Mike Belshe, CEO of BitGo, on U.S. Regulatory Environment and Institutional Crypto Adoption | Ep. 245
In an exclusive interview with cryptonews.com, Mike Belshe, Co-Founder and CEO of BitGo, talks about US crypto regulations and how they should Be Principles-Based, and institutional crypto adoption.
About Mike Belshe
Mike Belshe is the Co-Founder and CEO of BitGo and Internet Pioneer. At BitGo, Mike Belshe drives product and business strategy for delivering security, compliance, and custodial solutions for blockchain-based currencies. Before founding BitGo in 2011, Mike helped develop the internet as we know it today and was also an advanced tech pioneer.
Mike Belshe gave a wide-ranging exclusive interview which you can see below, and we are happy for you to use it for publication, provided there is a credit to www.cryptonews.com.
Highlights Of The Interview
- US Crypto Regulations Should Be Principles-Based
- Most of the problems that we have today stem from regulators that move too slowly
- Principles-based approach increases adaptability and flexibility for regulators and does NOT mean advocating for deregulation or a light touch
- 35% of the 510 exchanges in the world use BitGo wallet or BitGo services
- BitGo processes approximately 20% of all global Bitcoin transactions by value and is the sole institutional custody provider for wrapped Bitcoin (WBTC)
Full Transcript Of The Interview
Matt Zahab
Ladies and gentlemen, welcome back to the Cryptonews Podcast. We are buzzing as always, and I’m super pumped to have today’s guest on the show a true chiseled vet, Co-Founder and CEO of BitGo, and an internet pioneer. Mike Belshi is on the show today. Mike drives product and business strategy for delivering security, compliance, and custodial solutions for blockchain based currencies. Before founding BitGo in 2011, Mike helped develop the internet as we know it today and was also an advanced tech pioneer. He’s done it all. Been a hot minute. Pumped to have you on, Mike, welcome to the show.
Mike Belshe
Thanks for those kind words, Matt. Nice to meet you.
Matt Zahab
You as well. Super pumped to have you. I know before we went live here, you said your Twitter fingers are a little spicy this morning. You’re in a little bit of a Twitter debate. What’s going on there?
Mike Belshe
Sure. Well, we’re in the wake of prime trust was just shut down by its regulator a couple of days ago, and so people are dismantling that, and there’s an interesting thing going on. And by the way, I love what’s going on in Wyoming. Sometimes Twitter does not capture your true feelings. Sometimes it seems more hostile than it is. Caitlin Long has been pioneering over there. She’s been doing a great job. Love that they have explicit laws and regulation around how to handle cryptocurrencies, and most states and our federal government don’t have that explicit law. So that’s the good news that’s coming out of Wyoming, which I think is great, but now that we have prime trust entering into it may go in bankruptcy. I guess it’s not officially in bankruptcy yet, but assuming it does, there’s this question of, you know, does Nevada protect the clients of prime trust the way Wyoming would? And Caitlin for a long time has been claiming that that Wyoming is superior, and I think from an academic and theoretical perspective, there’s some truth to that. But in practice there’s really not. For one thing, there’s just no case precedent where when a trust company, state chartered in New York, South Dakota, anywhere in the United States goes bankrupt that suddenly the assets of the clients get assumed into the creditors of the trust company. There’s no case precedent on that. There’s a few examples that she cited here and there, but literally that’s not what’s happening in those cases. So anyway, we’re getting into that and I think this can be a sideshow to the real issue. So we’ve had failures in the crypto space. We’ve had institutions that failed in their job, whether it’s it’s mostly been exchanges and here we have a custodian for the first time and how do we prevent that? And the reality is that the Wyoming law about bankruptcy would not have prevented this, right? They could have been a Wyoming state chartered trust company. And if you lose the client assets, the client assets are gone. It’s like, imagine a bank robbery where the bank vault is empty. It’s not like bankruptcy can somehow make that come back. And it’s not like the Wyoming taxpayers are going to foot the bill either. So anyway, that’s the debate that we’re having. And I think there’s two parts of it. One is like look, people need to know that there’s a lot of good ways to do custody of the United States State Charter Trust companies are some of the largest trust companies in the World. Bank of New York Mellon State Chartered Trust Company on New York. The DTC, which manages all of the stocks equities in our markets. Also New York State Chartered Trust Company. So it’s a perfectly viable way to run a trust company. And the arguments to the counter are kind of silly. But more important, we need to have the discussions about how do we prevent crypto failures, whether it be at an exchange or anywhere else. And I think that’s the more interesting thing to discuss.
Matt Zahab
Well, Mike, you just laid that up for me. No defenders in the lane, a clear baby. Actually, that’s a slam dunk. What am I talking about? But let’s jump onto US crypto regulation. I know you and the team. Have had numerous chats with the big dogs who can actually make these changes and you are in the camp that US crypt’s regulations should be principles based and that most of the problems we have today stem from the regulators moving at an extremely slow snail/tortoise like pace. If you were running the show, you are head of the SEC, you are head of regulation. What would Mike Belshe do to make sure that we prevent further crypto failures?
