The Realistic Optimist provides weekly, in-depth analyses of some of the most relevant stories in our now-globalized startup world. Subscribe below to receive it directly to your inbox and don’t hesitate to share it with your colleagues :)

Crypto’s return to reality

The recent FTX debacle vindicated crypto’s original vision. There should be a peer-to-peer transaction system, where people themselves have full custody over the money they own. Third parties, whether they be FTX, the Lebanese Central Bank, or Lehman Brothers, all contain the inherent risk of losing the money they are supposed to safeguard. While the examples cited above are extreme, the point remains: people should at least have the option for self-custody of their assets.

The rapid development of crypto, and the technical complexities of buying it, have led to the emergence of a myriad of exchanges built to facilitate the process. These exchanges often enable their customers to store the crypto they own directly on the exchange itself. The process is simple, can be done through one’s computer, and isn’t far removed from the way you would access your online bank account.

Storing crypto directly on an exchange makes it vulnerable to a plethora of issues the customer has no power over. Cyberattacks against the exchange or straight-up theft carried out by the exchange’s owner put crypto stored on an exchange at risk. Theft is shocking, as it severely thwarts the development of a genuinely interesting sector. SBF’s (FTX’s founder) sentence and subsequent legislative actions will determine the judiciary’s resolve to sensibly regulate crypto.

A more secure solution to storing one’s crypto exists in the form of “cold wallets”, which are not connected to the internet and shield users from the two issues described above. Cyberattacks are rendered useless if the wallet is offline, and the crypto is in your custody, making you the only person responsible if you misuse it. These cold wallets generally take the form of hardware devices resembling USB keys, which enable a user to access their crypto’s private keys through a pin and a 24-word-seed phrase. This is what Ledger does.

Ledger: A genuine love for Bitcoin

In 2014, Eric Larcheveque and Thomas France founded La Maison du Bitcoin, a physical space in Paris, where people could learn about, discuss, and work on the novel, exciting world of Bitcoin. The two crypto enthusiasts would then cross paths with Nicolas Bacca, a former card engineer that had developed a first, rudimentary version of a hardware wallet. The vision to democratize Bitcoin combined with the technical expertise to create a new crypto custody solution gave birth to Ledger that same year.

Ledger truly took off in 2017, following the global crypto wave and the subsequent need to secure millions of newly acquired digital assets. The company’s main product was and still is a hardware wallet, of which it has supposedly sold over 5 million to date. The Ledger Nano, Ledger’s spearheading wallet, essentially safeguards a user’s crypto private keys, which the user can access through a pin and a seed phrase to then use their crypto.

“When you buy a cryptocurrency, you’re actually buying a public and private key pair, both cryptographically generated on the blockchain. These keys are unique. The private key unlocks your publicly stored portion of the blockchain, which you can then spend anywhere that takes the currency.” - Wired

Ledger products have developed a solid reputation over the years. To date, not a single Ledger wallet has been hacked. The main risk for Ledger users today resides in them willingly giving up their wallets’ access to a fraudster. A 2020 cyberattack against Ledger exposed hundreds of thousands of customer contact information, making the fraudsters’ jobs easier.

The modus operandi for thieves is simple: get the customer’s information, impersonate a Ledger employee, and ask the user for the access codes to the wallet. The scam can be taken a step further through so-called “scareware”, whereby the scammer forces customers to give up their info by threatening physical harm to them or their families.

Despite the human risk, the inherent safety of Ledger products remains convincing, with Ledger wallets receiving good reviews everywhere they go. Investors have taken notice, with more than $468M poured into the company since its inception. The company’s internal security team, the Donjon, is highly-praised.

In 2021, the company reached the prized but relatively useless unicorn status, cementing its spot as the field’s top global contender.

Diversification and expansion

Ledger has added a number of different products on top of its original hardware wallet. Ledger Live enables Ledger customers to interact with their wallet directly from their phone, taking actions such as buying crypto through partner exchanges or checking on one’s NFT collection.

Every action taken on Ledger Live has to be manually approved by the associated hardware wallet. Additionally, the user’s private keys aren’t communicated to the internet, using Ledger’s two-part system. This should answer the reader’s intrepid questions about the point of Ledger Live, if the whole basis of Ledger is to be an offline crypto wallet. As a rule of thumb, Ledger thinks about security in a holistic fashion securing the keys at generation (through the random generator), at rest (through the cold storage), and during use (keys aren’t exposed to the internet as explained above).

Similar to the AppStore, Ledger wants to make Ledger Live the agora where developers share new projects and apps for users to explore. Ledger has taken that ambition a step further, launching a dedicated VC fund with Cathay Innovations to finance such projects.

Ledger has also developed its B2B offering through a SaaS product enabling companies to manage their digital assets, leverage them on DeFi projects, and create their own NFT/token programs. Their VC-backing and subsequent need for hyper-growth explain the breadth of new revenue streams it is seeking.

