a french company but um i i can say that uh for us every time we want to evaluate it evaluate the support of a coin we'll look at different different criteria of course the relative size in terms of market cap is it worth it for us to spend the time but also a security mechanism uh in

in the cryptocurrency here the lack of um of some security mechanism is the reason why we decided to not support psv okay thank you thanks a lot you'll have the the chance to all debates about uh all the what's being said uh i'm happy to to hand the floor to tina uh and tina will present the the legal aspects and it's uh it's uh it appears that we have many questions in this regard so tina the floor is yours thank you very much gabriel so hello everyone my name is tina barsley i'm a partner at pwc heading the legal banking

fintech and blockchain operations so next few minutes it's about regulatory environment around custody of crypto assets so the first thing which of course comes to our mind you all know that next year supposedly already on the 1st of august we're going to have a own kind of swiss dlt legislation special thing about that legislation is that it's not like a one-off uh statutory act it's actually an act um changing other laws and as such i'd like to point out here in the context of

cryptocurrency one major change to the law which concerns the clarification of segregation of crypto based assets in the event of a bankruptcy of the custodian so which is of course a vital question when it comes to the security of your assets when having them with a custodian so um the new act proposes a change both in the bankruptcy law the swiss banks perhaps we law on the one hand and in the banking law they had

other hand and these two amendments are in parallel so what do they basically say they both do not differentiate between the types of digital assets tokens which are effectively in custody so it is irrelevant whether the token qualifies as a payment token as a utility or even security token the decisive factor is how the the private keys are effectively being stored custodian it's relevant whether the assets assets

can individually be allocated to the client to the third party that's the only relevant factor again not whether in particular it's a payment token or a security type of token which effectively is still one of the major drivers for today's legislation but that's not going to be the case going forward so what does this effectively mean that pursuant to the new legislation it's decisive whether the asset can be individually allocated to the third party now unlike today this regulation does

not require that the asset is individualized on chain that's the significant change here under the new law it's sufficient if the segregation is off chain and what does that mean as a consequence it means that um under the new law own on chain pooling of the digital assets is possible uh without as a consequence losing the right for segregation in the event of bankruptcy and at the same time also without necessarily needing to obtain a banking

license so what is then um sufficient effectively from a legal perspective under the new type of law for segregation purposes it's it's actually sufficient if the custodian has like an internal register at hand uh current law and also the ordinances effectively which are currently in consultation they don't specify how this register is supposed to look like so one can take the rather bold position that even excel tail table would effectively be sufficient

now what we need to understand here is that there are two sides of it the same changes are being made in the bankruptcy law but at the same time also in the banking law now since that the technical specifications have not yet been put out it will effectively be both the bankruptcy authorities on the one hand and the regulator the swiss financial market supervisory authority on the other hand which are going to come up with their practice on what effectively will be sufficient in terms of internal register of the custodian

to have that segregation validly put into place and at least if we're looking at the banking and the finma side of things it is nevertheless quite unlikely that finma will be accepting a simple excel which is manually upheld uh in order to have uh the the effect of a segregation why is that because uh it's not only the finma which is going to be decisive in display it's actually also the auditors which are going to have a say in stake and auditors uh like to have assurance

in what they are effectively reviewing so the type of register will need to be auditable and reliable also for the sake of auditors so currently we don't really know um what will be the best practice going forward for this type of internal register given that on-chain segregation will not be needed anymore which of course is the major advantage of the swiss legislation here apart from the fact that the swiss legislation gives security to uh both uh the the institutions and

also us then as clients in when exactly our assets will effectively be taken out of the bankruptcy state should the worst uh possible event bankruptcy come into place thank you happy to answer any upcoming questions thank you tina for uh this presentation i think the the the legal questions are always uh in somehow in in the heart of all the the discussion we have especially with regard to crypto and uh as it's a very fast evolving world um i have one question from you for you uh from chris christopher

um he asked this earlier but i wanted you to to ask it now um you you talk about the the the aml um the aml regulation with regard to to the the the custodies uh and the the cryptocurrencies also very briefly and you'd and um i was wondering uh what was the the exactly the the the the the criteria that is today uh the one that will be looked at to to to know whether or not you are a financial intermediary especially uh uh when we look at the the ordinance for instance it would be interesting to

