The Pomp Podcast - #861 Why Crypto Cold Storage Is Needed NOW w/ Adam Lowe

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Adam Lowe is the Chief Innovation Officer of CompuSecure, and he is the creator of Arculus, a brand new custody solution that I think is very interesting. In this conversation, we talk about Bitcoin, cryptocurrencies, regulation, custody, and all of the institutional adoption that is currently occurring. Before we get into this episode, I want to quickly talk about our sponsors. Today's episode is brought to you by Fundrise. You all know I believe that the best investors both understand and seek out extreme asymmetry. Fundrise is here to help you

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Starting point is 00:03:06 on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. I have a lot of questions for you. Hopefully you're ready for some rapid fire. I thought maybe we could start out with this idea of sovereignty and kind of how you think about the importance of sovereignty given a whole bunch of stuff going on in the world. Some of it is kind of politics or geopolitics. Some of it is simply just cybersecurity, etc.

Starting point is 00:03:45 but like, how do you guys think about the importance of sovereignty of financial assets for the everyday individual? Yeah, absolutely. So I think, you know, the importance of sovereignty really gives you freedom choice and, you know, the root of you should be in your control, right? The root of you should not be in some third party cloud. So, you know, when we think of digital sovereignty and digital self, right, it's, you should affirm you're you, obviously you're going to have government issued documents or you're going to have other affirmative identities that you've created with different parties. But really, in the end of the day, like the root of trust should come from you. And that, to me, is what digital sovereignty means.

Starting point is 00:04:23 Yeah, I think it's really interesting. And how do you guys evaluate what that kind of translates into in the crypto world, right? So obviously, there's plenty of people who go on to centralized exchanges, they go, they buy assets, and they just leave them there. And there's a whole bunch of reasons why, you know, not your, not your keys, not your coins. But what is the importance of the sovereignty when it comes to bearer assets like Bitcoin or other cryptocurrencies? Sure. Well, I mean, kind of the root of truth, the root of trust and what everybody goes to are your private keys, right? So I think a lot of people don't understand that exactly that, not your keys, not your crypto. You know, there were over 10 billion, as you know, in hacks last

Starting point is 00:04:59 year. And, you know, without your private keys, your crypto is not moving anywhere. So if you want to have absolute control of your crypto, you need to have absolute control of your keys. You see Fed sees this asset, Fed sees that asset. You see accounts getting turned off and assets being moved. That can't happen at the end of the day if you control your keys because you can ultimately control where your crypto goes. So that ultimate control and ultimate identity of who is who with those private keys is why it's so critical to ultimately control your crypto. Got it. And so when we think about Arculus, obviously, you guys are very interesting, because you've already had this great kind of time period where you've built a ton of security technologies before crypto. So maybe explain a little bit CompuSecure and kind of the other work that you all do to help people understand like where a lot of this robustness experience and kind of security expertise comes from. Sure. So Composite Secure has been around about 20 years. So if you can think of a metal card in the market, for the most part, NFC enabled tap and go metal card, we make them. So every kind of large bank in the US that has metal payment cards, we produce those cards and produce the tech behind it. So we handle the private keys for a variety of large financial institutions. We're trusted to do that. We've made IDs for various federal governments, including the US federal government. And so we have this pretty deep background of financial technology and security. So we took that background and we decided to create Arculus. So Arculus isn't just crypto, it's a digital asset, digital identity platform.

Starting point is 00:06:36 So whether you are using the consumer product that's behind me to control your own crypto keys, or whether it's one of our B2B partners where we're using Arculus to use digital keys to passwordlessly sign in and protect digital identities, you know that's what we've created with arculus is this platform to help businesses and individuals keep their platforms and self-identity safe got it and so when you start to think about why you guys got into crypto or kind of what the advantages are in crypto explain that because it's interesting that given the uh historical advantages that you had an experience there coming into crypto it seems almost like uh uh i was explaining something like you have like overkill right like you guys are so good at doing this in the legacy world that coming into crypto, it almost feels like

