WBD451 Audio Transcription

The Importance of Self Sovereignty with Nick Neuman

Interview date: Monday 17th January

Note: the following is a transcription of my interview with Nick Neuman. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I talk to Nick Neuman, CEO of Casa. We discuss the scale of third-party custodying of bitcoin, the inherent risks of delegating bitcoin custody, the security and support provided to users of hardware wallets, and the latest innovations.

“The very first sentence of the White Paper says that Bitcoin is a peer to peer electronic cash system that can allow people to send payments without going through financial institutions. That’s the first sentence: built around self custody, not around inflation protection, not around digital gold.”

— Nick Neuman

Interview Transcription

Peter McCormack: Hi, Nick, how are you?

Nick Neuman: Peter, I'm great, it's great to be back.

Peter McCormack: Great to have you back on the show.  Okay, lots to talk about.  Let me flip that down.  I want to get more into custody with you, obviously, because that's what you do; and for disclosure, people know that you're a sponsor and I'm a customer also, a paying customer.

Nick Neuman: Paying customer.

Peter McCormack: People don't believe that, by they way, they think you give me a freebie.  The reason I want to talk to you about this is that people have been raising the issue again that there is beginning to be, well maybe not even beginning, there just is a too high concentration of Bitcoin that's now being custodied by other parties, and that's a risk to Bitcoin.  I know that's something you obviously deeply care about, because that's what your business is based on.  Do we know what kind of levels are being custodied?

Nick Neuman: Yeah, so this is pretty interesting analysis to do, because if you look at some of the guys like Glassnode and some of these other on-chain analysis types of tools, they'll actually show you over the last year, you might have seen people posting these charts of the amount of Bitcoin held on exchanges going down.  The problem with that is that they don't include all of the custodians.  So, they've got some of the major exchanges, they'll show you Kraken or Binance or some of Coinbase's wallet, but they're not showing you guys like BitGo or Coinbase Custody.  Coinbase Custody is the side of Coinbase that actually holds all the institutional capital.

So, back in 2019, Chainalysis did this analysis that they've got a way better picture of everything going on inside these custodians, because the custodians have to use Chainalysis for their regulatory compliance.  Well, they said up to 60% of all Bitcoin that is still not lost, so you take out about 4 million Bitcoin that you're estimating to be lost, about 60% of that remaining Bitcoin they were estimating was held by custodians.  So, that was in 2019.

Then you look at what Coinbase has been doing, and Coinbase's numbers are public now.  So, you can go on their quarterly reports and see how much Bitcoin they secure.  At the end of Q3 this year, Coinbase secured over 2.5 million Bitcoin; not dollars in Bitcoin, that's raw Bitcoin.  That's because Coinbase Custody has this institutional buy-in.  The institutions, the big guys who are buying billions of dollars, they can't be self-custodying.  So, that's aggregating a ton of Bitcoin into these custodians into one place, and that's a risk to the network.  And it's something that people aren't taking into account as they're thinking about their own custody.

Peter McCormack: Okay, so they can't custody because of the framework that they operate under, or they can't because they just don't have the ability?

Nick Neuman: It depends.  But for the really large guys, you've actually got regulatory rules that say you have to use a custodian.  So, the super-big investment funds, they're required to use a custodian.  But some of the more medium-sized investment funds and companies, I think they can self-custody if they wanted to.  So, there are options that are being built for that, but this is one of those things where there is actually -- it's kind of this double-edged sword to institutional adoption of Bitcoin.

MicroStrategy probably isn't self-custodying their billions of dollars in Bitcoin that they've been purchasing.  They've probably got this in Coinbase Custody or BitGo or something like that.  So, that just puts the onus on individuals who actually are allowed to self-custody.  It's even more important that we get as many individuals as possible to be taking advantage of that.

Peter McCormack: Okay.  And when you're thinking about the amount of Bitcoin that is being custodied by third parties on behalf of other people, what are the existential risks to that that you're thinking about?

Nick Neuman: Bitcoin really protects against two types of risks.  There's inflation risk and then there's systemic risk.  And everybody understands the inflation risk side of this.  On the systemic risk side, what that means is that, if the financial system melts down, what typically happens is liquidity locks up everywhere.  This is what causes all the markets to crash a lot of times, because everybody's trying to sell at the same time their assets, and you run out of liquidity, and that makes everybody keep lowering their price to make sure that they get their sell-in first; so, everything locks up.

