A new partnership with Plaid and withdrawal support for more cryptocurrencies
The road to cryptocurrency mass adoption will be paved by technology and design that makes moving money easier.
In that spirit, starting today Abra is making it easier for users in the United States to convert USD to crypto by connecting and being able to seamlessly transfer funds to the Abra app.
This greater ease of use is thanks to a new banking integration made possible by the San Francisco-based fintech company, Plaid.
Plaid makes it easier for people to connect their bank to financial apps, like Abra. For Abra users, the Plaid integration means that now thousands of banks are easily compatible with the Abra wallet.
“With today’s announcement, Abra is taking yet another step closer toward our vision of democratizing access to financial services for our hundreds of thousands of customers around the globe,” said Abra founder and CEO Bill Barhydt. “The addition of these new liquidity enhancements in our app gives users more ways to move between crypto and fiat. We’re particularly excited about our partnership with Plaid, which brings thousands of additional financial institutions into the Abra ecosystem for US customers.”
Enabling easy withdrawal of 30 cryptocurrencies
Along with the new Plaid integrations in the United States, Abra users everywhere will also have the ability to now withdraw more of the cryptocurrencies held in an Abra wallet to supported external crypto wallets.
Abra is based on a non-custodial wallet architecture, which makes Abra wallets more secure than most other alternatives.
As we have written about before: “A non-custodial wallet fully leverages the power of permissionless blockchain technology, which enables peer-to-peer transactions without the need for an intermediary.”
Non-custodial wallets are more secure because they create a less focused attack surface, while wallets that are custodial — meaning users funds are stored in a big, centralized database — are creating massive targets for hackers.
Hacking a centralized exchange or wallet is like trawling the ocean for fish with a net versus a wallet like Abra, which is like fishing with a rod in the bathtub inside a locked house inside a locked compound with security guards on every corner.
The structural vulnerabilities are often revealed after massive structural failures happen — like the recent $40 million hack of the Binance exchange — when hackers are able to lift a massive amount of funds with one fraudulent operation.
“People don’t really think about the difference between a custodial and non-custodial wallet until they have been hacked,” says Abra founder and CEO Bill Barhydt. “Once you’ve been hacked, you get it. But by then, it’s too late.”
The hackers had the patience to wait, and execute well-orchestrated actions through multiple seemingly independent accounts at the most opportune time. The transaction is structured in a way that passed our existing security checks. It was unfortunate that we were not able to block this withdrawal before it was executed.
What this means is that Binance — and other centralized exchanges for that matter — hold their users’ assets in what amounts to little more than an internet-connected database. This structure lends itself to a wide range of security vulnerabilities, including social engineering, phishing, malware deployment, and others.
Centralized exchanges and wallets often use SMS for two-factor authentication which makes those accounts vulnerable to SMS hacks. With a non-custodial wallet like Abra this style of attack is not possible.
The alternative to hack-prone centralized exchanges is the kind of non-custodial model used by Abra.
Bitcoin was designed so that people could use the internet to perform transactions without the need to involve a trusted third-party. The whole point of blockchain technology is to provide the infrastructure to allow for secure transactions to take place without having to trust centralized databases or financial service providers.
“We built Abra as a non-custodial wallet because we want all Abra users’ assets to be as secure as possible,” Barhydt says. “The full value of cryptocurrencies like bitcoin isn’t realized if people are still trusting centralized exchanges to custody and control their funds.”
Rather than use a vulnerable, centralized database for accounting and settlement, Abra uses the Bitcoin blockchain.
There are some tradeoffs involved in this arrangement.
If an Abra user loses their recovery phrase, there is no way for Abra to regain access to their funds. This can obviously lead to frustration and disappointment if an Abra user loses their recovery phrase and wasn’t fully aware of the implications of using a non-custodial wallet.
But by following a few best practices (which users are prompted to do when they are first creating a wallet) to secure their recovery phrase, Abra users can then take full advantage of having a safe and secure wallet.
Decentralized alternatives to the traditional financial system hold the promise of universal access to financial services and products (like the ability for anyone, anywhere to have the same public market investing opportunities).
Decentralized finance also replaces middlemen with blockchain. By replacing corporate and bureaucratic layers that cost time and money with blockchain as an accounting and settlement layer, decentralized finance will be easier and more cost effective.
“We will only be able to realize the full potential of decentralized finance through non-custodial services that fully secure and protect users from large-scale hacks,” Barhydt says.
Abra founder and CEO Bill Barhydt recently sat down with Tim Draper and Adam Draper to record an episode of Crypto Bites. The conversation covers venture capital and bitcoin investing, as well as some thoughts about the future of the crypto space.
The following transcript of their conversation has been lightly edited.
Bill Barhydt 00:07
Hey, everybody, welcome to a special edition of Abra’s Crypto Bites. We are at Draper University’s Hero City in San Mateo, just south of beautiful San Francisco.
I’m super excited to be … I call you guys, the first family of venture capital. Is that okay?
Tim Draper: 00:24
Sure. I mean we’ve been called worse.
Yeah, I mean it’s —
Adam Draper: 00:29
That’s on the positive side.
It’s early morning, so I don’t know if you mean today or if you’re —
Tim Draper: 00:34
That’s certainly better than the second.
Okay, there you go. Tim Draper, Adam Draper, super excited to have the opportunity to talk to you guys.
I’m going to forgo introductions as to who you are. Everybody out there, I promise you, knows who you guys are. I just want to get right into it.
Adam Draper: 00:50
Philosophy on venture capital and investing
I want to talk about three things with you guys, today. I want to talk about your philosophy on venture capital and investing, where you agree, where you differ. Hopefully, we’ll mix it up a little bit.
I want to get into crypto, bitcoin. You guys have a lot of investments in that space, both in bitcoin itself as well as companies. Who you’ve invested in and why?
And then lastly, where we think it’s going? Where is the space going? What’s missing for getting broad-based adoption? Is it a function of time? Or are there specific things missing? And would love to get your perspective on that.
Let’s get into it. Let’s talk about investing. You’ve been at it for … how many decades?
Tim Draper: 01:26
Adam Draper: 01:28
Oh, I’ve been rounding up when I talk to people. I say 35 for you.
Tim Draper: 01:31
Adam Draper: 01:32
Is that okay?
Tim Draper: 01:33
Well, it probably is because I started before I started.
Adam Draper: 01:36
Okay, good. So 35.
Okay, and your father is a famous, infamous venture capitalist as well, right?
Tim Draper: 01:43
Yeah, and when I started my firm, I went to get an SBIC loan. I was 26 years old and they said, “Well, you need 10 years investment experience.” I said, “Well, I’ve been investing since I was 10.” And the guy looks at me and goes, “Check.”
All right. There you go.
Adam Draper: 02:04
That has changed.
The SBIC loan…now they have a 100 documents that you have to fill out.
I see. So it’s not: check, check, check.
Tim Draper: 02:11
It’s not the best now. But it sure was then.
Getting started in venture capital
And how long have you been at this?
Adam Draper: 02:14
So I’ve been investing for about eight years as a venture capital or angel investor. I mean, technically, since I was about six.
I was going to ask you —
Adam Draper: 02:25
He started me on buying the penny stocks on a … we would go through the newspaper and it’d be like, “What do you want to buy today?”
Now did you get-
Tim Draper: 02:32
They were the most volatile. Of course, they lost all their money on it.
Right. Did you get exposure to venture deals as a kid?
Adam Draper: 02:39
Around the dinner table, my dad would bring home stories of … I don’t know what other families brought home stories of, but we got stories about Skype growing, Skype’s network effect, and Hotmail’s network effect. Both network effects on communication for the internet.
So yeah, I think it was just osmosis. It wasn’t like … It was just such a big part of his life that we learned through him.
I had a conversation with one of my teenagers two nights ago where he’s a little interested in bitcoin, not really there yet, but is super interested in the lore of Silicon Valley for some reason.
He started asking me a million questions about when I was working on Plaxo with Sean Parker, and he thought that was amazing. He was going to go brag to his friends-
Tim Draper: 03:29
Plaxo should have done much better. I don’t know why that didn’t.
Tim Draper: 03:34
I mean, how many times I’ve gotten the wrong email address because Plaxo doesn’t exist. It just kills me.
Amen. Well, let’s do another podcast on why Plaxo failed.
Tim Draper: 03:45
Actually, I have four children and three of them have become venture capitalists.
Tim Draper: 03:49
I must’ve gotten them excited at the dinner table.
Do you feel that you have overlapping philosophies on venture capital? Or when you look at … I’ll ask you first, and then I’ll look at you … you chime in.
When you look at your kids who are also in venture capital, or if I was to ask your father the same question about you, do you feel that you have any overlapping philosophies on venture? Or do you feel that you’re just totally different?
