Protecting Billion Dollar Crypto-Assets: Interview with Aaron Lint of Anchorage Digital Bank

Utsav Jaiswal sits down with Aaron Lint (CISO at Anchorage Digital Bank and Leslie Ankney (the Communications Lead at Anchorage Digital. Aaron leads banking security operations at the first nationally chartered crypto bank.

Leslie comes to Anchorage by way of Ditto PR, where she was Director of Blockchain and Digital Currencies Practice and Associate Vice President. Visa-backed Anchorage has safely held billions of dollars in crypto for institutions.

Listen to The HackerNoon Podcast on Apple Podcasts, Spotify, or wherever you listen to your podcasts.

On this episode of The HackerNoon Podcast:

• What is Aaron’s favourite blockchain? (02:36) 🥰
• Where does DeFi innovation come into the picture? (8:11) 🔨
• What does regulation mean to Anchorage? (13:06) ⚖️
• What’s the deal with ATM security? Lol (21:17) 🔐
• What is the future of finance? (23:36) 🔮
• Are decentralized bridges safe? (27:30) 😳

Follow Aaron Lint and Leslie Ankney:

Follow Aaron on Twitter @lintile

Follow Leslie on Twitter @CryptoLeslie

Recommended Reads on HACKERNOON.COM 🤸‍♀️

• https://hackernoon.com/the-ultimate-security-guide-for-cryptocurrency-investors-w11437zy
• https://hackernoon.com/why-crypto-needs-institutions-f089410e2506
• https://hackernoon.com/should-financial-institutions-and-retail-investors-manage-their-own-cryptocurrency-i8s3z6j
• https://hackernoon.com/analyzing-the-institutional-landscape-for-blockchain-solutions-ze1b37f5
• https://hackernoon.com/an-insiders-view-on-digital-asset-opportunities-for-institutional-investors-rhj33ui

START CONTRIBUTING: HACKERNOON.COM/SIGNUP 🥇

Transcript of the Podcast:

Utsav: [00:00:00]

Hello and welcome to the hacker noon podcast. This is Utsav and today I have a shadow Superholder with us who curiously enough works on the other side of the fence. He belongs to Anchorage and his name is Aaron Lint. I'm going to ask. Some of you might know, Anchorage holds a charter to be a national bank. Along with him I have Leslie Ankney, who is also a representative of Anchorage and has been taking care of the marketing and business development side of things.

And hopefully we have a very good episode for you today without further ado, I'd like to pass the mic to our guest of today. Tell us something about your day? What does your day look like? You said that you are a low level cryptographer. What does that mean?

Aaron: [00:00:58] Utsav, thank you so much for having us on today.

Yeah. What does my day look like? A great question. As you may imagine one of the best parts of Anchorage as a platform for digital assets is the fact that security is the primary mission, making sure that people's assets stay exactly where they are and that nothing unexpected that comes along in the news or anything else on one of the blockchains affects the security of those assets.

And what my day looks like is staying on top of what is happening with crypto first and foremost. There are things that happen 24/7. To stay apprised of all of those events is a big part of the job. Being able to evaluate those individual occurrences to ensure frankly, that our clients assets are secure and that they can continue to interact with the blockchain the way that they would expect.

It always starts with figuring out what's going on. And on top of that, we have built at Anchorage, a number of really in-depth monitoring services, where we stay where we stay, up to date, up to the second of what's changing and what's moving in the crypto.

Utsav: [00:02:16] Let me make it easier for you, right? So what's your favorite blockchain?

Aaron: [00:02:22] Oh, wow. They're all so pretty their own, they're all, they all have their own beautiful idiosyncrasies.

Leslie: [00:02:32] have to chime in here too. One of the cool things about working at Anchorage digital.

And I'm a communications lead here, former Forbes reporter, I think it's just that Anchorage is blockchain agnostic. We will support a variety of blockchains based on what institutions would like.

Utsav: [00:02:52] I'm looking for a name though.