Well, Bitcoin runs on a totally separate financial system, unless you are sitting with your Bitcoin inside the existing financial system, because it's held by a custodian.  So, what the actual risk here is, is that people who have their Bitcoin investment with a custodian, in any sort of financial meltdown, the exact time when you want to have your Bitcoin, it's highly likely that they won't be able to access it, because it's locked up, withdrawals are suspended from this exchange or that exchange, because they don't have the liquidity, or because they're dealing with other problems internally.

So, that's a risk for holders of Bitcoin, but it's also a risk to the network.  The reason it's a risk to the network is because it causes a loss of trust in Bitcoin as this sovereign form of money.  But also, let's say one of these custodians that's holding a significant amount of Bitcoin makes a mistake and they accidentally disappear all their Bitcoin because they had a bug in their code, or something like that, well that suddenly gets rid of a huge amount of Bitcoin supply.  Some people might look at that and say, "Okay, great, now my Bitcoin's worth more".

Peter McCormack: Yeah!

Nick Neuman: I don't know that that's really the case.  There gets to be a point when you actually start destroying trust in the currency when those kinds of things happen.

Peter McCormack: So, it's too large a pool for a single point of failure?

Nick Neuman: Right.

Peter McCormack: If I lose my Bitcoin, nobody's going to notice, the network wouldn't notice.  If something happened in the Coinbase system, what's that?  That's just over 10% of the supply would be --

Nick Neuman: It's even more when you look at the supply that isn't lost.  So, you assume about 17 million Bitcoin is not lost today, or kind of the estimate.  So, that's even more than 10% of that chunk.  So, it's a pretty big systemic risk to the entire ecosystem.

Peter McCormack: And we still have the PTSD from Mt. Gox, going through another similar scenario.

Nick Neuman: On a much bigger scale.

Peter McCormack: One of the things, because I've thought about this, I've thought about something like Coinbase custodying so much Bitcoin, or Kraken or Gemini, and I've often thought, "What is this bug?"  There could be a bug that causes a load of Bitcoin to be wiped out.  But I would assume now for Coinbase to be custodying 2.5 million Bitcoin, we must be at the point where they are beyond that type of risk?

Nick Neuman: Yeah, so they're a highly professional institution.  It is a very low percentage risk that that kind of bug or something like that happens.  I'm not trying to spread FUD by saying that's imminent, but earlier this year, or maybe it was last year, I don't know, one of the major banks, I think it was Citi, accidentally wired somebody $700 million or something like that; I'm having trouble remembering this article.  But one of these banks made a mistake where they blew a ton of money off into the wire system, into space basically, and were trying to claw it back and they were having trouble with it and all this.

So, these big corporations aren't infallible, and maybe it's something that happens once every ten years, or something like that.  But when you're talking about something as critical as a money that's trying to be the money for the world, the base currency of the entire world, and you have these types of risks, you want to account for them, because those tail risk events are the things that blow everything up.

Peter McCormack: Yeah, bugs, code bugs and immutability are not a great marriage.

Nick Neuman: Yeah.  And so, that's why the way that you protect against that -- because software's going to have bugs, right.  The way that you protect against that is by having as much Bitcoin distributed into individual wallets as possible.  Because like you said, if you lose your Bitcoin, it's not that big of a deal.

Peter McCormack: It is to me, but not the network.  So, that's network protection.  But then, I also think as an individual, I mean I use your service which I love and tell everyone they should have if they've got enough Bitcoin, but you are also a company that writes code and builds software.  And if there was a bug in yours, something similar could happen.  How much does that weigh on you and the team?  I'd love to know, as much you can tell me, what goes into your own bug testing?

We had Austin Hill in here the other day, and he talked about Bitcoin developers and code reviews.  He said it's a bit like NASA, for every 100 hours of code, there's 900 hours of review, and similar for nuclear scientists.  And he said Bitcoin needs the same, it needs the same level of code review and due diligence, but what's it like for Casa with this?

Nick Neuman: I mean, Casa protects a lot of Bitcoin, so we take that super-seriously.  So, I was just talking with one of our backend developers, Stacy, who's super-good at writing the Bitcoin code that Casa relies on.  And we have a couple of things in place that really help protect against this, and these are things that every company should, right, every company that's building on Bitcoin on the security and wallet side of things.  But you've got really intense code review any time something is touching the Bitcoin part. 