Tim Draper: 04:11
Oh, there is a lot of overlapping, but it’s really fun to see how each of them has decided to go.
Tim Draper: 04:18
Adam, he can speak for himself, but generally, going after science fiction. My daughter, Jessie, she does Halogen Ventures, she only backs women.
Bill Barhydt: 04:30
Tim Draper: 04:31
And my son, Billy, does Pace Ventures and that’s only brand.
He’s going after consumer and brand. Technology, too, but consumer and brand.
So it’s interesting, they’ve kind of … the branches have grown.
Now, and when they’re raising … I mean, you have to raise all the time. We talk about it. I’m guessing you used to, but you probably do less of that now.
But when the kids are kind of raising for the first time, do they come to you and say, “What do I do?” Do they intuitively know what to do?
Tim Draper: 05:03
Weirdly, none of them have come to me for advice.
Tim Draper: 05:09
None of them. I say, “Hey, I can help. Here.” You know, I sent out, I said, “Here’s a bunch of my wealthy friends, you want to go to go talk to them.” They go, “You know dad I got my own network.”
That is amazing.
Tim Draper: 05:22
Adam Draper: 05:22
I think originally it started as this try it our own before … I do come back, and I work in the same building as my dad. I go up sometimes when I have a hard to decision to make and say, “What’s the right direction?”
He gives me one answer, and then I go to my grandfather, and then he gives me the other answer. Then I have to figure it out.
Investing in big ideas
How often do you get the same or overlapping answers?
Adam Draper: 05:47
By the way, I’d say the thing on the venture take, at the base of everything is like we always focused on people who were building things.
My grandfather is incredible with humans, human beings. That sort of, I would say it’s transcended the generations where it’s just sort of we know that at the end of the day it’s the person that’s going to be able to build and change the world.
Yes, we have different takes on the direction the world is going, I’d say that’s why we back different things. I focus very much on hard technologies and movements that you read about in Ender’s Game or Harry Potter.
Barhydt: 06:34 Yeah.
Adam Draper: 06:36
My dad has a … I would say we both also, my dad and I, the similarities are the things where it’s like, we are good where there’s regulatory uncertainty. We see a lot of opportunity where that is.
We don’t have any of that at crypto.
Adam Draper: 06:52
Yeah, none of it.
Tim Draper: 06:55
Yeah. Why interview us?
Adam Draper: 06:57
Yeah, why? But that’s where we find the largest opportunities. And so my dad is just good naturally at … I don’t know if we’ve ever called it regulatory uncertainty, but that’s where the most growth happens.
So financial markets. You wouldn’t have guessed that in 2008 that would have been the best time to start investing in FinTech.
Sure, turned out to be.
Adam Draper: 07:20
My dad decided to just throw basically everything at fintech. You know he backed a bitcoin, but he also backed Carta and all those things.
Tim Draper: 07:31
Yeah, all those things.
Adam Draper: 07:33
Robin Hood, Carta —
Tim Draper: 07:34
Coinbase, he was in it first.
Adam Draper: 07:35
I did it and then he … but yeah, so —
Tim Draper: 07:40
I would say it a little differently, but I like the way he said it. I would say what we all I think we all do is think, “What if it works?”
“How great is this if it works?” We’re not all concerned about what could go wrong, because plenty of things can go wrong along the way.
But what if it works? Is it really going to be transformational? Is it going to really change the whole nature of finance? Or the whole nature of healthcare? Or the whole nature of government? We look and say, “Well what if it works? This would be awesome.”
That’s where the entrepreneur does keep ahead of the regulations because they —
Adam Draper: 08:20
They help create it.
Tim Draper: 08:20
Adam Draper: 08:20
Hugely. Abra helped create it.
Trust me, I could give you a million stories of the battles that I fight, or choose not to fight. It’s half my day, for sure.
Tim Draper: 08:31
I asked for the job. Okay, so I want one example of where you went to dad and grandad, and said, “What do you think about this deal?” Both said no, and you did the deal.
Adam Draper: 08:45
Okay. It wasn’t about a deal specifically. I’m going to give you what both my dad and grandfather said about bitcoin.
Okay. First my dad actually, I think timeline wise, you invested in the bitcoin company before I did.
Tim Draper: 09:02
Yeah, but the wrong one.
Adam Draper: 09:03
Yeah, and I backed one of the right ones.
I’m guessing I know which one.
Adam Draper: 09:06
Yeah and then I … But then over … I went to my dad and my grandfather and I was saying, “Well you know this bitcoin thing, it’s really interesting. What if we could have digital money?”
My grandfather … so my dad was already in, but it was sort of, “Is this market going to grow? I’m experimenting.” My grandfather said, “No.” He just straight up, “Absolutely not, don’t get into this. You need a government for money.” That was the hands down.
My grandfather, I’d never heard him actually disagree-
Tim Draper: 09:51
He worked for the government.
Adam Draper: 09:51
And he worked for the government though. He worked for a long time.
But then the greatest part of that is that over the course of time, I decided to go at bitcoin full on. We were the first fund ever to say, we’re going to back bitcoin. That’s how we connected originally.
We’ve now backed about 100 crypto companies. But the greatest thing, he sent me an article about five years later that bitcoin was at the top of the headline. It was about how Goldman Sachs was doing something with bitcoin. He said, “Hey, you were right.”
That’s it. So you get the same one line — from your grandfather that we do from the venture capitalists. That I love.
Adam Draper: 10:33
That’s the best tidbit so far.
Tim Draper: 10:35
As long as they say, “You were right.”
Adam Draper: 10:39
Both my grandfather and my dad both just quick little emails. Yes.
Biggest lesson learned as a venture capitalist
All right. Quick before we get into bitcoin. Biggest learning so far as a venture capitalist, angel incubator? Anything you want.
Adam Draper: 10:55
Okay. Biggest learning? The crazy stuff works. And the obvious things don’t, would be probably my biggest learning.
Adam Draper: 11:07
Not necessarily like … So first off, rules are definitely broken all the time. My new thesis is irrational people doing rational things works. And rational people doing irrational things works.
So anyone in the bitcoin community that’s been relatively —
Tim Draper: 11:24
How about irrational people doing irrational things?
Adam Draper: 11:27
I don’t know.
Tim Draper: 11:28
That’s where you get into big trouble.
Adam Draper: 11:29
That’s the trouble, but maybe there is a crazy outlier. But it’s sort of like one of these things where the rational markets, they need someone to come in and be a little irrational to be able to actually break things.
Where the rational people going after irrational things, it’s almost like a good background, like someone who worked in remittance at Boom Financial. Then is literally leaving their company to join this cryptocurrency thing that is anathema to the entire financial market.
Sure, it’s more of a movement than anything else.
Adam Draper: 12:05
To join a movement, that’s a seemingly rational, seemingly rational person doing an irrational thing. So that’s sort of my new thesis.
I would say at the end of the day, optimists win. You need to be able to say what if? You have to be able to say … It’s really you want to be pursuing your own mission.
Everyone thinks they’re competing with other people and the entrepreneur’s really competing against themselves in their own market. It’s a full self-discovery thing. It’s not a-
As a longtime entrepreneur, I would say any CEO not in therapy is missing —
Adam Draper: 12:50
They’re not doing it right.
I will tell you, I have no problem with admitting that. Certainly coaching-
Tim Draper: 12:55
You know there’s a guy who specializes —
Yosi Amram specializes as … He went through it, he was an entrepreneur. He went through this big thing. He took it public and then he got pushed out by other political CEO.
Tim Draper: 13:12
Then he said, “Oh, my god, this is tragic to me emotionally.” He decided that what he would do was he would be the shrink to the stars.
When you’re dealing with the fourth thing that didn’t work on the way to the ninth thing that might work, the self-doubt..it just percolates. As a 50-year-old CEO, I’m old enough now where I know that okay, I’m past that. But as a 30-year-old CEO, it was horrible.
Adam Draper: 13:44
I’d say there’s a great quote from a movie. It was, “In my 20s, I knew everything. In my 30s, I realized I didn’t know anything.”
Tim Draper: 13:56
In your 40s, you’re right.
Adam Draper: 13:58
How investing has changed through the decades
All right. I’m going to ask the question a little bit differently. So you lived through the dot com era, some fantastic exits. You’ve seen social networking and now bitcoin/blockchain.
How are things different in your world of venture now? Versus in the 90s? And then through the Google, Facebook years?
Tim Draper: 14:18
Well, I think that the consolidation around the best tokens. Bitcoin, Ethereum, there’s a big consolidation around those. And the innovative tokens. That same thing happened during the dot com period.
Because there were some amazing people going, “Hey, pets.com or whatever.” It was a big, lots of these that kind of came up, raised a bunch of money, and then disappeared.