Ledger’s grand vision: Become the Apple of digital wallets

In 2019, Pascal Gauthier took over as Ledger’s CEO. The former Criteo executive has been vocal about his vision for Ledger. Having led one of Ledger’s first rounds of investments, Gautier has a clear idea of where he wants to take the company.

His thesis revolves around the world becoming increasingly tokenized. One of the main powers of blockchain technology is the so-called tokenization of assets, which refers to the process of issuing a blockchain token for a real, tradable asset. For example, a house could be tokenized and its ownership represented by a token on the blockchain. Tokens have the potential to be fractionalized, meaning many people could each own and trade a percentage ownership of the said house.

The tokenization of everything from real estate to commodities will thus lead to people owning more and more digital assets, which need to be stored securely. Gautier believes Ledger will be the wallet of the future, securely storing a person’s digital assets through an intuitive and safe hardware wallet.

Parallels can be drawn with NotCo, the Chilean unicorn vying to bring plant-based food to the masses, a story that I covered earlier this month. Ledger’s vision is grandiose and aimed at making a generational dent in the industry rather than building for a niche market of crypto experts. As Gautier states, Ledger wants to pivot from B2G to B2C: Business-to-Geeks to Business-to-Consumers.

Ledger Stacks: Ledger’s iPhone moment?

Ledger is reminiscent of Apple on many levels. Both companies simultaneously operate a hardware and software business. Both companies centralize every app their user might need, through the Apple Store and Ledger Live respectively. Most importantly, both companies aren’t exploiting a market gap but rather creating a brand new one. Ledger teams are filled with ex-Apple employees, cementing the similarities as time goes by.

Two years ago, Gautier tapped Tony Fadell, referred to as the “father of the iPod” to head the design of Ledger’s newest product: Ledger Stacks. The new wallet is a far cry from the dry, albeit effective, Ledger Nano. Ledger Stacks are the size of an actual wallet, are made up of touchscreens, and enable the user to have an NFT they own as a screensaver. Stacks’ stated objective is clear: become the leading hardware wallet for digital assets while banking on the increase in tokenization described above.

Once again, Apple's influence on the launch of Ledger Stacks is heavy. The intention is to become a generation-defining product for a completely new market. Just like the iPhone.

France to the world and the world to France

Ledger’s first market is the US. The device has become a no-brainer for crypto users concerned about their digital assets’ security. The company has even reached the inflection whereby its company name is integrated into common language. Justin Khan, the founder of Twitch, encouraged his audience to “buy a Ledger” in a video explaining the FTX scandal.

France has a strong innovation culture. Blaise Pascal dreamed up one of the first mechanical calculators in 1642. More relevant to this story, the chip card (now used in everything from credit cards to passports) was invented by Roland Moreno, a French engineer almost 40 years ago.

However, France missed the early Silicon Valley train. The American government’s strong support for innovation and the subsequent dynamism of the American venture capital market helped American tech companies take the world by storm. After a lackluster start, the French startup ecosystem has radically transformed over the past decade and is finally making a name for itself globally, as I explore in this piece.

What’s interesting is that Ledger being based in France seems to be an asset for the company, rather than an obstacle. Ledger relies on excellent French technical talent to staff its teams. France’s quality of life certainly played a role in attracting top-tier profiles such as Tony Fadell. I would speculate that the traditionally limiting French skepticism and hyper-rationalism are proving valuable in the loud and false-prophet-filled world of crypto.

In other words: Ledger’s success is living evidence that the world’s startup centers of innovation are now globalized. It is imperative to give America credit for the basis of startup legislation, venture capital, and startup best practices. However, it is interesting to see that countries around the world are mixing those prerequisites with their own, unique national traits, leading to the rise of new ecosystems from Paris to Lagos.

Conclusion

The success of Ledger’s vision isn’t dependent on the relevance of its solution, which is proven. Securing digital assets online is dangerous, and hardware wallets are way safer.

The success of Ledger’s vision isn’t dependent on the relevance of its product either. The company has built enduring credibility in the space, and is assembling a team to transpose that military-grade security into a mass-market product.

Rather, I would opine that the success of Ledger’s vision is dependent on the relevance of its market analysis. Ledger believes that the world will become tokenized, and that most assets today will be represented by tokens on a blockchain. While rarely discussed in the mainstream Web3 discourse, which prefers to discuss fraudful exchanges and pornstars’ NFT rug pulls, tokenization technology could bring a true enduring impact to the very way “owning” something functions.

If Ledger becomes the new wallet for the new way we’ll own stuff, the future is très bright.

The Realistic Optimist provides weekly, in-depth analyses of some of the most relevant stories in our now-globalized startup world. Subscribe below to receive it directly to your inbox and don’t hesitate to share it with your colleagues :)

Share