Mike Belshe
Well look, I wish I were smart enough to be able to give you like a perfect playbook answer. I do not have that. And also just kind of on your intro there. I would not put all of the blame at the foot of regulators but I think that they do have a hand in it at this point by having not helped regulate sooner. I think a couple of clear examples. Number one, Silvergate Bank had a massive concentration risk in the crypto sector. I think 90 plus percent of their revenue all came from crypto clients.
Matt Zahab
It was that high?
Mike Belshe
Yeah, why was it that we had a single bank taking the full load of a trillion dollar industry on its shoulders? Like if we had had 100 banks each doing 1% of the banking activity, we would have not had this failure. So why weren’t there more banks? Well the regulators could have helped banks say, here’s how you regulate crypto companies, this is what you do, it’s safe, you’re not going to be in trouble, we’re going to work with you. We’re not going to find you on the other side if you’re doing things in earnest to protect client assets and investor protections. Right? So they have laid a forward path even if it wasn’t perfect, even if it couldn’t have stopped every failure. Just to make sure that we get the robustness which is inherent with having a many participant system. So that’s one example. The second example where I think regulators have now contributed to the problem is lack of an ETF. So we’re getting into BlackRock, I’m sure, because that’s the news of the week. But look, it’s been seven years. It’s been a long time since the first ETF application came out. They’ve been rejected and rejected .Look, if we ran an ETF as a way to get access to Bitcoin, and there’s been clear investor demand for Bitcoin for years, then instead of having to go and wire money to an offshore exchange running out of the Bahamas to get access to Bitcoin, you would have just done it through Charles Schwab. It would have been through all regulated participants, would have been super simple and smooth. And frankly, there’s no reason why a number of these that were rejected should have been rejected. You can even see this in that there’s, like, some ETF futures, Bitcoin futures ETFs, and those have the same controls and the same dependency on having a good price index as a spot ETF would have. So the fact that they were able to approve that, but not the spot ETF, it just shows that there’s some picking and choosing going on which is not related to the actual ETF. It’s related to someone’s desire to decide what can and can’t be put into an ETF. All right, so now consumers, investors, don’t have access to ETFs, which could have been a very safe vehicle, certainly much safer, wouldn’t guarantee perfection. But the regulators haven’t allowed us to do that. And instead we’ve had other types of failures.
Matt Zahab
One of the points that you specifically, Mike, have said many times about the importance and security the ETF, the US has undoubtedly like the best traditional financial firms who specialize in risk sorting on the whole planet. The best risk management people on the planet are US firms and it just seems like a no brainer to launch the ETF. Playing the devil’s advocate side. Why did they not want it? I genuinely do not understand it.
Mike Belshe
Well, look, I mean, I can’t really understand the logic on the other side either, but I think it is about power and money. So let’s see a couple of things. Like is the US the best at managing risk? Probably. Is it perfect? No. And we see that right now completely unrelated to the crypto markets is the inverted yield curve of US treasuries, causing banks to have mismanaged all of their client funds. And this is the cause of, like, SVB going under. It had nothing to do with crypto, nothing to do with Silicon Valley, had everything to do with bank management under supervision of the best and brightest of our regulators. And I’m not trying to put blame on them, actually. There may be blame there, but really what I’m trying to point out is that, look, there’s imperfections in any system that you put forward, and yet you put it forward anyway. And the US markets, the reason I say they’re the best is, like, look at where the US sits in the equities world, in the Treasury’s world, globally, right? We have an open system where US participants participate, where foreign money can participate, and people know that they’re going to have consistency of result. I mean, a lot of what you’re building with trading in markets is markets that people can count on. Right? If you’re going to invest in a market, you need to know you’re not going to get rug pulled. Right? We didn’t hear the term rug pulled before crypto came along. Why? Because we had markets which helped prevent that. It’s not perfect. Bernie Madoff, that guy was a rug puller. Right? So, anyway, I have advocated for yes. If you want to upgrade the crypto risk taking system, you’ll make sure that all the things that we’ve learned from the past can be applied. Now, I also want to be careful here. And you asked a moment ago about principles based regulation. So I want to come back to that because it’s really important. The existing traditional financial system has identified and partitioned risk in a certain set of ways and it has some goodness to it. It’s not perfect, it still has some ability for flaws. What’s happening now is that all of a sudden software has moved into the financial services sector like never before, and anybody across the globe can create financial services products and sell them across the internet. That’s what’s happening. So regulators are grappling with what does it mean to be in that global context? I mean, previously you couldn’t have money inside your computer, right? You couldn’t fit the quarters inside. So all of a sudden they’re dealing with that issue. But the second thing is that this opens up innovation and innovation just changes super fast. So having a rules based regulation where you say, hey, this is rule A, here’s rule B, here’s rule C, and by the way, there’s millions of rules across multiple regulators. It’s like really hard to make that work for all of the innovative types of things. So not every regulator is based off of rules. In the UK, for instance, they have this thing, it’s principle based regulation. And what that means is they set the principles around what types of things are you supposed to be doing for investor protection, so that you can define it across a broad sector of assets and have it work and have some flexibility to it. And I think that so you asked me what I would advocate for. It would be more of a principles based type regulation, which would include, of course, digital assets. It would include a number of things which digital asset exchanges, broker dealers, custodians would need to do, which we’re not necessarily doing as an industry or individually today, but it would be covered under principle and be much more flexible. Now, we could innovate and the regulator might actually. Of keeping up with the innovation. If you go with the rules based, there is zero chance that the regulator can keep up. And remember, the regulator is given a domain from the legislature. Right? So the legislature anoints a regulator to handle a particular set of things, and then the regulator is supposed to operate within some boundaries around that. The rules based approach means that when something doesn’t fit within the boundaries, you have to go all the way back to legislature, which is hard, slow, takes a lot of time, cause a lot of confusion. Right? So the regulator is now in in a bit of a jam. They’re like, well, wait, is this my domain? Is it not my domain? If I do something, am I going to get in trouble? If I don’t do something, our investors going to be harmed. And so they start having to stretch the rules, which is exactly what we’re seeing right now. Right? So, I mean, you could argue then the why are they doing it? Is it political? Is it powers money? Okay, lots of reasons. Some are well intentioned, some we might perceive as less well intentioned. But overall, if we had principled based regulation instead of rules based regulation, I think we could have a system that can adapt to, frankly, the myriad of things that are coming down the pike. Because while we’re educating the number of cases that are in play right now from the SEC, for every single one of those, there’s a thousand more coming. So how are we going to deal with that?
