The world of digital currencies includes a range of elements that may seem a little, or very, confusing to the average person. One of the biggest problems of the market, discouraging many from venturing into it and actually leaving it outside the financial mainstream, is the lack of privacy in decentralized commerce. The problem is being tackled by Fireblocks, a pioneer in the field of digital asset security in Israel, and one of the most valuable unicorns on the domestic tech scene. Cofounder and CEO Michael Shaulov tells "Globes" about the issues that characterized the market when the company was first established and what distinguishes different cryptocurrencies, which flourish like mushrooms after the rain.
Fireblocks provides the infrastructure for organizations and other players that work with blockchain technology (stock markets, banks, hedge funds, non-bank credit companies, etc.), through digital asset management security. Fireblocks was founded in 2018 by three serial tech entrepreneurs. Shaulov is a cybersecurity entrepreneur as well as an angel investor. The rapid development of the company, on whose platform more than $4 trillion worth of assets have been traded, shows how far the cryptocurrency investment market has developed.
How do you address concerns regarding the decentralized market?
"We provide the market with a lot of security. We give certainty to customers who wish to carry out secure deals in the cryptocurrency market, assuring a secure transaction by a trusted company." Shaulov explains Fireblocks' ability to cater to a real need in a market that ultimately, he stresses, does not face government regulation.
Hundreds of millions of users on an infrastructure from the 1970s
How did you break into the market?
"When we started the company, it was one of the worst times to enter the decentralized market. Bitcoin was at its peak growth at that time, trading at around $40,000 per coin. Six months later it fell by almost half its value, which caused many to jump the boat and lose interest in cryptocurrencies. But we succeeded in growing despite that, using our solution."
One of the tools provided by Fireblocks is a secure infrastructure for digital wallets. "The digital wallets are of course secure products that provide necessary security in today's digital world, but there is an important component beyond that which is sometimes overlooked, and that is the speed of operations."
Shaulov explains that in the past there were "cold wallets," not connected to the computer at all times, rather like a flash drive, requiring use of physical servers that was extremely cumbersome. "Every time a user wanted to operate, it would take a lot of time, making every transaction very slow and inefficient."
Was the financial system itself slow?
"Absolutely. Actually, when we started entering the market, we understood the technology but we were not familiar with the finance world. We had to study the field to understand the system's needs. When we started reading and talking to finance experts, we realized the infrastructure built for the financial system is not at all innovative. It was built in the 1960s and 1970s, before the internet that we know today and it hasn't changed much since then. The gap between the technologies we brought and those that have existed in the most advanced financial systems was huge."
Many companies do not allow transactions with all currencies out of caution. How do you operate?
Shaulov says that they do not favor certain currencies over others and that the company allows for account abstraction so that the wallet is secured regardless of the type of currency users work with.
As any amateur cryptocurrency investor will testify, new coins pop up every day and the difference between them is not always clear. Moreover, the question arises as to whether it may be just a matter of time until secure decentralized currencies will eliminate the need for information security companies.
"There is currently no technology that seems to challenge us," emphasizes Shaulov. "The arms race between the main currencies is in a completely different aspect - the speed and scale at which they can operate."
What do you mean?
"With Bitcoin, the operation time until an operation is confirmed is long: 15 minutes. In the case of a currency like Polygon or Solana it is less than a second. From the outside it may sound like an unnecessary race - why does it matter? But if we think about it in terms of a purchase, do I want it to take 15 seconds for the credit card I have on my phone to go through when I buy coffee every day, or do I want it to happen in a second?"
The second aspect is scale. That is, how many simultaneous operations can be taken on by the blockchain network. Shaulov points out that Visa performs millions of transactions at the same time, a goal the various technologies in the cryptocurrency market are trying to achieve.
Two very interesting coins have recently been launched: one is WLD, by a company owned by Sam Altman, CEO of ChatGPT, and the other is a decentralized coin by PayPal. Can these coins change the market? "The new currencies will still have to compete in the market. However, PayPal's currency can change the game. They worked on the issuance of the currency for years, and it seems it will also solve a real problem in the market: there is a gap in international clearing that their coin can solve and execute quickly." Shaulov says that this type of currency can completely open up the market and change the global ecosystem.
Do you think we will see a smaller number of coins in the future?
"I think there certainly will be fewer networks than there are today, simply because there will be winners in this competition. I think the answer to this question is similar to the OS wars. That is, you will probably have systems that will be very effective for financial applications, for one reason or another, and you may have systems that are much more suitable for gaming applications, having features suitable for that. In the end, there will be mainstream systems and niche systems."
He concludes, "We will see a future where the blockchain enters the financial mainstream and the various currencies give dedicated solutions to existing problems."
"The regulatory struggle in the US is political"
At the present time, the situation in the US market is extremely complex. It seems that regulatory authorities have declared war on the cryptocurrency market, with the Securities and Exchange Commission (SEC) conducting a legal battle against several exchanges operating in the US and delaying approvals of financial operations that would bring the decentralized market into the financial mainstream - such as providing a permit to issue a Bitcoin-based ETN.
The last battle surprisingly ended in favor of the decentralized market, when the US court of appeals rejected the SEC's reasoning to deny Grayscale a permit to issue this type of ETN. Now, several large companies are waiting for similar approval.
"The regulatory authorities' struggle with the cryptocurrency market is largely political," Shaulov explains. "The Democrats who currently control the White House and the Senate are pro-financial regulation because they own the banks and can pressure the economic system in the US." In addition, Shaulov explains, Sam Bankman-Fried (the founder of the FTX exchange that collapsed in November of last year) donated a lot of money to the Democrats, so they need to prove they are not connected to him. Shaulov adds that SEC chairman Gary Gensler is also a Democrat, which influences the SEC's opposition to introducing the decentralized market into the financial mainstream.
Some believe that these are birth pangs that will lead to settling of the market
"In my opinion, this is not what regulation of a market looks like. In other parts of the world, such as Dubai, when they try to introduce regulation to the market, they call several bodies, much like us, to join in a brainstorming session to try and figure out in which ways the market can be allowed to run."
Published by Globes, Israel business news - en.globes.co.il - on October 5, 2023.
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