So, any time you're talking about generating addresses or sending funds or creating a multisig, using keys, you put an immense amount of scrutiny on that code, and then you're testing every single possible permutation of this.  So, we have a lot of internal processes in place that we really spend a lot of time on, because for our business, one mistake like that could totally wreck out reputation.

Peter McCormack: Yeah, you can be done.

Nick Neuman: It's a risk to the business that we have to manage for, and that's why we hire the best people and put these processes in place.  Now, what's kind of nice about the way that Casa works though is, if you're using our multisig, you've got a Ledger and a Trezor or a Coldcard as part of your multisig, each of their hardware is double-checking everything that Casa's doing.  So, that actually lets you have some checks and balances that Casa has no control over.  So, if something was going wrong in what Casa was doing, these other guys can, in some scenarios, help flag that and help save people from losing money.  That's part of the security model that we've built.

Peter McCormack: So therefore, as Ethereum people talk about, "Move fast, break things", which I think is a very dumb attitude to have when you're talking about immutable --

Nick Neuman: Sovereign money.

Peter McCormack: Well, I think Bitcoin is sovereign money.  These are other things, but they have value.  So, Bitcoin really is, "Move slow, don't break things".  But just as the Core devs have to work with that kind of attitude, all the companies building on top have to have a similar attitude.

Nick Neuman: Yeah.  Everybody's got to be careful and you can't move fast and break things in certain areas.  Maybe some companies who aren't necessarily touching as much high-value Bitcoin can move fast and break things, or ship code that isn't as well vetted; but for Casa, even outside of the Core security stuff, everything we ship, we want it to be extremely high quality.  Because, if you've got a typo or something in the app, where it's during a couple of instruction screens and there's a typo there, that gives people a little bit of doubt about how much work you're putting into the security side, even if you put way more work into the security side.

So we, as a company, try to be as close to flawless in everything that we put out, because that's just part of our reputation, it's what we want to be known for.  We want to be known as an incredibly trustworthy company, and that's part of it.

Peter McCormack: And what about the devs themselves, because you wouldn't want an individual developer to be able to put some erroneous code in there, which meant you could send the Bitcoin out.  So, I guess you have to have people checking people's work and checkers checking the checkers?

Nick Neuman: Yeah, we've got multiple layers of that.  So, every time somebody's putting out code, you've got multiple other people reviewing their code.  Then you've got, once it actually goes to the test app, we've got a test version of the app, and you've got multiple people testing that before it goes to the app store, that kind of stuff.  So, you do have checks and checks and checks to make sure that this stuff goes right, and you don't run into one of those bugs that could be a real game-breaking bug for you.

Peter McCormack: Yeah, honestly, it would keep me up at night, Nick!

Nick Neuman: But it's the kind of thing that we handle so you don't have to be up at night.  That's what we hear all the time.

Peter McCormack: No, no, it just is this immutable world that we're having to get used to.  It's great while it works, but you just have to be very thankful all across the Bitcoin ecosystem that people are this diligent about it, because to lose all your Bitcoin could be devastating. 

Just going back to the more existential risks to Bitcoin of too much being custodied by custodians, you talk then about systemic risk and reputational risk to Bitcoin if there was some kind of error where a large amount of Bitcoin was lost, but what about the other scenario?  Some bitcoiners talk about, "Not your keys, not your Bitcoin", one of the reasons you don't want a large amount of Bitcoin custodied is, if there was ever a scenario where there was a very fast regulatory crackdown, could the USG, if they wanted to, although I think we're far away for that, but just could they, for example say, "Coinbase, you have to switch off access to your wallets now", or I think a rarer scenario, but it isn't without precedent, is confiscation?

Nick Neuman: Yeah.  So, this is something that you can -- I agree with you that it doesn't feel like we are headed towards this, honestly, but it's more of an open door when you've got a bunch of Bitcoins sitting in custodians.  If you look all the way back to when the US did the Order 6102 that confiscated people's gold all the way in the 1930s, I think it was, the reason that was possible was because most gold was stored in banks. 

So, the US Government just had to go around to the banks and say, "Turn over the gold in your vaults.  We'll pay you out in dollars at this market price that we're setting", and that was that.  If they'd had to go around and knock on every single person's door and say, "Hey, turn over your gold", that just wouldn't work.  The government, while they seem all powerful, they're not that efficient.

Peter McCormack: Plus, if you know it's coming, you can hide it.