Matt Zahab
Yeah, well said. This is one aspect that heck on the Cryptonews Podcast we’re about 245 episodes in, and this is the first time I’ve ever heard of principle based regulation. I feel like this is something that’s not too front of mind on people.
Mike Belshe
Well, we’re here in the US. So you probably a US centric view, I do. And this is things that have come up over the last several years as we’ve been talking about market structure and BitGo’s mission is delivering trust and digital assets. And I don’t usually like mission statements because. I’m an engineer and I seem as kind of fluffy and silly, but for us it’s worked. The early days of delivering trust was about, okay, how do we make a technology that people can count on that doesn’t have single points of failure? And we built that. Then after we’d done that for a while, people needed a Fiduciary. We thought that the traditional Fiduciaries would come in and use our software and our hardware and deploy that and say way underneath their regulatory umbrella and know how you have to do it yourself. We had to do it ourselves. The second phase of BitGo was that and now we’re in the third phase and we’ve been here for a while. This is the hardest phase for sure, is how do you get a market structure that’s conducive to the trillions of dollars of digital assets that we want to flow through it and just having these verticalized exchanges where the exchange acts in every function. It’s the broker, it’s the exchange, it’s the custodian, it’s clearinghouse does it all. It’s just ripe for failures. And we’ve seen those failures. Now there’s good reason why it’s evolved this way, because people didn’t know how to handle it in the beginning. It really is different from traditional finance. It evolves really quickly. So it needed a different caliber of company to be able to handle that. And so that’s why it’s emerged this way. But now we have to start getting more serious about how do we provide stability so that we can actually have really good trading and investing markets that people can count on. I think our role as a custodian, people want stability of result, right? They want consistency. They want to know that they’re not going to have any kind of failure. There’s still a lot of failures that are yet to be addressed. Broad classes of risk that we need to take on. But I think coming from the viewpoint of a custodian as opposed to a trader or an exchange, we’re kind of uniquely situated to deal with that kind of stability. So anyway, delivering trust in digital assets for us right now is about building market structure, which has led us to do a ton of research into how does the CFTC work? How does the SEC work? How does it work in the UK? What is the right structure? And while I don’t think it’s so simple as to say, like, hey, Mike, if they put you in charge, how would you solve it? There’s a lot of work that has to be done and a lot smarter people than me need to be involved in it. But I do think getting away from rules, back to principles is the key.
Matt Zahab
Is the secret sauce. I love that. Mike, let’s keep buzzing on BitGo for a second here. Up until doing research for the show, obviously, I was cognizant of BitGo. I know you guys power Canada’s biggest exchange, Bitbuy you guys, provide security and operational support to over 1500 institutional clients in 50 different countries. And most of the biggest dogs, you guys are providing that security and operational support, which is incredible and huge congrats to you and the squad. What are some of the biggest differences from back in the day? I believe you said 2013 to ten years later right now, like, when you’re providing these services ten years ago to right now, it must be black and white, night and day. I’d love if you could tell a couple funnier, interesting stories or just sort of show the differences and how far we’ve come in your team’s ten year journey.
Mike Belshe
Sure. Well, when it comes to security, you’re never done. You just keep raising the bar, frankly. So one simple thing is, like, what was a big wallet in 2013? And a big wallet was like, I don’t know, $10 million. Right? And that was like, wow, that’s a lot. By 2015, we were seeing 100 million dollar wallets. By 2017, we were seeing billion dollar wallets.
Matt Zahab
And these are institutions, not singular people. They’re both?