Aaron: [00:02:53]

We continue to add new blockchains to the Anchorage digital portfolio all the time. We take a lot of chance to make sure that those chains are sound that the assets and the contracts involved have as much stability as we possibly can ensure for our clients.

You can always go to the website at Anchorage dot com and see all of those wonderful blockchains, which we equally love.

Utsav: [00:03:30] Okay. I'll leave it at that. All blockchains are born equal but created unequally, it's a pretty unfair world let's move on. Next question. Aaron, when we heard about custody and then we look at these Bitcoiners especially on Twitter who say stuff like not your keys, not your crypto. What's your answer to that? You get to sleep easy at night? What else do you say?

Aaron: [00:03:57] From our perspective here at Anchorage digital the real true concern around safely holding crypto is the security of the private key.

That key material. Similar to, actually physically holding cash or gold has a physical bear bond ownership criteria, which is a very interesting concept to map on to actual digital bits, which can be immediately transferred. And the immediacy of what happens if a transaction happens in an unsafe or a way that you didn't want.

It's not like a lot of other electronic, methods of currency. You can't just undo it. There's an irreversibility, there's a irrecoverability like wire transfers that, that is as part of that digital currency. And really it comes down to how can you safely interact with that private key material while not exposing it to any other risk in other sort of ways of letting it out that could cause you to lose all of your funds.

Utsav: [00:05:07] by the way. It's a curious question. Oh, what is the ballpark figure of the value of the funds that you guys manage? If it's a question that you are comfortable answering.

Aaron: [00:05:17] We cannot answer exactly to the second what I can say is that we obviously do have billions of dollars worth of cryptocurrency under custody and that moves along with the investments that our clients make.

Utsav: [00:05:39] So that was Billions with a B

Aaron: [00:05:43] yeah. Ten to the ninth. If anybody uses the metric system around here.

Anchorage digital is global. And so we have to speak all of the units of measurement.

Utsav: [00:06:00] I'm in India, that's all that we know. This is a funny story about the metric and the Imperial system. So NASA uses the metric system, but the rest of America was in the Imperial system. So they built this rocket and it malfunctioned because some of the scientists who had been newly hired, they did not know the metric system so the rocket malfunctioned.

Leslie: [00:06:33] just make this podcast about how the Imperial system is very ineficient

Aaron: [00:06:37] I don't have any defense. I don't have any defense of that unfortunately.

Leslie: [00:06:46] we'll just agree though. We're like, yeah. Get rid of that. I love using kilograms.

This is how I think now it's just

Utsav: [00:06:53] Let's get back to Custody solutions. So where do you guys take? Does this, these DeFi innovations Dex pools, AMMS like, where do they come into the picture? Is it safe to have your money in a pool? Like the short answer is no. I know that. But could you expand on that? Like why is a dex pool not safe? Nobody talks about that. All they say is impermanent losses may occur.

Aaron: [00:07:46] Let me talk about one of the benefits of that we've really developed over at Anchorage digital. And that's the fact that we're now a nationally regulated crypto bank. And just like you would expect from a banking institution that is regulated by a country there are certain aspects of stability and certain aspects of due diligence and oversight that you expect out of banking activities. That's because the OCC which is our regulator has really set the tone for what's expected from, not only from banks that are handling cryptocurrency, but in fact, all financial institutions that's one of the things that I want to make super clear is that we have the same regulatory oversight as a traditional financial bank in the United States. And with that comes, having to follow the regulations or rules when it comes to holdings that we have. And what Anchorage, gives as a benefit to those other institutions is that. They can actually use our digital asset platform to bring crypto and stable coins to their retail customers with us powering the safe custody in the backend. That allows project as well as, the different funds, the different interactive pieces and the different decentralized finance institutions, if you want to call them that they have the ability to access the same building blocks that any other institution building an application building sort of a way to interact would do.