So similar thing happened in the token world. But then there was the rise of the real. The rise of the great technologies. The rise of the really interesting things.
So with bitcoin, you’re seeing the rise of the people around bitcoin doing interesting things. The OpenNode and the Lightning Network. Realizing, “Hey, we found something. We found an interesting opportunity, let’s run with it.”
Around Ethereum, there are also a lot of those interesting things happening. The payment for better or more honest journalism, that kind of thing. Interesting things happening around those.
Then there are a bunch of these that didn’t really happen. But then there’s some surprises. Like wow, look, the data wallet. Or whatever. That are coming up and people are going, “Wow, look at that. That was interesting.” It’s a new application.
A lot of it has to do with who are the people behind that? How driven are they? It’s just like entrepreneurship all the way through. People who are working really hard and doing really great things and they stick with it and they go for the long haul, those are going to be the ones that win.
First investments in bitcoin space
Yeah. So on that note, what was your … beyond bitcoin itself, which I know you’re both holders of. So am I. But what was your first corporate investment in the bitcoin space? Which company did you invest in first? Do you remember?
Adam Draper: 16:32
I bought, I invested before I bought bitcoin.
Oh, interesting. Okay.
Adam Draper: 16:37
It was from Brian Armstrong, the CEO of Coinbase, pitched me at a coffee shop. I ended up investing because of people like you, where I met every single person I met was the most dynamic person I had ever met. I was like, whether or not, this is a crazy idea. This is a rational person doing an irrational thing.
Adam Draper: 17:03
So I ended up investing in Brian, in a seed round. Then about … actually it wasn’t for another four months, did I actually buy any bitcoin.
I remember when I actually had finally signed the docs with Brian and I invested money. You’re holding the piece of paper and he said, “Oh, do you want to buy bitcoin on our platform?” I was like, “I just gave you a bunch of money, man. Hey, man, I know that you’re trying to do what’s right for you, but seriously?”
That is the time I look back on as I should’ve just done it. Because the price around eight bucks or something.
Tim Draper: 17:49
Mine was CoinLab, which was well before that. But it was an investment where it was still totally the wild west and it would seem to be kind of interesting. They were in the catbird seed, but they hadn’t picked a good direction yet.
Then with him, I said, “Well, I also want some bitcoin.” So different situation.
“Here’s some money. Get me some bitcoin.” He said, “Okay, we’ll take that money, get a chip, and mine the bitcoin. And you’ll get it at an even cheaper price.”
Okay. Well, then the chip never arrived for months.
That’s a problem.
Tim Draper: 18:33
And months and months.
And the price is going up and up and up.
Tim Draper: 18:36
And the chip … well, the people who were making the chip were doing some mining of their own. So we got front run.
Then finally he got it, the bitcoin had gone from four to 36 by the time he finally got it. So then he mines a bunch of bitcoin and I’m saying, good, I got some bitcoin.
He stores it in Mt. Gox and it was gone. So I had a very different experience. The reason I bought all the bitcoin in the big auction was first I didn’t think I was going to get it all, but I did.
I think I’m the only one who bid above market for all the [soco 00:19:14].
Only a small fraction of the global population is investing in the financial markets and assets that help build and preserve personal wealth. The latest infographic done in partnership with Visual Capitalist looks at traditional investing trends at a global scale, and how the emergence of decentralized finance can help create more financial access, opportunity, and equality.
Investing in financial markets is a basic tool to build personal wealth. Here are a couple of basic reasons:
Hedge: Equities markets can be used as a hedge against the inflation of fiat currencies.
Compounding: Cash doesn’t compound, and actually loses value over time.
Protect wealth: Diversifying across asset classes helps protect wealth during tough times.
Current barriers to entry for most of the world’s new investors interested in equity markets and other valuable financial assets include geographic location (there is a correlation between where in the world people are located and the ability to access financial markets), financial literacy/complexity, unstable local markets, and the cost of investing through traditional means.
Some of those problems can be addressed by better financial technology, like Bitcoin.
How decentralized investing creates more financial access
Abra is using the programmable features of cryptocurrencies to build a global investment app that will help democratize access to financial services, like investing.
Like Bitcoin itself, crypto-collateralized investments into things like traditional equities can happen via fractional or micro-investing, which opens the possibility of investing in some of the world’s most valuable assets to more people.
Just in time for the close of another fun-filled tax season, we are releasing new functionality that allows users to download their Abra transaction history from within the app.
Not only will this help with tax accounting, but the new transaction download will also help investors take a closer look at when they bought or sold various assets in the app, allowing for more precise cost-basis calculations.
The exportable transaction information is now available for all of the years that Abra has been in existence — and the files are downloadable by each calendar year.
This new transaction record functionality can be found right in the transaction history screen in the app — you should see a big button at the top of the screen that says “Export transaction history.”
Export your Abra transaction history in three easy steps:
You can find the export transaction function on the transaction history screen (image left).
After clicking the “export transaction history button” you will see an option to choose the year and input an email. (image center)
The last step will be a confirmation screen showing that you have completed the request. (image right)
While this is a great strategy and helps to insulate against major market movements, it also creates a long trail of crypto trades that need to be accounted for and calculated before determining profit and loss.
Now, those steps are made easy by exporting your transaction history. Once exported, your history will be emailed to the address that you will be prompted to enter.
One thing to note is that if you have more than one Abra wallet, you will have to go through the transaction export download for each wallet. (This is because of Abra’s non-custodial architecture.)
Crypto tax functionality
This transaction history update comes in time for tax deadlines in the US.
When you have exported and emailed the transaction history, it will arrive in your inbox as a CSV spreadsheet. This format allows you to perform your own calculations, and it is also compatible with cryptotrader.tax, and likely other tax account software in the future.
If you are looking for the new app transaction history functionality, but don’t see it yet, make sure you have the latest version of the app downloaded.
The Abra recovery phrase is an easy-to-use version of a crypto private key and allows Abra users to store assets on their phones. Those assets are accounted for on the Bitcoin blockchain and, using the private key/recovery phrase system, become available to invest in a number of assets all from the Abra wallet.
Abra’s recovery phrase plays a critical role in the security and overall functionality of each Abra wallet. More importantly, if the recovery phrase is not properly written down or backed up, then Abra users run the risk of permanently losing access to their assets.
An Abra wallet exists as decentralized, blockchain-based asset storage, which means Abra never has access to the funds stored by individual users. If an Abra user loses or records the wrong recovery phrase, there is nothing any Abra team member can do to regain access to the assets stored in that wallet.
Let’s take a look at how Abra’s wallets work and best practices for managing an Abra recovery phrase:
What is a non-custodial wallet?
Abra is a non-custodial wallet. That means that each Abra user has control over the private keys which enables access to their wallet. Abra wallets are Bitcoin-based, and the private keys to each wallet are linked to each individual user’s mobile device.
A non-custodial wallet is a powerful tool when wielded correctly. It allows Abra users to maintain a level of control over their assets that is just not possible when compared to traditional finance and banking.
Most financial service providers, as well as some major crypto exchanges, are custodial. A custodial service controls users’ assets, and structure-wise they exist as centralized databases containing valuable user information including asset balances.
From a security perspective, it’s no wonder why there seems to be an endless stream of news articles about major data hacks at crypto exchanges, banks, insurance companies, credit card providers, etc. Those big pools of centralized data represent massive attack surfaces for hackers and digital criminals to exploit.
In the non-custodial model, attack surfaces become distributed. And while individual mobile devices might become compromised through porting, social engineering, or some similar means — and that kind of behavior would definitely impact individual users — there is no central network or account to hack and steal from.
For a long time, centralized, custodial accounts were the only kinds of financial services and products available. Now, following the introduction and maturation of Bitcoin and related cryptocurrency technology, that’s no longer the case. Today, there are easy-to-use non-custodial services like Abra that are more secure than traditional alternatives.
What’s more, a blockchain-based non-custodial wallet also provides a massively powerful platform that allows Abra users to fully leverage the power of crypto’s programmable money. Abra can only exist as a globally accessible app available to everyone regardless of banking or accredited investor status because of the non-custodial model.
When using a non-custodial wallet, individual users are accepting the responsibility for the control of their assets. So if a recovery phrase, or a private key, is lost or compromised, there is no way for Abra or for anyone else to do a workaround to regain access to those funds. It’s not like you can call a centralized corporation and ask for your account to be restored — the equivalent in the decentralized world does not exist.
Recovery phrase: What is it and how does it work?
The Abra recovery phrase is based on a Bitcoin private key. Outside of Abra, you might hear the concept of a recovery phrase referred to as a seed phrase or a wallet seed, which all mean the same thing.