Starting point is 00:07:19 this is a walk in the park. Maybe it's a little bit of an exaggeration, but, but talk a little bit about kind of coming into this brand new market and how that experience helps. Yeah. I mean, part of, part of the reason we entered is, is a personal passion of mine and interest in the space. And I'll freely admit that, but you know, we really, we really feel that, you know, the smart card and the secure element and the smart card gives you a lot of advantages, right. And we're really at a great next point with the product where we can help consumers, you know, on the individual card, if it's a payment brand, right, we can take the smart card, we can put traditional payment applets on it, you know, standard open networks, as well as

Starting point is 00:07:53 crypto keys, as well as digital authentication. So we thought it was a really interesting space for us to enter, because it's a really great point where it's a familiar form factor use for users, super easy to use. And we can combine that with traditional payment platforms. So it's a great ramp for people to enter the crypto space because it gives incremental utility to an instrument they're already familiar with and it's a form factor people can actually use you know there's other hardware wallets out there for consumers that are secure pretty secure but are nearly impossible for the average person to use you know i handed oculus to my mom and she was able to use it the first time with no prompting which i was pretty proud of so you know the idea

Starting point is 00:08:36 is it's the ease of a hot wallet you know the ease of centralized exchange with the security of self-custody cold wallet got it joe john what questions do you guys have adam yeah so can you guys just talk about where you guys are looking at moving forward like what are your guys plans in the future uh months and in 2022 so as everybody knows nfts are blown up and everybody also knows there's massive kind of fraud and theft in the space so uh we are also adding um nft support to arculus so here um in the upcoming months arculus you know squarely on our roadmap we'll be adding nft support we're looking at adding support for the d5 space so people can take their crypto assets and go apply them and use them where they want in the d5 space and as always

Starting point is 00:09:24 we're you know adding more currencies to the platform uh you know we get messages every day from our user base can you add x can you add y you know we support just under 80 of the market cap currently, but there are a few key currencies we are looking to add to the platform. So those are the three things on the roadmap we're adding to further build out the utility of Arculus. Joe, what do you got? Hey, Adam. So my question would just be around what you've seen and heard from like the average retail users when it comes to cold storage. Like how has that conversation changed over time? Yeah. You know, people are really excited when they get it. I think a lot of people move to cold storage when they either have a hacking event or they know somebody with

Starting point is 00:10:02 the hacking event, where they realize kind of what we talked about in the beginning of, you know, if I don't control my keys, I don't really control my crypto. So when we talked to the average retail user, you know, we were at CES, we got really positive feedback from people who touch the platform and use the platform. They want two things. They want security. They don't necessarily want to understand, you know, address derivation and all the details. They just want to trust and know that it works. and they want to know that it's easy to use. So, you know, all of those were core design principles

Starting point is 00:10:34 when we built the product. And so it was really positive to get that feedback from the community. And then the feedback we got was essentially the things we're looking at. Hey, I love my NFTs. Can I see my NFTs with Arculus? Hey, I'd love a few more coins.

Starting point is 00:10:49 And how do I get access to some of the DeFi space? So we heard that feedback from the community and those are the direct things we're adding to the platform. And so Adam, when you start to think about kind of how we get more people to understand these ideas of sovereignty, etc. Like, how do you think about education? And how much of this is like, you can tell someone versus you have to actually get them to just try it and actually, you know, kind of build education via experience?

Starting point is 00:11:12 How do you all think about the difference there? Yeah, I think you have to give people real world examples, as well as the ability to try it. So, you know, if we take passwordless login, as an example, and kind of building an identity, right, there's a there's a pretty good public use case out there um that's ebay you know there's a variety of white papers on it where you know they had people were in kind of the username password world and then ebay implemented passwordless login with digital keys where you know people have a security key they generate a digital key to prove that they're them and log in that way many less abandoned cards massive drop in password reset requests um you know massively increased user satisfaction