What that gives you is the stability afforded by some of the financial activities of a traditional big bank, financial institution with the interaction on the blockchain. That is, evident and very clearly traceable so that you don't get yourself into those situations like you've described. So it's really about building, not

Leslie: [00:09:57]

DeFi is really on the radar for us. It's very important. In fact, today we actually announced support for Aave governance, popular defy protocols right through our platform. So that means institutions can have a vote in governance voting without having to deal with the cumbersome task themselves, as well as not exposing their keys when they participate.

We've always been an early promo proponent of DeFi, and we realized that defy is a very experimental, early place, but there's so many exciting things happening to it. That we offer custody support for many DeFi tokens. We're always looking at more of them. We're bringing quite a bit of wrapped layer, one protocols to Ethereum, and we also just recently supported Bitwise in its launch of the first DeFi crypto index fund.

So I think in the coming years, we'll see more institutional participation in the space. But as. Going out there alone where you see that disclaimer on just about every site. It's if you do this you could be facing a permanent loss. It's a little bit scary. As an individual I love looking at DeFi.

I have personally not invested the time or the resources to, to participate myself. But I am really excited to see if Anchorage can make it possible for institutions. It's going to be more easy for people like me someday to do it.

Aaron: [00:11:25] Gotcha.

Utsav: [00:11:26] And you brought up a very interesting point. You said that me that basically what I also have to say, . Institutions, but at the end of the day, we are individuals and what has been a growing trend, like these problems that the political instabilities or whatever has caused in, most facts, to be honest, what happens is that people don't have a lot of faith in the regulators.

Personally, it let's not use the word personally. Like a lot of people then worry about regulation or being regulated unless they are looking at millions of dollars of fines and loss. If it is somebody small for them, they could just file for bankruptcy on maybe just show their pockets. I don't have that kind of money that you could make after the lawyer fees or whatnot.

Tether can get sued these feds or whoever can go after a company, like Tether just because everyone knows that there will be a billion dollar payout for whoever wins, nobody would get would go after let's say DAI is a decentralized stable coin, but nobody would go after them for the obvious reasons that nobody would make money off of it.

So does that mean these custody solutions and the products that we see on the CeFi side of things, do they apply just to the institutions or is it a case that everybody says it's going to be.DeFi or broke until they become big enough. And then everybody wants to get regulated. What's your take on that?

Aaron: [00:13:17] So there's a lot in that question. Let me take this from the standpoint of, what regulation means to us. And what the mission of Anchorage is in that world, because. I think it's very clear that there are a lot of players in that situation that you just described with a lot of competing that way.

So what I'll say is that for Anchorage, one of the biggest benefits is actually simplifying the regulatory landscape for crypto. And let me explain how that's accomplished. So essentially having a federally chartered bank versus going with one with state regulation or sub jurisdictional regulation is that the federal regulations really preempt all of those state regulations and are in the cases that we are using.

What that means is that instead of having to worry about all of the cross jurisdictional differences and, different rules, different regulations, what you have is a relatively simpler structure that you can work within and actually follow that consistent set of rules.

Basically, it allows Anchorage to have a little bit more flexibility in terms of the products that we deliver and how we can choose to interact and give the opportunities for our clients to interact with the different blockchains. And frankly we are the first federally regulated crypto bank in the United States.

And we are using that opportunity to fully comply with all of the regulations and to give our clients the opportunity to benefit from the nature of the services that we provide. And so instead of having to fight the fight on your own we give you is a safe platform in which to engage in those things.

I, I know that maybe that doesn't directly answer all of the implications of the questions that you are asking. But from our perspective, what it does is it creates an environment that's very. Very secure. And that has an advantage for our clients that are both under our custody.

It really gives the opportunity to have very safe interactions between those usually separated entities that you were referring to.

Utsav: [00:15:54] Gotcha. Let's talk about crypto banks that you brought up. So how like crypto basically now becomes an asset or let's say a currency, a mode of exchanging value.

That is I guess what the other banks also hold. So what makes a crypto bank different from a normal bank apart from the fact that the whole different kinds of currencies.