Bitcoin’s real breakthrough is that it creates a distributed, verifiable public ledger in the form of a series of blocks of confirmed transactions (also known as the blockchain). The computation involved in confirming and packaging those blocks into a record of transactions (a process known as mining) is so resource-intensive in terms of computing power and energy, that it becomes extremely expensive to create some kind of attack to compromise the transaction record that the Bitcoin network is documenting.
And this level of computational robustness happens across a series of nodes that are running on computers all around the world. The result is that no government, corporation, or single entity owns the Bitcoin network, which means that the distributed ledger, which can be used to carry out peer-to-peer trusted transactions without the need for a middleman, can be accessed by anyone, at any time.
In order for Bitcoin’s distributed ledger to work and to be accessible by potential users from anywhere in the world, Bitcoin was developed using a system of public key cryptography (this, by the way, is also how cryptocurrencies got their name).
There are three components to this cryptographically-protected process as they pertain to the Abra recovery phrase — the wallet, the public key, and the private key. A Bitcoin wallet is a little bit of a misnomer because actual user assets are not stored in the wallet, instead the wallet acts like an interface between the blockchain device where a user’s private keys are stored (usually a desktop, a paper or hardware wallet, or in the case of Abra, on a mobile device).
The private key, accessible through the wallet, maps to a public key (also called a public address) on the blockchain that shows the bitcoin balance for that address, which allows for public auditing (anyone who knows where to look on the blockchain can see how much bitcoin lives at the public address, and people can have multiple public addresses). Public keys are a string of letters and numbers but can also be represented by QR codes and they are what people share in order to receive inbound bitcoin payments.
Finally, the only way to send bitcoin (either to another bitcoin wallet or to a third-party to convert bitcoin to another crypto or fiat currency) is to have access to the private key.
When first setting up an Abra wallet, users are issued a recovery phrase which acts as a unique identifier. In the background, the Abra user is creating a hierarchical deterministic or HD wallet. The actual recovery phrase is a 128-bit encrypted value that is converted to a sequence of 13 randomly generated words, creating a mnemonic phrase that is easier for people to document.
The great thing about this particular setup of wallet and recovery phrase is that is it robust in terms of what can happen on the backend. Abra users are able to transact across an array of different kinds of assets without having to restructure their wallets or reset their Abra recovery phrase.
It should be noted that Abra wallets are designed to work with individual mobile devices, so users should not try to install the same wallet, using the same recovery phrase on multiple devices and expect to have all of Abra’s features accessible in multiple places.
When the Abra recovery phrase is properly documented (if unsure, the recovery phrase can be checked and confirmed under the “wallet security option” in the menu of the Abra app), then Abra users can move their wallets to a new device by following the instructions for recovering an Abra wallet when prompted.
How to use the Abra recovery phrase in four steps
Step one: Get your recovery phrase
The very first step is Abra recovery phrase process is actually documenting and storing your recovery phrase.
This is probably the most important step because if you document the phrase incorrectly, or don’t document it at all, you run the risk of losing access to your Abra wallet and all of the assets in that wallet will be completely inaccessible, including by the Abra team.
You will have two chances to document your Abra recovery phrase. The first time will be when you initially download the Abra app and create a wallet. The second time will be in the form of a reminder after the first few times you open the Abra app.
Step two: Write down your phrase
Your Abra recovery phrase will be a series of 13 words that are randomly generated and map to a 128-bit private Bitcoin key.
Write this recovery phrase down on a piece of paper and store with other important documents. If you lose this recovery phrase you will not be able to access your Abra wallet, and the Abra team will be unable to help you get access to those assets.
Resist the urge to snapshot your recovery phrase and store it on your phone. That’s not a secure practice and you run the risk of having your wallet compromised. Anyone with access to your recovery phrase can also access your wallet.
Step 3: Confirm your recovery phrase
After documenting the recovery phrase for the first time, you will have a chance to test it before proceeding.
Make sure you don’t copy and paste the recovery phrase and instead work from the 12 words you have written down and plan to store in a secure location.
Step 4: Recovering your recovery phrase
You can double check your recovery phrase from time to time by looking under the wallet security section of the main menu (in the upper left of the app screen).
Whenever you upgrade devices or want to move your Abra wallet to a new device, you will need to input your recovery phrase to install your wallet and access your funds.
Why Abra’s non-custodial wallet is significant
OK, so we’ve covered the security aspects of non-custodial wallets and what to expect when setting up an Abra wallet and getting a recovery phrase.
But another aspect of Abra’s non-custodial nature is what the technology enables from a scaling perspective.
Abra is available worldwide and is rapidly building a single app that will be able to handle a wide range of financial services — for now, Abra users can send money and invest in a number of different kinds of assets — but in the future, using Abra will be like carrying a full service bank in your pocket.
All this functionality stems from using the Bitcoin blockchain as infrastructure and using the decentralized non-custodial wallet as the interface between Abra users and an entirely new form of finance.
But all of this begins with a few easy first steps. Please remember to write down your recovery phrase, and treat it like you would any other key that unlocks something really valuable.
On March 9, Abra founder and CEO Bill Barhydt gave a presentation during the 2019 MIT Bitcoin Expo. Barhydt used the presentation to give a brief but technical talk about how Abra works. Specifically, he explained the concept of crypto-collateralized contracts and Abra’s synthetic asset model.
The following transcript has been slightly edited for clarity. The transcript starts after the one-minute mark because there is a brief issue with the presentation slides at the very beginning.
01:11 All right. Since I get extra time, I will give you a business overview of Abra, then. This is free time. For those of you who don’t know, my company, Abra, is a crypto wallet platform that allows you to get price exposure as an investor to — in theory, almost any asset in the world. We started out with fiat currencies, and a large number of cryptocurrencies, and recently we’ve announced that we’ve created a synthetic version of the entire Nasdaq, which we’re going to be launching outside of the US in a few weeks, and then hopefully inside the US later this year.
And basically the product works as one big HD wallet, for the tech initiated among us, and uses Bitcoin-based multi-sig, effectively smart contracts, but P2SH smart contracts to give people synthetic price exposure to any asset. The purpose of this talk is to explain to you how that actually works, both from the consumer-facing perspective, as well as the internal-facing perspective, in terms of how we eliminate the consumer’s counterparty risk to Abra.
02:29 Inside of Abra we effectively run two different businesses. One is the technology shop, which implements all of the wallet scripting, and everything related to what’s happening on-chain. Everything that happens in the Abra wallet is 100% on-chain. It’s a noncustodial HD wallet that makes this extremely complex, because, in other words, the consumer is holding their own collateral to these contracts. There’s no chance to get this wrong. It has to work. The other part of the operation is the financial engineering part of the operation where we’re actually trading in real time to eliminate the consumer’s counterparty risk on the contracts.
03:37 This is meant to be a handout. Sorry for the oodles of text, but again the purpose of the app for Abra is facilitating global financial inclusion. Giving people who are in hard-to-reach or economies that normally wouldn’t have access to certain financial services, whether it’s investing, payments and money transfer, remittances, eventually peer-to-peer credit, to give them that access using a model that works outside of the traditional banking system in a way that’s legal. We wanted to create a 100% unhackable solution at the same time. As you can imagine, if we’re gonna be holding contracts worth billions of dollars — and I say holding in a logical sense, since we’re actually not holding consumer funds — it’s really important that somebody can’t just come in and hack the entire pool of money in the system, and so the idea is to create this synthetic asset model that effectively uses bitcoin to give consumers price exposure to any liquid asset. We call them crypto-collateralized contracts, or C3. It’s 100% bitcoin-based today. We do have the ability to do this with other crypto assets, particularly forks of bitcoin, as well as ether. We’ve launched a native ether wallet inside the app.
05:04 But the app basically has 26 synthetic cryptocurrencies, so we actually, as pretty much a large global test, created 26 synthetic altcoins using bitcoin, so if you’re holding Zcash and Abra, you’re actually getting synthetic exposure to Zcash via bitcoin, and we’ve processed almost a billion dollars in transaction volume over the last 14 or so months, between the fiat positions — there are 50 synthetic fiat currencies and 26 synthetic cryptocurrencies in the system — that has processed almost a billion dollars already, and the way this works is what you’re holding — and I’ll just skip to the next slide to show you this — what you’re holding is one big HD wallet. Whether it’s the bitcoin, or the synthetic assets, and separately to that, of course, the ether-like coin and BCH, which are also native within the HD wallet. But everything that you see that looks like a traditional asset here — dollars, or other cryptos beyond the ones I mentioned — is synthetic, meaning it’s bitcoin tied to a contract, and I’m gonna show you how that works. The user can deposit Bitcoin directly to collateralize the contract. They have to collateralize the contract somehow. In English, if you’re buying a thousand dollars price exposure to Apple the thousand dollars’ worth of bitcoin has to come from somewhere, and that’s the consumer’s responsibility.