to to have the your your vision on the ordinance that is currently under consultation where it's one of the rare time where we we have seen a swiss legislature talking about multi-signature wallets uh i think it's it's quite noticeable and um i wanted to to to um to ask you this question from chris christopher but i believe the the the question really relates to when do i qualify as a financial intermediary so that would be okay exactly so just to let you know um the changes which which are probably coming up in in the aml space they are not now directly connected to the new dlt

legislation dlt legislation has very limited impact um in particular in the area of um trading facilities with regard to aml questions so so it's a kind of a separate working stream of the regulator now generally uh the the notion in swiss law of financial intermediaries is quite broad so anyone who helps to custody transact um uh assets of others is basically already a financial intermediary um so basically if you're involved in custody and especially if you really qualify as custodian in in the legal sense

in that you are really um managing and have access to the private keys then then basically you are already in scope um as also with these new types of regulations regarding the bankruptcy and the banking law act um it basically applies also the segregation right and therefore it's also then relevant for the question whether you are deemed to be a financial intermediary or not it depends on whether the custodian has direct access and can transact more or less than on its own or at least in connection uh with um the client or not with regard to the digital assets if that's not the case if the

um custodian does not have access to the keys is basically just a provider of of a solution in in terms of t and and in terms of the app provider and then he is uh basically not deemed to be financial me intermediary uh either so it's still uh quite clear in terms of law and the kind of differentiation is is not being changed that much in that sense thank you very much um i'll know uh let amy lawrence take the lead and um and um and i thank you all for

your presentation i also like to to thank nikki now you have the flow and me for the part regard to the panel thank you thanks so much gabriel and hi everyone my name is emmy and a shout out to the western chapter because uh the western chapter put this event together and um i'm on the board of the cva i'm not going to take too much time with introduction we are going to transition now to the panel and uh i do see all of you so so that's great this panel is going to be about the evolution of the crypto board because how two years ago of what was functioning and what

requirements it was fulfilling it has evolved since and and there are so many new requirements for a cryptobot so uh to warm up maybe maybe just a few totes that as you said marcus we have seen an influx of volume coming into crypto and finally traditional investors are realizing that cryptocurrencies are a vehicle of great potential and they are not only outperforming traditional banking products but they bring this greater efficiency and transparency as well and it's important that the custody element for digital assets also comes with

greater efficiency and it's even better um than than what we have in traditional banking so to warm up my first question is going to go to marcus and adrian and uh basically what is your experience when you talk to to a traditional type of players that what is the most challenging um thing what what what what they ask or or what they lack to understand so basically how this transition can be smoothened marcus i will start with the first part of the answer which is a

if we consider today crypto native companies like some of the exchanges that have come on the markets a long time ago or actually even companies like bitcoin twist to a certain degree they could build their whole infrastructure in reinventing everything from scratch and what i mean by this is that there was no constraint of habits of internal processes and many of the mistakes that had been implemented by banks in the past have been re-implemented in some of the native companies that have been active uh in the last 10 years and this is what has led to uh kind of lack of professionalism or fraud or or issues with

exchanges or or custodians that discovered their activity and the magnitude of of of the task of the challenge as they were already operating in production and i would even argue that uh several of the banks that do offer crypto custody or crypto services today have started with very uh very simple solutions and this is a shout out to ledger i know a few companies that actually custody their crypto their crypto assets on ledger nano s so really usb sticks you know we are which obviously secure to some degree but they've not they've not been designed for institutional use cases and what we see uh now more lately is uh

for adoption and banking we now have a requirement to provide solutions which can perfectly align with the traditional processes that banks are subject to and have been going through in the last option uh in fact banks wants to deal with cryptocurrencies or with digital asset use cases the exact same way they interact with traditional assets and the capability to provide any workflows to provide controls and risks processes that look the same and can fully integrate and can fully integrate into their core banking systems is now what is the most valuable for

larger banks and more professional banks getting involved in this field when we speak to institutional clients or potential clients who'd like to start coming into the crypto space they're obviously very concerned about how to properly build their infrastructure around crypto volt and brokerage in liquidity they're concerned about forks about finma about fatf and aml they feel they need to build their own vault and we tell them keep it simple just get going they can just onboard to bitcoin swiss

and we take care of everything with our brokerage and fully audited custody services including as to say out here with the onboarding and integration into avalok and other core banking systems been operating securely since 2013 and support the broadest range of coins and tokens more than 150 different assets available to buy sell and hold through bitcoin space thank you so much adrian thanks marcus so the next question goes to vincent and in your presentation you outline the scenario of buy versus build or build and when it comes to resources when it comes