Mike Belshe
You don’t always know some people that have some really big wallets. And when I say wallet, I don’t mean like a single address on chain. There are some billion dollar on chain wallets. But in general, I’m talking about how do you architect a series of wallets to appropriately secure 10 million, 100 million, a billion and as we look forward, we want to be able to carry all asset classes through digital technology. It’s coming, right? And you hear this, there’s a lot of excitement about tokenized securities, asset backed securities, and tokens, etcetera. These can be done, and they will be regulated. Some of them will fit under existing regulation, but we need rails for handling all this stuff that’s ready for trillion dollars, $100 trillion. Like massive volumes and flows. So you’re just never really done. And back in those early days, the security that we were applying was very much kind of a naive approach around just how do you build the initial technology. Now, the good news is the security principles that you use, eliminating single points of failure, basically, you just keep doing that, right? So in those early days, having one key wasn’t enough. You split it into two keys, okay? Having one person hold those two keys, that wasn’t enough. You split across two people, okay? Having two people hold those keys, that wasn’t enough. You split it across three or an organization, having a single organization split it across two organizations. We’ve done all these things. Right now, we actually have when you’re using BitGo today, most people don’t realize this. I think we’re the only company where this is true. You actually have two independent companies signing every single transaction inside of BitGo, and we are working towards making so that it’s three. And then those are going to be separated across different jurisdictions. Why are we doing jurisdictional elimination of single jurisdictional point of failure? That’s because the regulatory landscape right now is still pretty unstable. Declaring right or wrong, but we know that it can change. And what do people that are coming to BitGo saying, hey, we want custody for billions of dollars of assets want? They want consistency. They want to know that the rules aren’t going to change, that somebody can’t come in and take away. So can we take those keys and spread them across multiple jurisdictions inside of multiple companies, all regulated? Yeah, we absolutely can. You’ve never been able to do with this money before, but all right, so these are some of the things that we’re doing I think you’re just never quite done. I think where we’re spending our time today is probably more around the markets. How do the markets fit together rather than just looking at the pure technology of custody? But, yeah, it’s never ending.
Matt Zahab
I love that. Folks are going to take a quick break. Got to give a huge shout out to our sponsor, the show that is PrimeXBT. And when we get back, we’re going to jump into Go Network. For the first time, institutions can access, transfer and settle USD and digital assets instantly 24/7. We’re going to get right into that. But huge shout out to PrimeXBT longtime friends of cryptonews.com. PrimeXBT offers a robust trading system for both beginners and professional traders. Doesn’t matter if you’re a rookie or a vet, you can easily design and customize your layouts and widgets to best fit your trading style. PrimeXBT is also running an exclusive promotion for listeners of the Cryptonews Podcast. After making your first deposit, 50% of that first deposit, that is 50%, will be deposited to your account as a bonus that can be used as additional collateral token positions. Again, the promo code is CRYPTONEWS50 to receive 50% of your deposit credited to your account. Now back to the show with Mike. Mike, let’s get right into Go Network. Again, in the show notes, this was something nice and sexy, nice and ripe. And this is a single platform addressing gaps in the industry. That, again, this is the reason why the banking industry has failed and the crypto service providers have failed. It’s been an absolute shit show. You and the team have been working on this and now we have the Go Network. I’m going to throw the ball over to your court. Give me the TLDR on Go Network.
Mike Belshe
Great. Well, look, I wish it was as much of a panacea as you just described it, but it is a really big, important step. I think it’s an enabler for finally being able to do prime brokerage, not necessarily by BitGo, but potentially by others. In a way that you can actually understand and measure the risk. So what is Go Network? Go Network is post trade settlement activities inside of qualified custody. So the market structure not being fully formed in crypto has led to this problem of if you are a large fund and you want to liquidate a position, accumulate a position, you have to take assets out of the bank, out of the custodian, and you have ago and put them onto these exchanges. And sometimes that fails behind the scenes. This is happening in aggregate, where there’s these large flows of money between market makers and exchanges and other participants, and it’s happening every day, and they’re settling these transactions. This has been happening for the last ten years now. It’s been getting bigger and bigger, and these flows are always done pretty ad hoc or operationally, meaning instead of being done through a settlement type of system, all the companies participating have just kind of created their own operational flows and say, hey, you send me the Bitcoin, I’ll send you the cash. And usually it works until it doesn’t. And there’s been so much to be made in terms of arbitrage and trading activity, etcetera, over the last several years that it’s covered up a lot of the risk. People have just been going ahead and taking the risk because the opportunity has been so large. But with the failures of 2022, either all the way back to May or more recently up in FTX in November, people got stung. They had assets out on exchanges, they had assets with others that were not qualified custody, and then they lost it. So what Go Network is is an attempt to solve this. And we talked about Silvergate, so there’s a couple of different angles of it. Why was that important? Well, it was right in the middle of these flows. So it turns out that for settlement, it’s a pain to settle the the Bitcoin going one way and the and the dollars going the other. But the dollars are way more painful than the crypto. Right? The banks are only open Monday through Friday, 9 to 5. And they don’t open weekends. It’s wire transfers. They’re clunky. You try to write the memo field in, you have to line it up on the other side. So that didn’t work. We had 24/7 crypto markets, so those are trading and settling all the time. And even though on chain movements are a little bit cumbersome and slow, they’re not nearly as bad as what you have with the banking system. So Silvergate