06:31 They can either do that via the banking system— and if they do it via the banking system what they’re actually doing is buying bitcoin from one of our exchange partners — to collateralize the contract. Or if they actually own bitcoin and they can actually deposit the bitcoin directly, and because our app is global, and we don’t have the banking integration done everywhere yet — we’re working on that — about 60% of the deposits are bitcoin-based, and 40% are fiat, and the 40% that are fiat are mostly the U.S. and Europe, where we have exchange partners live and fully integrated, where you can take your fiat, deposit it at our exchange partner, and unbeknownst to you, it just shows up as collateral in the app. They don’t actually know the process for the collateralization, to them, it looks like the way you use Venmo.
07:12 That’s the first part of understanding Abra. That, at its core, it’s one big bitcoin wallet. The second part of understanding Abra is understanding how the smart contract technology works.
07:24 Today, Abra is basically using a multi-sig P2SH model, where the consumer is collateralizing one side and signing one side, and Abra is signing the other side. Soon we’ll be migrating this from two-of-two to two-of-three. Today I’m just focusing on what we’ve got, not where we’re going. I’ve actually got other slides on where we’re going, but that’s normally an hour and a half. I only have 25 minutes.
07:47 All contracts within Abra settle on the bitcoin blockchain, with actual delivery, at the latest, every 25 days. In English, the contracts roll over every 25 days. We do this for legal reasons in the related to commodity swap transactions, which I won’t bore you with, and a smart contract basically includes a normal UTXO, plus some extra information, because we have to know the price at entry time in order to determine who’s in the money at rollover or exit time.
08:23 The addressing is just a normal bitcoin payment address. There’s nothing special about that. We use bitcoin the way it was meant to be used. There’s nothing extra. There’s no extra off-chain or side-chain technology here, it is 100% on-chain settled.
08:41 We also have this ability to do smart contract hedge amendments, and what this means is that if you’re using a bitcoin wallet to get price exposure to Zcash, Monero, the US dollar, and Apple at the same time — by the way, these transactions are very, very large, so our mining fees tend to be much larger because of the nature of multi-sig transactions versus others. There are days when Abra has done significantly over one percent of on-chain transactions. That’s not a goal, by the way, we simply have no choice. The transactions have to be on-chain, and they’re larger than other transactions, so we end up with a disproportionate amount of on-chain transactions, as opposed to Coinbase, where 99.99% of their transactions are off-chain — this contract amendment concept actually allows us to simplify or improve upon the amount of data we’re using, how often we have to write to the chain, et cetera, et cetera, by basically making amendments to the existing contracts, and we can basically chain these as long as there’s enough value in the unspent output of what we’re using. Again, this is something that I could easily spend a half hour on because it’s super interesting, but in the interest of time, I want to introduce the topic to you.
09:56 This is the overall architecture of what our smart contract system looks like. It’s going to change soon when we roll out the third party oracle function. Today, it’s kind of — how would I best describe it? — mutually assured non-destruction, because it’s a two-of-two system, meaning that the consumer can’t screw Abra and Abra can’t screw the consumer, but the consumer has to write down the backup phrase to use the app because if they don’t do it we don’t let them. But if they do lose the app and the backup phrase, then Abra’s in the money on the contracts, then we obviously have a problem. To address we’re rolling out a contract oracle function later this year.
It’ll be an M-of-N oracle function, which means eventually it won’t just be in one geography, it’ll be in multiple geographies, which makes it even harder to shut down. It’ll use things like Shamir’s Secret Sharing to even further distribute the private key of the oracle. That protects both the consumer if Abra goes away, and it protects Abra if the consumer loses their key.
11:09 If you’ve studied smart contracts at all, this probably looks familiar to you. The difference is, what Abra’s doing today to create the synthetic currencies is very, very simple. It doesn’t require more than what bitcoin script does. Which is fantastic. That’s part of what makes Abra so secure, the contracts are very simple.
11:28 What’s really complex for the uninitiated, is when you enter into this contract with Abra, effectively what you’ve done, if you’re getting price exposure to Apple, is you’ve taken bitcoin and you’ve effectively shorted the bitcoin versus Apple as a consumer. To you it just looks like you’ve put collateral in the contract equal to Apple, but if the price of Apple goes up versus bitcoin, you’re expecting more bitcoin at the end of the contract, and vice versa. If Apple goes down versus bitcoin, you’re gonna actually lose bitcoin.
11:58 Abra is the counterparty to those contracts. Which means, from the consumer’s perspective, the consumer has counterparty risk versus Abra. That’s unacceptable, because we’re not marketing this as some sort of sophisticated derivative system, we’re marketing this as a consumer-facing retail investment platform. The consumer should not be in a position to have to understand anything about counter-party risk of the mechanics of hedging or any of that. The way we deal with that is that we basically create, not only the smart contract, but we create a real-time hedging system that completes eliminates that counterparty risk, with one exception. The system depends upon the price of bitcoin being above zero. It doesn’t deal with systemic risk. If you have a gold swap — if you’re buying gold versus dollars — and gold goes to zero and you’re settling in gold, you owe the counter-party an infinite amount of gold. It’s the same thing here. We can’t account for the systemic risk of bitcoin, but if bitcoin is worth one penny, even, this system works.
12:55 Last year, when bitcoin fell 85%, and people were holding synthetic dollars, and we were making them whole almost every day, Abra didn’t lose a penny.
13:06 Abra is taking the long side to the consumer’s short, from a financial engineering perspective, and it’s important, then — and we report this to our board, our board members are sitting here, they can vouch for this — in our board meeting every single month, we actually report the net exposure of the entire Abra network. Meaning, if you take all of the consumer’s positions, all the average hedges, and you net them up, what is not only the current mark to market, but what is the mark to market regardless of any movement, except for the catastrophic failure of bitcoin, we’ve done something really wrong, and it never has been, and it won’t be when you understand how this works.
13:49 There are three functional aspects to making sure the hedge works correctly. The first is the initial collateralization, meaning I want to deposit — in this example, I’m using Ethereum Classic. It could be Apple shares, it could be dollars, doesn’t matter, the mechanics are exactly the same — I wanna buy 1,000 ETC — I made these prices up — the spot price for BTC is $4,000, spot price for ETC is $4, effectively Alice has to get one bitcoin on her app, because that is the collateral to give her price exposure to the asset.
14:30 At the same time, there’s a hedging operation going on, where Abra is effectively borrowing one BTC from a lender. We’ve actually borrowed that long in advance of this happening, because we can’t borrow such small amounts in real time. We pay the extra interest on that, but we are actually converting in real-time the one BTC to 1,000 ETC, via Coinbase or another platform. That is Abra’s asset. That is not the consumer’s asset. The consumer is holding their own bitcoin. What I’m doing in the bottom half of the slide is simply for my balance sheet to hedge away counterparty risk on the transaction. The fact that I borrowed bitcoin and sold it for Ethereum Classic, that has nothing to do with Alice. That is on my balance sheet. But why are they willing to lend me that bitcoin in the first place? Because they see that I’m in a multi-sig contract with Alice that’s 100% collateralized. Even though not only are we one of the largest borrowers of Bitcoin in the world, we actually pay infinitely lower interest rates than pretty much everyone else, because our contracts are fully collateralized by the consumer.
15:37 That just gets the money in the system. Now we have to deal with what happens when the price goes up and the price goes down and you wanna take money out of the system.
15:44 Let’s start with the price of Ethereum Classic goes up. Now I basically started with the same collateral as before, but at the end of the transaction, somehow I have to end up with more bitcoin. In this case, if the price of bitcoin stays the same and the price of Ethereum Classic doubles. In theory, I should end up with double the amount of bitcoin. But, remember when I sold the bitcoin for Ethereum Classic on the last slide? That means when I convert it back to bitcoin, it buys double the amount of bitcoin that it used to. Turns out it buys just enough to make Alice whole, and just enough to make my lender whole. Which is the arrows you see in the slide.
16:33 By the way, it doesn’t matter whether the price doubles or triples, the math works. What happens if the price goes the other way? If the price goes the other way, meaning that the price of Ethereum Classic falls in half, Alice is now holding too much bitcoin. She will automatically, via the script, end up giving — in this instance — half the bitcoin to Abra. That’s good, because the Ethereum Classic that I’m holding is now worth half of what it used to, so I don’t have enough to pay back the lender, but it turns out the Ethereum Classic that I’m holding converted back to bitcoin, plus the Bitcoin Alice gives to me, is exactly enough to pay back the lender, and now both parties are holding it.