to know-how and when it comes to cost then to me it seems pretty much like a no-brainer that you rather you're better off rather buying a crypto vault as opposed to building it yeah so i think the bar to enter the crypto market as a custodian has kept increasing in the past three years uh two years ago it was still acceptable to enter the market saying that you set your bitcoins down a cold storage and they don't move and that's it now a lot of vendors like ourselves have been working very actively and uh for the past three years and they have built organization in order to grow this solution

and basically enable this financial institution to leverage um infrastructures and and solution which are distributed across multiple solutions which benefits economies of scales so i i don't think it's a clear-cut scenario if you're a very very big tyron bank you might want to go ahead and build this solution in-house but uh we all we also observed that on this market some actors which decided to do that without asking themselves um the question is it complicated will i find the talent without will defender know how who can help me uh we see that this this institution they fail to deliver uh

they are not into market or or they don't have a solution that they expose externally uh i think that while uh this market mature and why will this market scale it's obviously a great choice to start by buying a solution and benefiting from what already exists and focus on building added value services that you can build as a financial solution on top of a custody platform um because the the technology providers are not financial institutions they don't compete with you on for instance lending what they do is they enable you to build added value services and i think that's where um the cryptocustodians of tomorrow should focus

thank you very much vincent uh the next question is uh for tina thank you for for your presentation earlier and basically the european securities and markets authority has not defined the other safekeeping of crypto assets um in switzerland we are as usual ahead of the game and with the blockchain law we have a clear vision on on how to regulate uh custody now how do you see the impact uh on the field of the blockchain law and also pwc pwc switzerland can help institutions who want to cost the digital assets and and how you do that

so thank you very much every first part of the question regarding well um what does it mean that switzerland is now ahead of the game actually in terms of clearly um stating how the asset should be treated for instance in in the event of bankruptcy of a custodian um now the thing is yes that's an advantage uh it gives legal security uh everyone wants to know what what happens in in the worst case um and so so switzerland will of course become even more attractive also as a custodian in the digital asset space however having said that um that's let's say part of the picture because

even if you are a swiss institution and you have your rules and regulations in place obviously for switzerland you have security on how this will be treated and this will of course also apply to any kind of clients which are based abroad but the question is um are you allowed to offer your services uh in in these foreign locations or not and if so on which terms and that is not so much a question of swiss law that is to be answered and to be looked into uh by the foreign legislations um is it at all possible for instance to offer this kind of cryptocustody uh on a cross-border basis

um or is it rather also treated from from the foreign law perspective as a banking service which needs to be regulated um or cannot even be offered on this cross water bases under certain circumstances so yes the change in law in switzerland is certainly um an advantage uh puts the swiss financial market into a preferable position but it will also depend on how um this kind of service is deemed abroad and whether it can be offered and on which terms to client support second part of the questions well how do we

assist institutions in the market we assist institutions in the market in assessing their custodian setup how this will be treated from a regulatory legal perspective here in switzerland uh it goes far beyond uh just this type of assessment we also assist on on technical parts on assurance parts uh in in auditing uh in a non-financial way uh the setup and giving assurance also with regard to the setup so a broad uh perspective and uh offer of services in the cryptocurrency space thank you thanks so much tina i think that's so

important because basically in custody or custody infrastructure you just have so many companies offering their services so definitely you need some guidance because otherwise you can just get get lost quickly um i would have loved to take a question from the audience but there is no question as of now so i would like to encourage all who are listening to to uh throwing the questions into into the chat so the next question is addressed to marcus adrian and vincent and um this is basically what i mentioned at the beginning that the the role of the vote is so different today

than it was two or three years ago so uh i'm curious how you see this marcus maybe maybe you would like to start let me start with the product you and the cryptovolt is at the heart of the core banking system of the future the core banking system of the decentralized world that's how we look at it and its role is to keep assets safe and enable money to work so it's the smart world that allows our clients and everybody to participate in on-chain financial transactions such as staking defined governments when taking on this um i would say the

big difference is i mentioned it already but it's no longer about storing tobacco is positioned slightly differently than bitcoin swiss is we are a technology provider we support banks with sas offering or non-promoting so that they are self-custodians themselves they are in control of their keys and they don't have to rely on a third party uh to manage their keys it is obviously a trade-off it's always the same thing um it's different to work with a company that be consumers and used to work with us but we provide the whole infrastructure for banks to now start using these cons and investing and tokenizing and we think really that the trend is now moving in this direction uh we see strong demand for