comes in and says, we’ll solve this problem. Just sign up for an account at Silvergate, and we’ll let all of our account holders to swap money. Well, all right, so that’s okay. But A, it’s just a single state chartered bank. And what do people want with this? They want highly liquid cash flows, and most people don’t really think about the innards of a bank. And what does a bank do? We think that banks are reserve banks, and you put your money in and whenever you want it, they’ll give it back to you. That’s not what they do. Right? Banks take a loan from you unsecured. That is, they don’t put anything to secure money behind it, and then they lend it out in a number of ways. They might buy T-bills. That’s a lending to the government. They might do mortgages, whatever. Anyway, Silvergate as a bank, that’s what they do. That’s how they make money. You don’t pay them to hold your money. Instead, they make money off of holding your money. So this is an impedance mismatch between settlement, which is the idea of liquidity. Like, you have to be able to get access to money all the time versus potentially long term or even midterm commitments. All right, so we’ve solved that problem. BitGo is a trust company. We don’t really have many reserve banks in the US. But a trust company is closer to a reserve bank, actually, than a bank. And so we can build those front rails, but we don’t build it off of a single bank. We build it off of many banks. So we got six, seven banks operational today. This is not for our money. This is for clients money. So it’s FBO for benefit of accounts. And we will only use banks to a limit. That is, we won’t let any single bank accumulate 95%. Of our assets. No, we won’t let our assets exceed more than 10% of any bank. That’s part of our risk mitigation controls. And then we actually help our clients get into off the banking system entirely, and they can get into instead laddered 28 day T-bills. Now, those are still committed for up to 28 days. Laddered means they’re constantly maturing, but it means that we can have full liquidity out of that entire system in 28 days. Which is not so bad. It’s not nearly the problem that they had at SVB, where they had these ten year types because they bought ten year T bills. All right, so that’s one part. Now, once you have that, then you can come into BitGo, the Go Network, and any two clients can settle with each other. And instead of being like Silvergate, where all they did was they sent the dollars, but the crypto had to go somewhere else. BitGo is a crypto native firm. That’s what we do. This is our specialty. So now you can say, hey, I’ve got $10 million going to you. You’ve got $10 million worth of Bitcoin coming to me. Both of us acknowledge it, we click yes, boom, it settles between us. It stays in full qualified custody the entire way through. So you’re safe. You never had to expose your funds. The other party is safe, and there’s no chance that one party does their side and the other side doesn’t send theirs. So anyway, that’s the innovation. And then lastly, we’re integrating this in something we call off exchange settlement, which is part of that Go Network. So with Bitstamp launching now is that you can have your assets in qualified custody of BitGo. You can tell BitGo to allocate those over to Bitstamp. You can then go trade on Bitstamp. You log into your Bitstamp account, you’ll see your assets there, and you can trade and then we take care of settling it behind the scenes. Your money stays in qualify custody the entire duration, and yet you have access to liquidity out there. And we’ve got other exchanges coming on. We got gate.io , we’ve got INX others as more come on, your ability to efficiently use your capital just went through the roof. Because today you have to put capital out on all those exchanges. Now you can keep your capital in qualified custody, and you can just point it at the exchanges in real time.
Matt Zahab
Seems like you guys like and again, I’m probably going to be way off here, so I’m definitely going to shoot myself in the foot. And I will let you know this as I’m about to give you my hot take here, but it seems like you guys are just a peace of mind factory. Like, you guys solve complex problems and security issues and multimillion or billion dollar issues by just providing peace of mind to clients. Obviously, that’s the very high level and not discussing any of the nitty gritty, but everything you’re talking about, Mike, it’s just like we’re giving you peace of mind in issue A, issue B, issue C, issue X, Y, and Z. Seems like you’re just a peace of mind factory.
Mike Belshe
Well, thank you. Look, I think that’s a big part of what it is. Custody is supposed to be a pretty boring business. We want it to be stable. We want it to just operate and work. When you’re thinking about kind of the retail flows, just kind of your own money, your own trading, your own storage, whatever it may be, that’s one level, and it’s easy to kind of think about that and you think about which brands you’re working with, whether you’re using Coinbase or whatnot. And then behind the scenes, that aggregates up into just millions and millions of people’s activity. And then now you’re talking about institutions moving other people’s money, and we’ve got institutions that are in charge of other people’s money. You want to know that those guys behind the scenes that you don’t even see are operating at just a completely different level. Like when it’s your money and you decide you want to put it in your sock drawer, that’s your money. That’s your choice. I wouldn’t recommend that, but you could. But when other people’s money you can’t put in a sock drawer. You can’t use a ledger device in some guy’s drawer in an office. You have to use fiduciary care. So, yes, what we’re building, I suppose, is peace of mind. What is fiduciary care? What level of extreme have we gone to in terms of technology controls, financial controls, operational controls. And I’ll tell you, a lot of it’s just really boring and mundane. But the details matter. And we will see this, I think, in the next few years, we’ll find out who really took the care to figure out how to deal with natural disasters that blew out a data center that had keys or a vault or what have you. Do the backup systems work. Work. And how do they work? And this is tough. So anyway, we’ve tried to design fault tolerance into the system. We use this two or three multisig. We also use MPC these days, but all the way down to the core. The architecture that we have underneath the hood allows us to do these things, and then we’re trying to continually take better and better care. We do sock audits and other things to prove that, not just to the world, but also to ourselves, to make sure that the way we’re operating is smooth. But yeah, peace of mind. You don’t want to have to think about this stuff. But we do. In our industry, we do. There’s too many failures. We are not good enough yet.