Aaron: [00:16:23] That's a great answer. And the very short answer is essentially not a whole lot in terms of the regulation itself.

Obviously there are benefits of blockchain based currencies in terms of the fact that your ledger is distributed, and then you have the ability to have a very clear separation of account separation. All of those sort of benefits of the blockchain are actually a benefit to a crypto bank because you have super clear data coming from the financial model. We comply with all of the, know your customer and foreign asset control regulations and giving a very clear way for our customers to comply with those as an institution has been part of our mission from the beginning.

Leslie: [00:17:16] just to add here.

I also want to mention like Aaron said, we are regulated at the same level as national banks. So like a JP Morgan or BNY Mellon have the same type of regulation that Anchorage digital has. A few things that are different about our charter. We don't accept deposits with it like retail or otherwise.

We work exclusively with institutions. Another thing people have asked us about before is. Does that mean that Anchorage is connected to the fed wire? Are we using the federal reserve account and payment system service? If you know blockchain, then you know that there's a lot more advantage to using blockchain.

We take the view that the fed and legacy banking as a whole can benefit from better financial rails through blockchain. As we just did earlier this year with visa partnering to do APIs, so they can now do stable, quaint settlement through USB-C dot.com. They have that all set up with us.

But I think that's just something interesting to point out people. Think about, these legacy rails they've been around forever, but our goal really is to change that our goal is really to bring the innovation. It's not just blockchain as an investment class. It's blockchain as a technology layer that can make settlement can make payments, can make the whole legacy banking layer what we call traditional finance, better.

Utsav: [00:18:44] Gotcha. They got bring this up because first of all, I think that you guys have to take off a lot more boxes than a normal bank, because there's this whole level of education that you need to provide to these regulators or partners. They would ask questions like, okay, so where's that money and your point to an AP. Can't you see that money though? So they need to be educated. And there's a funny story. So ABMS we're about to get this new operating system windows XP embedded, right? Oh,

Aaron: [00:19:24] no please.

Utsav: [00:19:28] Let's

Aaron: [00:19:31] No, please. I know that we have had the problem with ATM security for pretty much forever. I believe the MSO 8 0 67 probably still lives around in the the people that know about that story. Got the oh eight for that bug number from Microsoft being 2008. If that tells anybody that's listing how long that has been the attack of choice on windows, XP, embedded.

But please

Utsav: [00:20:00]

There was a lot of like problems to be fixed, but the cost started we're involved in basically making the systems more secure or upgrading the always led to a backlash from the people who were building those ATM's because those guys did not have the know how.

To install those operating systems or whatnot, you would be like surprised by the number of like COBOL programmers, which was what we all learned in our third grade. I guess I have a joke that is. That is the level of education that you need to provide. And that is on the computing side of the world. Let's call it, let's call them those people who everybody calls them.

They have a tech problem, but what you guys have to deal with, and my dad's an accountantant. So like you have to deal with all of these things where you have to teach those people who might not really be technically inclined. So on that. Just tell a funny story that you guys have fought this. Like you had to experience something which made like immediate sense to you and they made you guys jump through hoops or whatnot to make them understand what should have been very evident.

Aaron: [00:21:31] A while I might not have any good, funny stories. What I can tell you is that we have been working really hard with our regulators, with our industry partners to do a lot of education. We not only have interactions with our regulator, the OCC, we also have interactions with other institutions in the world that want to safely hold crypto.

And what I can say is that the commonality of mission is actually the same in those two situations. And that is essentially how do you map the more modern ways of holding Cryptocurrency to the traditional banking practices that everybody is used to. That sort of mapping one to another is the way it's been going.

And to probably to a lot of people's surprise, not to our surprise because we've been working with them pretty closely. Our regulators on the OCC were, basically asking the right questions. They were attempting to see, okay this is a concept in banking that, you know, talking about, non circulating supply or talking about how you're doing accounting across Fiat or all of the different on roads and off ramps to cryptocurrency that may exist as parallels in different areas of traditional finance.