cryptocurrencies uh but also now for um the new use cases related to staking and decentralized finance yeah so so i agree with both uh marcus and adrian i really think that uh your your crypto vault will be at the center and and we'll need to communicate with many many other services um documents for for clearing offering for better liquidity management's a solution your uh default needs to be able to be able to interact with solution to generate yields also we see more and more demand demand for layer 2 support which could make

blockchains more efficient tokenization like as i mentioned is a very important use case and as well there are some support or or compliance services uh which basically need to do to communicate with your crypto volta such as uh kyt providers enabling you to have a good view on the origin of your assets thank you very much for all three of you then the next question is uh to tina and i'm curious to learn that what is your biggest learning as a lawyer in the crypto space around the crypto world thank you emmy

well it's as always with lawyering and and actually it has been confirmed that uh the standard answer of a lawyer that it depends is is just as valid um here as elsewhere so having said that i mean we're talking about an emerging market uh there are no like technical standards out there yet at least that is my take from a pure a lawyering perspective and that means that we have to look into every solution on a single case basis and only when looking into the specifics of the single case we can then assess from a legal but also from operational and from assurance

perspective what effectively and how how the solution effectively qualifies so um as always we need to look at the detailed case and then assess on a single case basis and this will change eventually uh if if kind of a single solution should become the standard but uh until we're there and and and uh hopefully uh we'll still have a lot of competitors on the market going forward and there will still be enough work also for us lawyers and other specialists that's of course the good news yeah we certainly need you all um

not a doubt so before taking uh the questions uh from the audience then i have a last question for each of you and that is that um so entering the crypto custody field can seem like a very lucrative business and um what are the value at of each of your companies and maybe this is just in a few sentences so the respective companies you're representing today and then how do you see the future of the crypto vote evolving um if that was not covered yet in the question two questions before

who wants to start it okay i i i can start um so i think uh wave the ledger volts um so is this a very low creative business i i guess uh it depends uh like uh like traditional custody it's uh it's a game of scale so it's about being able to uh support uh many customers and and there it's the amounts which come into play because most of the models are based on fees uh a percentage of twitter langums um and what makes first solution different is that we are the experts in hardware

security we are the experts in the hardware uh retail space with the legend and os where we sold over 2 million devices and in the vault space we have built a unique solution with this combination of personal security device on one hand and hardware security module on the other hand which can communicate very very securely so a model is simple it's a sas it's very easy uh for financial institution to integrate it uh within its current operations that's it i'll be happy to follow up on that one

because he said simple and i did have my sales pitch earlier already so i'm not going to repeat that but we're very serious about keeping it simple and for many of the institutional companies out there who are taking the first steps now they don't have a very solid understanding of the strategy of why they do crypto or what should be the next step and for them it's really valuable to just do something and get going to get their feet wet in the crypto world and that is really easy to do with a full service provider that offers both audited custody and best execution brokerage

and who has experience with onboarding and getting other banks and crypto funds and proper funds into the crypto world we are here as a pathfinder to help clients do the first step in crypto and decentralized finance and we're more than happy if some of our clients go down the rabbit hole and become very serious about it and start building their own infrastructure and trading desks and everything that's us spreading the word of decentralization and crypto financial services that's what we're here for well let's be clear with what's happening on the market today i don't know of any bank

that has got into cryptocurrencies that is today having an incredible business case with digital assets i think this is a market that is becoming that is also obviously going to be a massive part of the financial industry in the future but today for banks to invest is an out of the money option it is a highly leveraged investment in which they can get in to not miss out of something which is coming for sure there is no way out but which which may still take a couple of years or maybe a bit more that it becomes evident for every institution on the mark is as the entry point to that market we

have been out in europe in general with some of the largest banks on the markets that have made the move to get into digital assets i'm not saying our clients make money we are making maybe more money than they do but what we know is that they have important commitment to that to that to that system because they see what all of us see i'm doing this uh in this webinar that this market is growing bitcoin is reaching again the 20k tokenization use cases are growing d5 is becoming more and more exciting and what we see today happening with finance in two or three years from now is not just going to be the disruption of finance it's going to be disruption of most of the contractual relationships

and i'm pretty sure nobody can opt out of such a revolution so medical is the foundation for this and we will continue pushing on all of the markets that we're presenting to guarantee that we are the enterprise reference for digital asset management so happy to conclude from from our side fully agree it's an emerging market still to date so we as pwc we see ourselves as guide through this emerging market as independent guide and coming together from from various angles we have the technology um knowledge internally we the audit knowledge obviously also the legal regulatory audit um

