Given multiple incidents of security breaches and hacks in crypto exchanges in recent years, securing the cryptocurrency wallet has become a growing concern for crypto investors. Amid this situation, Ledger, a Paris-headquartered cryptocurrency security firm known for its hardware wallet products, has gained traction, helping the rise of the new asset class worldwide.
Based upon the blockchain technology, the cryptocurrency network typically encrypts and transmits the transaction data to ensure that it is not known or tampered with by third parties. For Bitcoin, the largest cryptocurrency by market cap, the basis of its encryption technology involves the “public key” and “private key”; in simple terms, the former is similar to an email address and can be disclosed to others, while the latter is can only be known by the holder himself. Both are actually a set of passwords.
For the transaction, the sender encrypts the payment message using the recipient’s public key, which can then only be decrypted with the recipient’s private key. Thus, if the recipient loses his or her private key, the corresponding cryptocurrency cannot be obtained.
Cryptocurrency wallets are in essence storage of the user’s public and private keys. Based on the storage method, there are mainly two categories of crypto wallets, namely the “hot wallet”, which are connected online, and “cold wallet”, of which the data is stored offline, beyond the reach of online hackers.
Last year, Ledger opened a new branch in Hong Kong, and assigned Benjamin Soon as head of the Asia Pacific, responsible for all Ledger operations held in the region. In an exclusive interview with EJ Insight, Soong explained how the crypto hardware wallet firm plans to monetize its opportunities in the region.
Excerpts from an interview:
EJ Insight: First of all, you can elaborate on the scope of what your company does and how it makes money?
Soong: Ledger is a security technology company; we are most known for our hardware wallets, Ledger Nano, and Nano S. We have the largest market share; we are the market leader in hardware wallet.
On the retail hardware wallet side, we ship our devices to 165 countries, and we sold over 1.5 million units globally. In 2017, we did around US$46 million in revenue, and we are still wrapping up our 2018 financials.
In September, we launched a new line of business, the Ledger Vault, which is an institutional business. We saw institutions, banks, hedge funds all using our retail products, so we realized that we needed to develop a product for institutional use, so that’s how the Ledger Vault launched. Since its launch, we have gained clients in a combination of hedge funds, crypto funds, exchanges, banks, custodians.
Our third business line is our IoT (Internet of Things) business division, it’s basically focused on the security points between different types of machines and devices.
What the Ledger and our technology do is to basically allow the protection of information being transferred from one end to another, so it’s not necessarily crypto, it can also be used in, for example, cars, where you are trying to transfer a message between a car key to your car, or your car’s GPS to Google Maps.
Q: With the collapse in the cryptocurrency prices since the beginning of 2018, does it hurt Ledger’s business?
A: Yes and no. I think when the Bitcoin was around US$20,000 back in 2017, that was a bit more of a bubble. Even at that time, we were telling everybody that it’s not sustainable, it’s going to come back down.
In the retail side, you can see a lot of retail investors kind of sitting on the sideline watching, but actually on the institutional side, we are still seeing a lot of positive momentum. I think the bear market may not be a bad thing in the sense that, it’s giving the institutions, the regulators, a chance to just have some time to put in the right kind of foundation in infrastructure that’s required.
And so far what we’re seeing from big institutions, like very traditional banks or hedge funds, there’s a lot of interest. They don’t see the cryptocurrencies as a “proof of concept”, or something that they want to test out. From the conversations that we’ve had with big banks, they believe in this asset class, and they intend to go into this asset class.
So to your question, I think overall the current market does create a slower environment, but I think things are going to get better in the future. I think the enterprise side, in particular, we’re going to see continuing that growth quite well in 2019.
Q: You have mentioned that banks and institutions are coming to the crypto space. Why are they looking to embrace this new asset class?
A: We are seeing a lot of momentum from traditional banks, funds, and other institutional investors. From the banks’ perspective, the demand is coming from the private wealth business, because more and more investors in the region are buying and selling cryptocurrencies. Financial institutions feel that if they don’t offer a service that supports this asset class, longer-term other banks will and therefore they face the risk of losing their clients.
And one of the things that banks have been trying to prepare is on the [crypto asset] custody side, because a lot of investors are concerned about “how do I know my crypto is secure [with you]?” Being able to provide custody services for this asset class is going to be key.
At Ledger, we have a joint venture, named “Komainu”, with Nomura and Global Advisors, which focuses on developing crypto asset custody technology solutions for institutions. Nomura probably is the first tier-one global bank that is launching digital custody asset division. Once people have seen Nomura doing it, you can imagine that traditional banks in the region, especially the ones in Japan, Hong Kong, Korea and Singapore, will not be left behind and will try to expand their custody services.
Crypto is a completely new asset class and brings upon a new set of challenges for custodians. At Ledger we work with financial institutions and provide technological expertise to enable them to secure crypto assets. This is a new space, so the rules and regulations are being developed as we speak, but my personal opinion is that given the complexity of this asset class we may see certain banks, exchanges, trusts and even hedge funds all act as some form of custodian. This will also be greatly dictated by the investors themselves. If I am a big pension fund, I’m probably more likely to secure my assets through a custody bank, given their size, reputation and experience operating as a custodian for other asset classes.
Q: With the new branch in Hong Kong, how would Ledger expand its business in Asia and Pacific region?
A: First of all when you look at the Asian crypto market landscape, you have Korea, which actually is one of the bigger crypto markets in the world. There obviously is a demand for crypto in China, but there’s also a lot of regulatory, kind of red tape, around it at the moment.
We see a very balanced demand coming across all different parts of Asia, whether at the retail level or the institutional level. When you look at the crypto exchanges, 70 percent of the biggest exchanges actually sit at the APAC region. So if we think about providing security services and custody services, one of the main targets would be the biggest holders of crypto right now, which are actually the crypto exchanges.
When you look at 2018, the actual dollar amount hacked in 2018 was greater than the whole amounts added together in the past seven years. I would say that crypto exchanges are going to be bigger and bigger targets [for hacking], as this asset class continues to grow. So we see a very good opportunity from the enterprise level for us to expand here.
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This is the first of a two-part interview with Benjamin Soong, head of Asia Pacific, Ledger
Read the second part: Institutional market seen key to bringing crypto sector back up