Starting point is 00:11:55 big reduction for eBay on support. So it was a win on both sides of the equation and people could trust that they know their login is safe. So, you know, there's a real world example you can point people to where it's been very successful kind of in a commercial environment. And I think, you know, you have to give people real examples like that. You know, I had to explain to my 75 year old dad why Bitcoin is important, right? I had to relate it back to inflation. I had to relate it back to security and remittance. So, you know, until you can give people real examples that are, you know, distinct and easy to understand, I think they're not going to get it. Got it. That makes sense. And then I guess like what happens when this goes

Starting point is 00:12:38 wrong? Like talk to me about the risks of self-sovereignty and kind of what happens in the downside case. And what do you guys do to whether it's somebody who is older, somebody who's less experienced, somebody who this is their first time, like how do you all think about building that into the product and ensuring that either you can mitigate those risks or like what are the things that they can do if they make a mistake or there's some sort of loss of funds or something like that? Sure. So, you know, the big part of that is education and like clear warnings. You know, you are the ultimate control of your funds. So when we set it up, we use the standard bit 39 recovery phrase. So for the for everybody out there, you get 12 words in plain English that

Starting point is 00:13:15 essentially represent your private key so if you lose your card break your card you can get a new one enter in these 12 words and regenerate your key so we make it abundantly clear that these are kind of the keys to the kingdom and you should not lose this and if you do lose this and you were to lose your card you would no longer have access to your funds so highlighting that several times is very critical and there's there's messaging within the app and in the packaging and videos and FAQs to make sure that's abundantly clear for our platform and other platforms where you maintain your own keys. You know, what's the old message? Tell somebody, tell them again and tell them a third time and they might remember. So we kind of go by that mantra of making it

Starting point is 00:13:57 abundantly clear that this is your recovery seed. Do not share it. Do not lose it. And so when you start to think about kind of consumer behaviors you've seen right now, like are there any trends or any behaviors from the customers already that you can identify and say like, Hey, this either surprised us, uh, or this is something that's like really interesting that people may not know. Uh, yeah, I think one behavior, um, that we've seen that's really interesting, um, that I was a little surprised about, and I guess I shouldn't have been is just the, the massive desire to seek yield. So if I had to guess what ratios that we would have seen people purchasing, um, I would have thought it would have been a lot more kind of classic layer

Starting point is 00:14:37 ones. I would have thought we would have seen a lot more Bitcoin purchase, a lot more theory and purchase. And, you know, we do see a good amount of that. But I was pleasantly surprised in a way the amount of stable coins we see people purchasing, I think, so that they can go put them somewhere and farm yield. Yeah, it's, um, it's fascinating to see how quickly people have kind of pushed further and further out on the risk curve of a lot of these assets. And I'm assuming right that a lot of this is due to kind of monetary fiscal policy stuff and just people looking for greater returns or yield or whatever it ends up being. What about in terms of institutions versus retail? Have you seen anything there in terms of whether it's using your product or other

Starting point is 00:15:18 things in the market that are worth noting? Yeah, on the business side, we've seen massive increase in interest in this. You know, every fintech that we talk to on the traditional side of the business or, you know, talking to us about Arculus or figuring out how to get in crypto, So people are asking, should we custody, should we have our users custody and really are looking to get into the space. You know, when we started the project a while ago, no institutions for the most part were interested in that. You know, there's the Bitcoin ETF and a few innovators in the space. But anybody, what I would call in traditional banking, even the fintechs really weren't looking at this. And now every fintech we talk to has crypto on the roadmap, has alternative assets on the roadmap, digital assets.