angle so uh in terms of value proposition we can cover any kind of question um you as a market participant might may have um and it is our biggest pleasure to to help clients find their way through this kind of new developments so that the best possible solution is at the outcome of things fantastic thank you so much for all for a few so we can take one question from the audience and that is basically the cbdc one um fabio keller is asking do we need cbdcs and if yes how many globally i don't

know if anyone is brave enough to answer this question or is there an answer for this but what is the impact on custody when it comes to cbdc's who's going to custodian all central bank digital currencies so this is the pick that we know very well at medical several of our shareholders are some of the very famous central bank suppliers and on the for cash uh and for cash management printing and what we see and the numbers we observe and our discussions with central banks is that today 80 of central banks are doing research on cbdc out of which

half of them so 40 percent of central banks have now prototypes ongoing on how they could issue cbdc and 10 of all central banks have concrete initiatives to launch a cbdc so what happens this is coming and the before kavitz before libra and all other stable initiatives this was still some sort of long long term dream that potentially at some point stable coins could be issued by central banks and be part of the crypto economy what we see today is that it's no longer a long-term game this is something that could come three to five years even shorter for some of the central banks what does it mean well the big difference with cbdc is that there is a direct relation between the

central bank and the individual you may be able to bypass the intermediaries in between the commercial banks the payment processors this is a huge disruption of the payments networks the way we see them today and keep in mind that payment is still the number one and number two source of revenue for commercial banks on the market so we see a new model where they have to adapt and they have to align with cbdc and potentially they have to compete with not just bitcoin swiss and and the other customers on the market but also google facebook and and apple which come on the market as technology providers and suddenly

become immediately compatible with something which has become more technological than financial obviously we see merakos being a big player also on that field both supporting central banks and commercial banks having to interact with cbdc thank you adrian someone else has anything to add okay thank you so there is one other question which i believe this is for you tina and i want to be mindful of the time so maybe um maybe if if you want to take it i'm happy to read it so how can we help dealing with uh i i don't know this word of obfuscation

i think there's a type when there so privacy feature is built in on different chains like monero z but also schnorr or btc and mixers so how how do we treat these chains in terms of cross-border compliance issue c f a bans um yes okay um that will be a difficult one to to answer briefly uh maybe you can accept me afterwards the contact person um but generally i mean if we're talking about custody if we're talking about payment services it brings us back to email uh requirements um so so you need to uh

know your client uh where the funds originate from and and obviously these types of um points bring certainly don't uh enhance and and and make the process easier um so uh basically they they pose additional questions and um burden on on the custodians and and the financial intermediaries transacting with them thank you so much that that was actually here very briefly in the crypto valley association's cybersecurity working loop we recognize the importance of privacy features

in blockchains and that's why we have started research into what are the different privacy techniques that exist at all the different levels from smart contracts off-chain down into the core protocols of blockchains and that would allow then banks and other regulated entities to properly choose which techniques and which blockchains to support with what measures to properly guarantee compliance to all legal and regulatory requirements that is upcoming in about a couple months so stay tuned for that publication if i may add just something uh about this uh privacy con

are are dealt with uh in the the new ordinance uh with regard to the listing of uh of those coins in multilateral trading facilities and they are actually withdrawn from the possible coins that can be listed so if you cannot make sure that the aml uh regulation is uh is respected your coin is cannot be registered and listed uh on a mtf according to the new swiss legislation but it's under consultation sorry i just wanted to add this because i think so glad that the lawyers here knew how to how to answer um fantastically to the question i would

like to put my hands together to tina vincent marcus and adrian this was a fantastic panel and uh and i will pass it on to you gabriel's word closing words thank you yes uh thanks a lot uh i would obviously uh like to uh to uh thank you the four speakers but also uh uh emily lawrence and nicky nikki who does all the work the design and the the marketing stuff for the crypto various session and she does an amazing job and um it was a real pleasure to have you and to to to be able to make you discuss about the script of old issues and uh i just wanted you to to say

thanks and uh but i i have no ending sentence so um i would simply say that that it was great and i hope that we can all see us see each other again and discuss about feed the future of the crypto vault and the blockchain ecosystem in switzerland so thank you guys and have a great evening thank you guys thank you all have a good day thank you so much