17:19 Sorry for doing that quickly. Took me a year to figure this out, and I was a quant at Goldman. Took me a year to figure this out. This is the mechanics of what we’ve automated, minus the borrow. The borrow we do in advance, because we’re borrowing millions of dollars, and balancing constantly, and you can’t do that in real-time. Plus, there’s too much of a risk with block cycles and whatnot. We go to our lenders well in advance, and we have a small trading desk where we work that out. Everything else that I’ve described to you is 100% automated. If you buy synthetic XRP in Abra, your counterparty risk to Abra is hedged away in less than a minute. It has to be, otherwise, it would be unethical in my opinion.
18:03 This is just the flows of what is actually happening behind the scenes. The customer, as I said, they’ve taken an initial long position, but then what they’re actually doing is they’re shorting Bitcoin versus that Ethereum Classic in order to get price exposure to Ethereum Classic, which is what you see in that second column there, and then Abra is taking the long position in Bitcoin by going short effectively Ethereum Classic. The consumer doesn’t really understand this, and that’s why it’s so important that this is delta neutral, and why it’s basically got zero exposure to the consumer. Because otherwise, I’d have to ethically sit every single consumer down and make sure they understand this.
18:51 If you look at our terms of service, it’s very clear that Abra is doing this in the system.
19:02 The final column here shows that we’ll have neutral exposure by being able to settle correctly under all circumstances. Again, with that specific example, there are different mechanics. If this is a dollar — a synthetic dollar, synthetic Ethereum Classic, synthetic Apple — the right-hand column looks slightly different. If I’m hedging that Ripple or Ethereum Classic, there’s only one way I can do it today. In traditional financial engineering, what you would want to do is you would want to buy an NDF — a non-deliverable forward — contract between Bitcoin and Ripple, like you would if you were British Petroleum reckoning in pounds, and you were doing a lot of business in dollars, you would buy NDF contracts to offset forex risk between the dollar and the pound. That doesn’t exist between Bitcoin and XRP or Bitcoin and ETC Those markets are just tiny. We create them synthetically by borrowing bitcoin and then selling it in realtime, and that interest is effectively the cost of the insurance contract, and that’s offset by a spread that the consumer pays when they enter into the contract in the first place.
20:11 That’s how it works for the synthetic cryptos. If it’s synthetic fiat, it’s actually much simpler. If I’m holding synthetic euros — we have lots of people in Europe using this, they put bitcoin in the app and they convert it to euros -— what actually happens is that Abra’s buying future contracts in Bitcoin versus the dollar, and then offsetting that in real time with the NDF of the dollar versus the euro, which obviously exists, and those markets are both highly liquid, and Abra can often make money on those features contracts because we’re the short counterparty, and that pays a premium most days, and that allows us to lower the cost dramatically for the consumer, and then on the announcement we recently made around making Nasdaq stocks available for our international users, it uses a similar model, where the consumer is effectively taking the position of bitcoin versus Apple, and then Abra will buy the dollar bitcoin future again, but that will be offset either by borrowing shares from a prime broker or doing something like future contracts on the other side. Again, highly liquid markets. We use directly integrated services, like interactive brokers and others, to make that work. Again, in real-time.
21:24 If you push buy on that share, the hedge has happened, usually in less than one to two minutes. It may take a little bit longer on the stock side, just because of the way the APIs work, but generally less than two minutes.
21:36 The entire system does a recalculation every five minutes, and we run these Google sheets with big red flashing lights, that say what the total exposure across the entire Abra system between consumers and our hedging operation is. And we have somebody who’s got it open on their screen literally every minute they’re in the office, and then they get paged via text message when they’re not in the office if something happens that shouldn’t. It’s never happened, but we assume that it would so that we are diligent and how we do this.
22:16 Normally this takes hours to explain correctly. You got the 19-minute version. I’m happy to take a few minutes of questions and then pick up the conversation. I think I saw your hand first. Hand over here, go ahead.
22:35 Question one: I’m a huge fan of Abra. I’ve preached the gospel of Abra the remittance community ad nauseam, and you’ve done a masterful job at circumventing the traditional regulatory machines with your primary business or your first business in the remittance area. I was just wondering, with your foray into the securities industry tangentially touching the securities industry, are you planning to implement the same strategy to basically avoid the legacy regulators who would probably want some sort of regulation on that?
23:18 It’s a complex topic. I actually spent the entire day at the SEC last week. I met the chairman. In terms of functionally, how this works, I think that there are ways to do this probably without actually being SEC-registered in some way. The problem is the marketing. I can’t market to consumers the issuance of some price exposure to Apple or to Nasdaq or SPDRs without SEC oversight. It’s just not possible. Because it looks like a security swap from their perspective. But it’s worse than that, because Dodd-Frank mandated rules for security swaps. It’s nine years later, the SEC chose to ignore the implementation of those rules in the legislation. I brought this up, and they assured me that they’re working on it, but I can also assure you that they don’t include crypto because the Dodd-Frank was passed when crypto was about 50 cents. That’s a big problem, not for me, for the industry. This is way bigger outside the US than it is inside the US. If I never market the ability to buy Apple via bitcoin in the US, it’ll mean nothing to Abra. But I want it to work here. If I’m doing it in 154 countries, I wanted to do it in 155.
24:36 We’re working on that part, to figure that out, but the US regulation is infinitely more complex in this regard than everyone else’s. Especially when it comes to something that looks like a security swap. The other side, which is commodities, if you noticed I talked about the 25-day delivery and that stuff. That has to do with the commodities area, which is different than the securities area, and I won’t bore folks with that, but the CFTC issued guidance on what actual delivery means if your asset settles in bitcoin, basically taking their old guidance on actual delivery for traditional assets like oil and other commodities. It’s a complex topic, but I’m not going to jail for anyone. We’re doing this right across the board. This is not just about how do you get around regulation. It’s a very complex topic.
25:30 The first thing is to make sure that the regulators understand that you’re doing right by the consumer. When they see that the consumer doesn’t have counter party risk to Abra, the nature of the conversation changes, and also because we’re not holding the collateral. Beyond that, you have to get into the very nuanced mechanics of what you’re doing.
At Abra, we believe that the technology driving cryptocurrencies has enormous potential to create positive disruptions in traditional finance, and ultimately lead to outcomes fostering greater global financial access and equality.
This Crypto Bites episode was recorded in late 2018 in New York City. The conversation between Abra founder and CEO Bill Barhydt and Ethereum founder Vitalik Buterin covers a lot of ground including the origins of the idea for Ethereum, some of the problems the that Ethereum was designed to address, and what the future of the crypto space might look like, including layer two solutions and threats to distributed, permissionless blockchains.
Abra recently announced full support of native Ethereum, which means that Abra users can now deposit and withdraw ether from any other crypto wallet that supports Ethereum.
The following is a transcript of the conversation.
Hey everyone, Bill Barhydt here.
Welcome to another edition of Crypto Bites.
I’m really excited about this one.
We’ve got a really special guest with us, who we’ll come to in a second.
And it’s been a fantastic year for Abra, thank you so much to the community who supported us.
We’ve got hundreds of thousands of users now, our community is growing every day.
We think that this really sets the stage for Abra to go deep within the Ethereum community, and you’ll see lots more announcements about our support for Ethereum-based contracts in the future, so I’m really excited about that.
I’m also super excited to have Vitalik Buterin with me, I guess you call yourself the founder of Ethereum?
So I’m curious, first of all, thank you so much for joining us, I know the community’s gonna be super excited about having you join us.
So how did you describe your role within the Ethereum project or community today?
What is your role?
So, my role when I started was basically that I was the one who came up with the initial idea.
I wrote the white paper, I kind of sent it out to people, brought together the community initially.
Right now, I probably focus the most on, first of all, on research problems.
So we are…At some point fairly soon going to release an upgrade to Ethereum called Serenity, which will include the proof-of-stake consensus algorithm, so this is a much more efficient form of consensus than the existing proof-of-work chain.
Yeah, we’ll come back to that.
Together with sharding, which is this very large, maybe 1,000X scalability improvement.
I spend a lot of my time kind of figuring out the details of that upgrade, kind of figuring out what the protocol will look like, and things like that.
I also end up participating in different other strands of research, so things around the cryptography economics, different Ethereum applications.
I do also just go around the world and kind of…Talking to different people in the Ethereum community, and different people in larger and more mainstream circles that are interested in figuring out how to use Ethereum.
Yeah, are you having fun?
Yeah, yeah, this year has been great.
Cool, I wanna talk about that in a minute.
I think just maybe take a step back, and I think a lot of our traditional investors inside of Abra don’t know a lot about you, so maybe if you don’t mind, just introduce yourself, where you come from, how you got into this in the first place, how you went from writing about Bitcoin to even creating Ethereum.
Sure, so I was born in Russia in 1994, six years later moved to Canada. Eleven years after that, heard about Bitcoin for the first time.