And the strategy that we always tried to use in situations like that was mapping our activities to another sort of activity that was known and familiar to the regulator so that they can reason about it in the same way. And talking about, holding cryptocurrency with dual party control and having technically enforced protocol level controls that enforce those guardrails.

Is, it's like a mapping activity because the truth of the matter is the distributed ledger is a ledger, right? It has all of that debits, changes in account. So all of these sort of these ideals exist in both places and really what we're going through is mapping from one to another.

And it's been a super collaborative effort, not just with the OCC and the regulators, but all of the institutions that we've been talking to about sub custody as well. And that mapping process is the exciting part because because in practicality, and this is the feeling that I've had, and this is the feeling that Anchorage had is that.

Really the future of finance is in being able to harness the power of decentralized currency and the more bridges that we can build with the regulatory structure in different companies in different countries, different companies, as they're building out their products, that those bridges are actually what moves us all forward.

And so it hasn't been, it hasn't been bad because I think people are realizing that this is the future. This is where we're growing. And so we're just telling good stories and trying to map it to concepts that we all know.

Utsav: [00:24:38] Gotcha. Like that there were like some really wonderful analogy, I guess you were trying to dumb it down for me.

Thank you for that. I needed it. So let's talk about decentralized bridges. Nice prejudice are safe. I heard about, I heard a lot about some of them getting hard. They need to have their varsity essentially act like you guys, without any of the regulatory protocols, without the technical know-how in certain cases, what would you say to something like that?

Aaron: [00:25:15] I think it's really important that you've hit on a couple of the really key pieces of that. And that is soundness of how the underlying funds are being custodied, the soundness of the smart contracts and the interactions that are built with the protocol or the token that you're talking about, and then, how ongoing governance happens, right?

These are all the core concepts of what, as an investor, as a participant in this project, you have control over. We always ensure the soundness of the underlying cryptography, as well as a number of other aspects of the token or the currency are sound before we ever allow it into our system.

And while, that's, again, that's never a guarantee of performance. That's never a guarantee of a lot of other things to be super clear. Having that insight into the bones of the body that you're putting your money into is going to be, is going to be the fundamental question.

It's the same sort of question that you'd get asked that you would ask if you were going to invest in a security or something like that, you're going to want to understand the perspectives. You're going to want to understand all the things that go into it.

Leslie: [00:26:34] When it comes to blockchain, you have to look at it from different angles.

So look at it from the technical technical side, how is this blockchain set up? But we also look at it from a compliance side. Can we get the kind of reporting that's needed? We look at it from the legal side, we're a member of the crypto ratings council, which also our other members are looking at Coins and deciding about these things, but you really have to look at it at multiple lenses to look at it. Just the compliance side alone would be missing a huge amount of very important information that comes from knowing the differences between different protocols and how they're saying.

So on the engineering side is absolutely very important to this

Aaron: [00:27:12] this

Utsav: [00:27:13] most, definitely. And with that, I'd like to end on a fun note, what would like your individual advice be to somebody who you, who like, let's say, what take all of their savings and buy Dodgecoin going? What would your advice be if they just let you see them while they're about to head that by.

$20,000 worth of savings or whatever, instead of let's say it by like life savings, what would you tell them? If you just peek over your shoulder and the bus or wherever, we'll see them, life savings, gonna buy Dogecoin.

Aaron: [00:27:52] Really

Leslie: [00:27:52] I don't want to give investment advice. But of course, this is like a scenario where. Don't invest what you can't afford to lose.

Utsav: [00:28:04] That's a big one.

Aaron: [00:28:08] Yeah. And at least save yourself enough to buy yourself a beverage afterwards is my advice. Have a drink after you do that. Yeah, you're going to need it.

Utsav: [00:28:23] on that funny note, guys. I'd like to call it. Thank you, Aaron. Thank you, Leslie, for being on the Hackernoon Podcast and hopefully we will see you guys again soon.

Aaron: [00:28:35] Thanks so much. Bye bye.