Starting point is 00:16:04 It's really interesting, even retail. So we have a ton of different opportunities that are talking about how do we create NFTs? How do we better monetize our brand in the digital space? And people are just thinking much more holistically about how users can manage digital assets relative to their brand. So, you know, adoption isn't coming. Adoption is here. and uh for for any brand that's kind of not on the bandwagon they need to start getting on the bandwagon yeah it's um it it's also i think a a piece where uh we're getting a bifurcated market retail really understands the ideas of sovereignty institutions just given their kind of risk

Starting point is 00:16:42 mitigation their mandates their uh kind of uh investment uh criteria i don't see you know name your favorite hedge fund walking around with a secure piece of hardware or some sort of sovereignty of their fund assets on their phone or in some sort of device, right? And so it feels like the sovereignty is really, really important at the individual level. The institutions obviously have interest in these assets, but they much more look at them as from an investment standpoint than some of the other benefits in terms of censorship resistance, seizure, sovereignty, or whatever, right? Yeah, absolutely. It's, it's kind of a classic AUM model for them. It's just another asset in the book. But they do, they do and have a couple have talked to us about, you know,

Starting point is 00:17:25 using this from a security perspective. Yeah, absolutely. You know, they, they really don't look at it as a immutable asset versus this versus that. And part of that's just compliance driven. You know, they absolutely have to comply with all the rules, US and internationally. So, you know, they're, they're used to certain frameworks that they have to live in. And, you know, I think that for them, that's why it's just another asset on the book, rather than worrying about who's sovereignty and who ultimately possesses it. They're also looking at asset classes that are probably some of the original L1s, rather than some of kind of the interesting tokenized assets that maybe retail space is looking at. Yeah. What's next for you guys? Like as you look forward in terms of what else you can build, is it continue to just double down on the products you have? Are there new things that you guys are thinking about or working on? How do we think about Arculus and maybe even the larger kind of CompuSecure ecosystem as you guys continue to build this out? Sure. So I think what you're going to see us grow is really the conglomeration of all the different spaces with our B2B portfolio. So, you know, from the smart card that we can develop, you know, we're working on kind of putting everything on a single platform, which is what some of our B2B partners have asked for.

Starting point is 00:18:37 So imagine a single smart card that is your payment card. So it's over your standard payment networks. it holds your private keys for your crypto and it also holds your keys for passwordless digital sign-in so i have a single smart card i can go to my favorite coffee shop buy coffee with you know standard credit or debit i then walk down the road realize i owe my friend some ethereum send it out of my wallet sign it with my digital keys oh i have to log into you know my favorite platform of choice i tap my card and i digitally sign and log in passwordlessly so all that on a single smart card is really valuable because it's something the consumer already carries you know platforms have figured out that you would almost have to pay consumers to carry another widget

Starting point is 00:19:25 but if you give them incremental utility on a form factor they're already carrying that's really valuable you are literally providing more utility and value to the customer on a beautiful piece of hardware that is branded with their brand so they get a literal touch point with that brand it brings them utility every day and that's what we're working on i love it it's such a such a strong pitch where can we send people to find you on the internet or uh or find out more about arculus and potentially buy one if you're interested you can go to get arculus.com and you can find us on all social at uh at this is arculus amazing uh i appreciate you coming on This is, uh, it's one of the cooler, more beautiful experiences that I've seen when

Starting point is 00:20:08 it comes to any sort of cold storage. So, uh, highly recommend to folks that, uh, that they go check it out. If, uh, uh, my PR my only piece of advice around, uh, any sort of storage security, et cetera, in crypto is always to newcomers, uh, take $5 of your favorite crypto asset and go figure out how do you buy it on an exchange, put it into cold storage, then move it onto a hardware device, move it into a software wallet, move it back into cold storage, Like get familiar with how to use these technologies and these products, uh, and do it with a very small amount of money.

Starting point is 00:20:37 If literally it's, you know, five bucks, that's okay. Uh, because if you make a mistake, then, you know, you, you obviously don't want to lose $5, but, uh, but it's okay if you, if you lost $5, it's an education fee, right? A little, little, uh, uh, kind of, um, novice tax, if you will. So, uh, I highly suggest to folks go check it out. And, uh, I appreciate coming on. We'll definitely have to do it again in the future. Thank you very much.

Starting point is 00:20:58 All right, buddy. See you later. Cheers. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition

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The Pomp Podcast - #861 Why Crypto Cold Storage Is Needed NOW w/ Adam Lowe

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