I first heard about it from my dad, then I saw it again on the internet.
I kind of thought, okay, this is an interesting idea, maybe I should kind of poke into it more.
I started poking through the Bitcoin forums.
I eventually found the guy who would pay me in Bitcoin to write articles for a blog that he was working on.
From there, I became the co-founder of Bitcoin Magazine, which was this kind of website and print publication.
I remember, yeah.
That was around back during the Bitcoin early days.
Then I spent about two years working on that and kind of getting deeper and deeper into the Bitcoin community, and understanding how it works on a technical level, understanding the social and economic ideas.
So you’re literally one of the few people who’s probably spent close to half his life in the cryptocurrency world.
What are you, you’re probably like 24?
Yeah 24, but eight divided by 24 is 1/3, it’s not quite 1/2.
Wow, but even that is incredible, right?
Well, for me it is, because when you were born, I was at Netscape, right?
So the idea that you could even spend 1/3 of your life specifically, not in cryptography, because I’ve been doing that as well since I was 19, but the idea that you could work on cryptocurrencies for 1/3 of your life is incredible to me.
What was the first programming language that you learned?
I remember when I was very young,
I would play around with Excel spreadsheets, which is kind of a programming language.
Then when I was a bit older, I would do Logo and C++.
The main thing I would program is programming video games that I would then play myself until I got bored, then I would program more.
Right, cool, very cool.
So let’s talk about Bitcoin and the segue to Ethereum.
What attracted you to Bitcoin in the first place?
It just seemed like something that gathered together all of the interests that I already have at the same time in one package.
There was the math and computer science, the programming, the cryptography.
The community back then was very interested in talking about different political and social ideas,
and libertarianism was very strong, but then there were socialist and mutualist whatevers, and all of these different fun little tribes.
There was even the sort of politics and society section of the Bitcoin talk forum where people would just debate these ideas with each other.
So Bitcoin kind of had that, it had this kind of…Community with different ideas, and a technology that actually could actually have a big impact on the world.
It had the open-source software aspects to it, it had very interesting cryptography.
It seemed like almost a perfect storm for myself to get interested in.
Fantastic, and you had this idea that Bitcoin needed more of a Turing complete scripting component to it and that led to the idea for Ethereum?
Is that a fair statement?
So what actually happened was that back in maybe October 2013, I spent some time working on projects like colored coins and Mastercoin, so these were the existing layer twos that were trying to kind of extend Bitcoin with more advanced functionality, and at one point I realized that, hey, you could replace these five features with one other feature by just basically having a programming language instead of these five specific different transaction types. And it kind of came over time.
The first thing I did was I made a proposal to Mastercoin that would replace basically five of the transaction types they have with a programming language designed to express financial contracts between two parties. So you could do binary options, contracts for different bets—
Pretty much anything in that category with one single type of thing.
Let’s take a step back for a second.
What was the attraction to you for this idea of having contracts, executable contracts at all, inside of a cryptocurrency-based model?
Initially, for me, it was like, hey, they’re doing this thing, they’re trying to make it possible to do more stuff, that seems cool, but I know how to do more, how to make it possible to do more stuff with a protocol which is ten times simpler, which is instead of basically having a Swiss Army knife with 100 different types of features, you would just have a programming language, so then you could kind of build whatever you want on top.
Did you have a vision where you said, oh my god, the world needs this type of contract?
Or was it more for you a holistic problem?
It kind of came over time, I started with these two-party financial contracts, then I kind of kept on mulling the idea over, and at one point I sent it to the Mastercoin people, and they said, yeah, that sounds cool, but maybe we’ll get to it in a year on our own map.
And I was like, wait, a year? But don’t you see this is literally the most important thing out there?
I basically just decided to start working on it myself.
So free of the constraints of having to iterate an existing system, I kept on thinking,
and eventually, it took me a couple of weeks to figure out how to expand the model from
just two-party contracts o these computer programs that talk to each other and can do pretty much whatever they want, but once I made that one kind of leap, suddenly everything made sense, that you could just do everything with contracts.
Yep, yep, okay so now let’s talk about that.
So we have a lot of non-technical users of the Abra app, people who are watching this who hold Ethereum, but don’t really understand the deep difference between ether and bitcoin.
So can you explain in kind of non-technical terms to the layman, what is the difference between bitcoin and ether?
Sure, so Bitcoin is kind of a special purpose blockchain.
It’s good at basically the one thing that it does, which is storing and processing the transfer of Bitcoin balances.
Ethereum is a much more general purpose platform, so Ethereum contains a built-in cryptocurrency called ETH which you can use as a currency, but then it also has these smart contracts which you can use to implement a much broader variety of other kinds of blockchain applications, which could include financial contracts, it could include decentralized domain name systems, it could include identity systems or reputation and so forth, and then there’s this big long list of blockchain stuff that people get excited about, and basically any of it is doable on Ethereum.
And how much of that, of what you just said, was the original vision, versus how much of that
has kind of evolved over the last five years?
I would say a lot…When I figured out how to move from just two-party contracts to this broader model of contracts that can do anything, it became very clear that this was a much more general tool than we realized we could do.
And at that point, other people in the community started coming up with more and more applications, like there was some people thinking up decentralized file storage, there were…
People thinking up different ways that they could make their own tokens.
I came up with some ideas around how to do things like decentralized oracles and so forth, and other people took those ideas and started running with them.
Part of that is where Augur came from for example.
Right, a prediction market.
Yeah, well prediction markets are this other idea that just totally came from the outside, but the platform is general purpose, so even though I’ve never heard of prediction markets when the platform was designed for the first time, you could still do them.
That’s super cool.
So what’s…I wanna talk about some of the applications that you were alluding to in just a second, but what’s the craziest application of Ethereum that you’ve come across lately?
Like, I can’t even believe that somebody came up with this. Is there something that comes to mind?
I am definitely impressed by MakerDAO.
What MakerDAO basically is, is it’s a smart contract system that issues a currency which is pegged in value to the dollar, but it’s not dependent at all on any outside banking systems or anything like that.
Basically, there is an even larger pool of ETH that the contract maintains, and the contract basically maintains this kind of peg where…It has this data feed that feeds in the price of ETH to U.S. dollars from the outside, and depending on what that price is, that’s the amount of ETH that you can recover from one DAI.
What that basically means is that you get this cryptocurrency which is a sort of pure cryptocurrency in the sense that it doesn’t depend on centralized infrastructure, but it has a stable value.
Theoretically, you could extend this kind of model to not just U.S. dollars, like you could have exposure to arbitrary assets, you could have exposure to CPIs, you could have exposure to real estate indices.
But the interesting thing about it, the idea is something we knew about for a couple of years, but they actually did it, and it actually works, and it’s worked for almost a year.
It’s gonna be a year in maybe even a week or so.
The price has just actually stayed at a dollar all the way through.
That’s awesome, and actually there are a lot of similarities between what MakerDAO is doing and the Abra platform using Bitcoin, because we basically use multi-sig Bitcoin contracts to create our stable assets, the dollar, even the ETH up until now,was this stable asset model using Bitcoin, although now it’s a native ether wallet of course.
So let’s talk about some of those applications.
Obviously, this has been a crazy year from kind of a venture capital, ICO perspective, right?
So I’m curious, what is your perspective on what’s happened in the past year in this crazy ERC-20 market, and is it…Is that a viable, interesting application of Ethereum going forward, or do you think that that’s kind of going to die?
I think there’s definitely going to be even more ERC-20s to keep on getting issued in the future. I do think that the age of multi-hundred-million-dollar ICOs has passed, at least for quite some time, and honestly, I’m very relieved about that.
There’s definitely a lot of different use cases for issuing tokens, like one, you could use them to represent assets, so if things like these different stablecoin projects, you could use them for assets inside of video games, you could use ERC-721s, Non-Fungible Tokens, to represent digital collectibles, you could use ERC-20s to represent tokens which have value insideof some applications.
I do think that the AppCoin thing has been over-hyped and over-used, but there definitely are some areas where I think it’s totally legit.
So we’ll come back to the 721, the collectible model in a second, I think that’s a really interesting topic as well.
On the ERC-20 topic, what do you think about just traditional securities enabled via the ERC-20 model, not just issuing new tokens to fund a company, but taking existing stocks, and making them available via ERC-20, is that something that you foresee happening en masse in the future?
Yeah, I think that’s a totally cool idea.
Are there startups that you’re aware of that are actually trying to do that now?
For stocks, I don’t know.
The challenge is that you want these stocks to be issued natively, like you actually want the record on the Ethereum blockchain to be the authoritative thing that tells the court who actually has the legal rights, and that involves legal engineering more than anything else.