Matt Zahab
One of the stats that blew my mind when doing research for the show is that you guys process almost 20% of all global Bitcoin transactions by value and is the only sole institutional provider custody provider for wrap Bitcoin WBTC. How did you guys get this number so high? When you think of the sheer Bitcoin volume per day, especially years ago in its peak, not years ago, about a year ago, a year and a half ago, even present day, it’s still bananas. But how did you get that number so high? Or is it just the obvious answer, which is doing the small, mundane, repetitive tasks that you guys do to move the needle?
Mike Belshe
Well, let’s see the number of transactions. It’s number of transactions by volume. So I think in terms of number of transactions, we’re not nearly as high, probably 6% or 7%, something like that. But in terms of by volume, we hit a lot of the larger flows of money. And that’s, of course, because we have an institutional focus. I guess if you wanted to say, why did it get that high, I think we provided a great service and we’re connecting a lot of brokers exchanges and others that are doing large volumes and flows. So those are going through our wallets. Kind of behind the scenes when you think of Coinbase. I mean, obviously a much bigger institution than BitGo, but our wallets are used by thousands of companies, whereas their wallets are used by theirs. So even though they are a huge exchange in terms of, like, the on chain activity that they’re doing, they’re smaller than us, but they’re only one exchange change, whereas we’re powering many.
Matt Zahab
Very true. Mike this has been an absolute treat of an episode. I’d love to jump in the hot take factory if you have any hot takes. We need a couple Mike Belshe hot takes before you leave us here. Let them fly. It doesn’t have to be crypto or custody or finance related. Can be health, wealth, happiness, anything. But give me a couple of mike takes before we let you go here.
Mike Belshe
Well, let’s see. I guess we’re talking a lot about traditional finance and the crypto world. I think that today the crypto world is actually the most surveilled financial services system in the world. It’s ironic that people think that crypto is not surveilled and needs more AML KYC. I mean, I’m not saying it doesn’t. It does need that at the endpoints, but we have public blockchains. You can see every single transaction. And the largest investigative recoveries of lost assets and funds across all asset classes of all time are actually already in the crypto space, even with the limited controls that we have in place. And the reason is because the blockchains are, frankly just better. So anyway, we have an opportunity in front of us to rethink the rules. I’m not saying that the existing rules are bad. It’s just that the solutions that were chosen were from yesteryear, and we can do new ones this year. So I don’t know, that’s a little bit more wordy than a hot take that you want, but, yeah, I think that crypto actually already is the best surveilled financial system in the world.
Matt Zahab
Interesting. I mean, what was last week, two weeks ago? I forget what bank, JPMorgan, maybe it was someone else. There were, what, 700,000 documents that magically disappeared. The records trend I don’t know if you remember that this happens like, once a month.
Mike Belshe
Why I commented on that one, right? Which is I mean, the real tragedy is that why do they have to keep track of every single record? Why do they have to keep track of every text message with a client, etcetera? And this gets back to the point of the regulatory structure that we have today is very much dependent upon monitoring humans. And the entire point of block chains is like, no, let’s go and put that into the technology. The technology, once you’ve got that set, it operates the way it operates. The computer doesn’t decide to be a bad broker one day, and you can instead become a code reviewer. So actually, by the way, here’s maybe a hot take. Regulators in the future are just software code reviewers. That’s what they are, right? They just need to make sure the code works right. Yeah, and if it works right, then there’s nothing else to do. They don’t have to constantly go back and ask JPMorgan for 10,000 more documents. What were you doing on Tuesday?
Matt Zahab
Yeah, just go check it out. One thing I totally forgot to ask you, Mike. You worked at Netscape lookout Microsoft. Google Http you must have some. Is there one particular story that stands out? Our listeners love stories. I love stories. Heck, who doesn’t love stories? But you have any good stories from us from your days at the big Web1, Web2 behemoths?