I know there was this company based in Singapore called Autonomous that was trying to do company share management on Ethereum, and part of the long-term vision for that would be that you could just have stocks that get traded on the blockchain, but then that particular company shut down.
When you think about mainstream adoption of decentralized applications or any application that takes advantage of Ethereum, what do you think it’s gonna take for true mainstream adoption by the average consumer, or institutional investor, are they going to know that they’re using Ethereum?
Is it gonna be relegated to the background?
And how much of that is dependent upon your development platform community, versus the actual app developers?
I would say in some cases yes, in some cases no. There are definitely ways that applications can benefit from Ethereum without exposing the user to any blockchain bits, but then there are also other benefits that you really can only get by making the blockchain parts closer to the user side.
As far as the big problems, my top three at this point are probably scalability, privacy, and usability. So scalability, Ethereum blockchain right now can process 15 transactions a second, really we need like 100,000.
Privacy, every single thing you do right now is totally public to everyone, and that doesn’t do
for a whole bunch of use cases, so this is part of why we’re working on some fancy cryptographic technology, like zkSNARKs, to try to solve that.
Usability is a super big challenge.
A lot of blockchain applications are just very poor on the usability side, they have a lot of hiccups, and like, oh why’d this suddenly just totally not work, why did this take 10 minutes longer than I expected. The other big challenge that I care about is usability of security, so coming up with easy-to-use ways for people to store their private keys that don’t become vulnerable to someone losing everything because they either lost their private key, or their private key got stolen.
And there are some interesting solutions that are coming out to that, but it’ll still take a couple of years for all of these different strands to get somewhere.
Yeah, we struggle with the last one a lot.
We force our users to actually write down their back-up phrase to recreate the wallets.
And we have obviously near 100 percent compliance with that because we don’t give the user a choice, but it is not a fun, friendly process for our users.
So let’s kinda work backwards on what you were talking about earlier.
Actually let’s start from the top, so you mentioned scalability, that it’s gonna take probably 100,000 transactions a second at some point to really make Ethereum useful.
Where are we now in terms of getting from 15 transactions a second to 100,000 transactions a second in the Ethereum network?
There’s kind of two major kinds of strategies that we’re working on for scalability.
One is layer one scaling, and the other is layer two scaling. So layer one scaling basically means improving the blockchain protocol itself to allow it to process a much larger set of transactions.
And the main bottleneck with blockchains right now is basically every user has to download the whole blockchain which basically means the blockchain can’t hold more transactions than one guy’s computer can store.
Our solution to this, called sharding, basically means that you split up the different transactions to randomly selected different groups of computers.
This basically means that the blockchain can process way more things than one single computer can hold.
That could increase scalability by maybe a factor of 1,000 or so, but potentially even more much later down the road.
The other kind of scaling that we are working on is Layer two scaling, which basically means designing applications in such a way that not everything that happens actually goes on the blockchain.
So basically instead of going to the blockchain every single time any user does anything, you perform most of your operations off-chain, using just cryptographically signed messages, and you only need to put data onto the chain when there actually is some kind of dispute.
So there are two major classes of systems that we’re working on in this regard.
One is called estate channels, and there’s a bunch of teams working on this. There’s a team called L4 in Toronto that’s done some really good work.
And another project is Plasma. And there’s a lot of work that’s been done on that, OmiseGO is this decentralized exchange that’s building on Plasma. There’s more and more of these projects, and there’s…
One of our researchers, Karl Floersch, has been working on an implementation of a reasonably complete Plasma Prime specification, which is the latest version of Plasma which has some really cool features in terms of increasing scalability and reducing the amount of data you have to store.
So a question on the on-chain scaling. So the Bitcoin Core world, for example, beyond SegWit, has really relegated scaling to layer two, which means off-chain scaling.
You obviously have a very different approach for Ethereum. Do you think that the approach that the Bitcoin Core community is taking makes sense for Bitcoin?
Or should they have the same perspective as the Ethereum project, in your opinion?
If Bitcoin wishes to just be a store of value, then realistically it’s probably fine, though I think they should switch to proof of stake.
If they want to actually be a currency that people use for transactions, then I do think base what you’re scaling and also kind of speeding up the blockchain, reducing block times at the base layer, is also something which is very important.
There are serious limits to what you can do at layer two. There are limits to the usability of layer two, and there’s a tax on layer two, and also the other thing to keep in mind is that the scalability of gains from layer one enhancements and using layer two are multiplicative, so if layer one can be made to be 1,000 times more scalable, that’s also 1,000 times increase in the amount of transactions per second that you can push to a layer two thing safely.
But I also think that there are legal implications with layer two, because you get into money service business, and e-money regulation there, that I think a lot of the developers who don’t come from the legal world don’t fully understand.
Today we are adding another arrow to the Abra crypto quiver by expanding Ethereum (ETH) support.
Now Abra users can hold, sell, and buy Ethereum directly from their wallet.
In the past, Ethereum was available on Abra as a synthetic asset, which means that Abra users got exposure to the price movements of Ethereum’s currency, ether. This latest level of support also adds the ability for Abra users to directly deposit and withdraw ether to any other crypto wallet.
By adding native Ethereum support, Abra users will now be able to easily buy Ethereum or move ether from other wallets to the app.
This opens up the potential to use Ethereum as an on-ramp to invest in the other assets listed on Abra including, 50 fiat currencies, 30 cryptocurrencies, and the BIT10 crypto index.
Giving away ETH
Interested in trying Abra? If you download the app and perform a first-time cash-in from a US-based bank, then you can get $25 in free ether.
What is Ethereum, and why does this matter?
Ethereum was launched in 2015 as the Ethereum Virtual Machine. The goal of Ethereum’s blockchain is to build a platform that makes it easier for developers to create and deploy decentralized applications.
Ethereum as an infrastructure layer, or a base protocol, created a system for writing and executing smart contracts (which are essentially programmable rules that executed when certain conditions are met). The smart contracts, in turn, enable the creation of decentralized applications.
Ethereum’s platform provides the foundation for other projects to launch tokens without having to rebuild a blockchain from scratch. Instead, using standards developed by the Ethereum community, like ERC20, projects such as Augur, Golem, OmiseGo (all of which are also listed on Abra) are able to use Ethereum as a foundation and then build their own economies and communities.
The popularity and ease of use of Ethereum’s platform to launch other projects led to a boom in the creation of new tokens, especially during the last 18 months. Known as initial coin offerings (ICOs), projects have been able to build their idea on Ethereum (or at least pitch their idea that is made possible by Ethereum) and raise money through a token sale.
One other noteworthy aspect of Ethereum is that it is known for its strong and rapidly growing developer community. These developers are building all kinds of projects ranging from media and gaming companies to ways to protect digital identity and property to futures markets and decentralized exchanges.
In the few years since its launch, Ethereum has grown to be the second largest cryptocurrency by market cap. Currently, 103 million ether are in circulation. The price of ether hit an all-time high of $1,448.18 in early 2018 following the crypto market’s bull run of 2017.
Now that Abra has enabled native Ethereum support it will be a much more streamlined process to add more ERC20 tokens in the near future, so stay tuned.
Five reasons to use an Abra wallet to buy Ethereum
Unlike other investment apps, cryptocurrency exchanges or wallets, Abra is super simple to use, and has loads of unique features:
Simple and accessible: Abra is available in 155 countries around the globe. All that’s required to set up a unique and secure wallet is an iPhone or Android phone. Abra is an ideal wallet for developers building on Ethereum or Bitcoin as it’s incredibly accessible to the average consumer.
Decentralized: Abra is based on a non-custodial architecture meaning Abra doesn’t control or have access to users’ funds. Instead, they are secured on the blockchain and accessible only by a user’s unique recovery phrase.
Crypto-backed: The tech underlying Abra also makes it unique and globally accessible. Most of the assets available to invest via the app are synthetic assets, which are made possible by Abra’s creation of crypto-collateralized contracts (C3). This functionality takes advantage of the programmable aspects of Bitcoin, and makes the underlying investment as secure as the blockchain, and easily tradeable.
Liquidity: Sending money (in crypto or fiat formats) to another Abra user is super simple. The best part is that you can send one kind of asset and they can receive it as another kind (like send bitcoin and receive euros), across the room, across borders, or across the planet. Abra also makes depositing funds either via bank wire, card or external crypto wallet as easy as a couple of clicks.
Powerful portfolio: Abra supports over 30 cryptocurrencies and 50 fiat currencies. Additionally, Abra users can gain exposure to the price movements of Ethereum by investing in the BIT10, the world’s first easily accessible crypto index. The index tracks weighted percentages of the top ten cryptocurrencies by market cap. Ethereum, because of its position in the overall cryptocurrency market cap, has historically held a large position by weight in the BIT10 index.