Mike Belshe
Well, maybe I’ll use one from HTTP/2. So I was around in 1995, I can’t take credit for Http. I was just a young engineer in a fabulous place, had a lot of fun at Netscape. But by 2008, I was back into the browser space at Google. We were building Chrome’s, one of the first guys on that team, and I was tasked with figuring out how to speed up, basically, Gmail. And it led down this rabbit hole of looking at network performance and Http, and that ultimately led to the HTTP 2.0 protocol, which today everybody uses. And by the way, BitGo actually is on the RFC If you go look up the Internet standards for it. You’ll see, I think BitGo is the only crypto company that has its name on one. Google deserves a credit more than BitGco does, of course. But anyway, with Http in 2010, we’d learned that the reason why you need everything encrypted is very different than what had been discussed back in 1995. So back in 1995, Netscape was building SSL, the first secure sockets layer, the encrypted traffic that was needed in order to power ecommerce. And it was a system. It’s got certificate authorities, protocol, all designed so that people could trust that they could put their credit cards into a Web page and do commerce. By 2010, we still didn’t have much of the Web encrypted. I think it was about 25%, 30% of the Web was encrypted. The rest was just open. Today, it’s like, 98%. No don’t quote me, but it’s well over 90%. And with HTTP/2 we forced it has to be over SSL. And this was a contentious thing, but I made a statement back then, and it’s kind of related even, I think, to crypto today. But while we had originally designed SSL in the late 90s for ecommerce, it turns out that the reason you need it is for life and death. If you look at who hacks certificate authorities, it’s not people trying to steal money from Wells Fargo. It’s not people trying to steal credit cards. It’s the government of Iran. It’s the government of China wanting to go and kill its dissidents. So encryption, became more about humans and people than it was about ecommerce. All right, so anyway, a lot of what we did with HTTP/2 was making sure that you could enable that all the way through. There were complaints. Some people said, no, it needs to run on a printer, and printers don’t do all right, good news the EFF did a great job. Mozilla did a great job. Google did a great job pushing for the SSL thing. In terms of the standard, actually, HTTP/2 does not have to run on SSL, in spite of my having advocated for it. But the browser vendors, including Microsoft, Firefox, Google, and Apple all said we’re only going to put it over SSL. So today we all have basically 100% SSL encrypted traffic as a result of that. And then if you want to tie this to crypto a little bit, look, I mean, we think about crypto as money and how do we make it digital and make it faster, and people are speculating on assets. I hope the speculation piece of crypto goes away soon. It’s annoying. But better payments, better velocity of money, okay, those are decent. But in the end, when we look back at this, 15 years from now, it’s going to be again, it’s about humans and life and death. And what I’m talking about is, like, imagine you live in Turkey right now. Imagine you live in Argentina or Venezuela. You’ve been saving your whole life. You’ve been saving money your whole life and you put it into the bank, and then the government mismanages the money and the inflation goes through the roof, and now you’ve got nothing. Right? It’s a human right to be able to earn money, spend your time, your effort to earn it, and then to save it, and then eventually to spend it on whatever it is you want to spend it on. And for anybody to take that away from you, whether it’s by taxation, whether it’s by theft, whether it’s by inflation, which is just another form, is wrong. And we will look back at crypto as being the solution to that particular problem. And I say crypto. I know the Bitcoiners might get a little bit knickers in a bunch. I mean, of course Bitcoin is far and away the most likely candidate to win here. I just disagree on the terminology component. I think there’s so much innovation coming in the crypto space, including into Bitcoin. But, yeah, Bitcoin is likely to be the piece that solves that particular inflationary safety problem.
Matt Zahab
Thanks for telling those stories. Mike one last thing I got to go back to. I’m such a huge Chrome guy. It’s funny, you keep bringing up the stories about starting in 1995. I’m born in 1995. I’m a good old 95. I remember the days I want to say I was like I want to say I was ten years old. It must have been end of junior school, going into middle school, where we went from Explorer to Firefox, and then all the cool kids jumped right to Chrome. It was so much quicker. It was so much better. Did you and the team know that it was going to be as big as it is today? Because obviously now you have some niche browsers, you have your Brave and everything, but everyone uses Chrome today, everyone.
Mike Belshe
Well, Brave is Chrome as well. Underneath Brave is Chrome. Internet Explorer today is also based off of the innards of Chrome now, and I guess Apple WebKit and Chrome had a divorce, so they kind of split. No, we didn’t. What we were trying to build was actually pretty simple, was to make a Web platform that was as good as anything you get on the desktop. So, for instance, I’m just in my browser right now. We’re having this great video conference here. It’s being recorded. You’re going to put out a great podcast all through the Web, and just going back to 2005, 2006, that wasn’t doable because the browser standards were not moving. And so Google was thinking, like, how do we build an application platform that competes with desktop vendors like Microsoft? If we’re if we got one hand or one hand and two legs tied behind our back because the web browsers promote us. So the entire point of Chrome was initially to just push standards further. And in fact, the the early desire of Chrome was to actually work in Firefox. And, you know, Google had hired a few key folks from Firefox, including, you know, Darren Fisher, Ben Goodger, and initially, they just wanted to be able to do more stuff in Firefox, and that was it. But they got stuck and it wasn’t radical enough. They couldn’t move as far down the field as they wanted to and so eventually forked into its own browser project and then it was still going to be based off of the Firefox rendering engine. What was it called Gecko? But at one point one of the guys, I think it was Darren actually did this test against WebKit, and WebKit was just rendering so fast. And then we got into JavaScript and actually the early JavaScript team, they went to Apple and said, hey, because Apple had this JavaScript engine, it’s called Spider Monkey, I think, which was the fastest JavaScript engine of the browsers. And the Google team said, hey, I think we might be able to make it a little faster. And Apple said, Nah, maybe 2X faster, not much more than that, we’ve optimized it. Which turned out to be dead wrong. So Google hired the guys that had done Java hotspot years before that were just fantastic VM experts team out of Denmark and they quickly put together a prototype that was 20X faster than I mean, it came together really fast for the early version. Then the hard part was all the details. But anyway, Apple was surprised. So look, the browser vendor space, it was stagnating a little bit, right? IE had taken over, Netscape had failed, Firefox was good and open source, but it just wasn’t moving quite fast enough. And Apple had a lot of other priorities, right? They’re off building the iPhone and their own old gardens, etcetera. So anyway, in comes Chrome we really just wanted to push the standards and force the other browsers to do better and it far exceeded everybody’s imagination. In fact, I think probably back then, the idea that it would become 90%, maybe people would have thought that that was a bad thing. And then there was a lot of concern about we just got over the browser rendering wars, remember, because you had Netscape and you had IE and you had all these different and they were incompatible. And like, building web pages really sucked. And then here we were going to introduce a new one by really promoting WebKit, which was Apple’s rendering engine. And Apple only had like, one or 2% market share back at those days. So, anyway, probably more detail than you wanted.
Matt Zahab
No, I love that. It’s so cool. It’s nostalgic as well, Mike, because again, I was a little boy, and I remember my parents even looking over my shoulder, being like, what the hell? What is this web browser on? Because I would install it on my profile on the home desktop. None of us had laptops back in the day, and we had one desktop at home. And my brother and I had to fight for our hour to after school computer time. And me and Nick, my bro, we had Chrome. My parents like, what is this web browser? Why aren’t you using Internet Explorer, Mozilla, and I’m like, well, look how fast it is, mom. And there you go. It was cool.
Mike Belshe
By the way, security was also built into that. We’re talking about security here and Chrome was the first browser to create. We called it a sandbox for each web page. So each web page ran in its own process. A lot of work went into making that memory efficient. It wasn’t perfect. There were trade offs, for sure, but the rationale was like, there was so much malware, in particular on Windows being distributed through web pages, and the browser is just a huge surface area to keep secure. And so that sandbox we created, google had bought a company. I think it was called Green Border or something like that. And what they did, they did process isolation and they stripped all the writes. What they wanted to get to was where even if you hack into that process, you can’t write anything to the disk. And if you can’t write to the disk, then, hey, you can just shut down your browser and you can come back up or you’re clean again. And for the most part, they were able to do that. There were some things at the time, remember Adobe Flash was like this huge violator of pretty much every good software engineering practice known to man. But that’s gone now, fortunately. Anyway, that was a huge thing and the browsers being secure is still a challenge. It’s like contest pone to own, which Google did very well for a long time. Super hard to hack, definitely raise the bar in terms of security practices for browsers nowadays I think everybody’s doing those models. Still a lot of work to be done because it’s a super hard problem. But anyway, lastly, we can learn from the browsers to crypto. I think really is thinking about what are we really doing here? Are we trying to trade and speculate or are we creating forms of money that in the end are going to help humanity and I really believe it’s the latter. And we saw that in encryption protocols and governments get scared of encryption protocols. In the 90s, by the way, it was illegal to export certain RSA cryptography. You probably don’t remember that regulators and lawmakers have had concerns about encryption software, right? We see this like regulators want to be able to get into your iPhone and they want Apple to provide backdoors to the regulators. This never ends well. Cryptography is humans friend. It is not big brother’s friend and it will apply to money. It’s inevitable. It’s not stoppable. Even if we try to stop it in the US. It won’t be stopped elsewhere. The bad guys, of course, are bad guys. Of course they’re going to use whatever tools they can. So the only guy you’re going to lock out are the good guys. Why would you want to lock out the good men, women and children of the world?
Matt Zahab
Well said, Mike, what a treat. Really appreciate having you on. Learned a ton. You’re quite the speaker and your pedigree shows. Can’t wait to have you on for round two. Before then though, can you please let us know where our listeners can find you and BitGo online and on socials.
Mike Belshe
Super easy to find. Just bitgo.com. Fortunately, the name easy to find BitGo.
Mike Belshe
Yeah BitGo everywhere. Mike, thank you so much, man. Really appreciate it. Can’t wait to have you on for round two, but truly treat and all the best.
Mike Belshe
All right, take care.
Matt Zahab
Folks what an episode with Mike Belshe from BitGo. A true chiseled bet, dropping knowledge bombs left, right and center. And some great stories as well. We love to see that. If you guys enjoyed this one. I hope you did. Please do subscribe. It would mean the world to my team and I. Speaking to the team love you guys so much. Justas, my amazing sound editor, you are the man. Appreciate everything you do. And to the listeners love you guys. Keep on growing those bags and keep on staying healthy, wealthy and happy. Bye for now and we’ll talk soon.