Nick Neuman: Yeah, "Sorry, I lost my keys in a boating accident"!

Peter McCormack: "I lost my gold in a boating accident"!

Nick Neuman: Yeah, so that risk is much larger when you have all the Bitcoin in a custodian.  But when you have a ton of people self-custodying, you've got a way more distributed network from a holders' perspective, that's just a much more resilient network and it's much more difficult for somebody to try and do that.  And actually, you look at this in countries where maybe there isn't as much rule of law as what you would expect from the US, and it's potentially an even bigger deal there.  So, that's something that I think is important around the world for be paying attention to self-custody.

Peter McCormack: Yeah.  Whilst I don't think US citizens are at any risk for having their Bitcoin confiscated by the USG right now, and probably not for some time, or ever, I would have less confidence in more rogue states, or states who maybe are having some kind of financial collapse.  I mean, in Venezuela, Maduro's henchmen went and stole the mining equipment from the people mining and the people had to flee the country.  Would I put it beyond someone like Erdoğan to confiscate Bitcoin if the Turkish economy collapsed?  I mean, I don't know, I'm out of my depth here.

Nick Neuman: Well, there's historical precedent for this.  If you look back to Argentina a couple of decades ago, people in Argentina had US dollar bank accounts, because they were using that to protect against inflation from the Argentinian dollar.  And Argentina actually went in and took the US dollars, converted them, because it was in everybody's bank account, and that was that.  Now, everybody holds the national currency as they're supposed to.

Peter McCormack: At 40% inflation, the national currency.  Do we know much about the operations or the protections these large custodians put in place themselves?  Again, I have no idea how the key setup would work if someone like Casa, how many keys they would have, who would have access to them, how distributed they are themselves, the rules and procedures they have, do they put in protection themselves to protect their customers' funds from any potential government action?  These are the things I've got no idea how it works.

Nick Neuman: Well, the unfortunate part, and you can't get around it, is that they're not going to publicise that information and I wouldn't want them to publicise that information.  But what most of them are using is something very like multisig, where they've got multiple keys that are protecting their cold-storage funds.  Then they've also got some of the Bitcoin and other cryptocurrencies, that they let people trade, in a hot wallet, so that people can withdraw faster.

The most professional exchanges like Coinbase know what they're doing, they've got a bunch of processes in place, and we hope that they've taken the right precautions.  But you've also got some of the smaller to mid-size exchanges, like Quadriga, that you think they're doing that and then it turns out, the guy's got it on his Ledger and he's been trading with it and then he disappears.  So, you have to be --

Peter McCormack: He died.

Nick Neuman: Yeah, he died.  So, you have to be a little bit careful if you're going to be using a custodian, who are you choosing to use here.  And honestly, if you're an individual, you really should have most of your holdings in self-custody.  Sometimes I'll see people say, even today actually, "Holding your own keys is just too hard for some of the new people to the space, and it's okay to hold your funds on Coinbase because you don't want to have to worry about managing the keys".  But that was really something that only was true four years ago.

The software that has evolved, including Casa, to let even people holding $100 of Bitcoin, store it super-easily while holding their own keys is light years better than where it used to be.  It feels like you're using an exchange, you don't have to worry about losing the key, because it's been encrypted and backed up to the Cloud, so if you lose your phone, you just get a new phone and login and you're good.

Peter McCormack: What if the Cloud's hacked?

Nick Neuman: Well, that's why you have to have the right setups.  So, you need to take a couple of things into account there.  But the way that Casa does it, as an example, is your key, your private key, is only ever on your phone.  But you can encrypt it, and we handle this in the background, with a key from Casa and then upload it to your iCloud or your Google Drive, and that way you actually need access to both accounts in order to get that key.  So, that adds this layer of difficulty.

Then, the next stage is, okay, you don't want to keep that much money in that key, so how much money would you keep in your wallet?  That's how much you keep there.

Peter McCormack: $200?

Nick Neuman: Yeah.  And if you lose it because something happened, that sucks, but it's not the end of the world.  So, somebody just getting started in Bitcoin though, they've bought their first $100 of Bitcoin, that's perfect for them, and they're getting started holding their own keys.  Then, once they're getting above a couple of thousand, where it's really getting meaningful, you have the ability to add security by adding in a hardware wallet, that kind of thing.

Peter McCormack: Yeah, I think what it is, Nick, I think some people get nervous about something they don't really understand and maybe put it off until they try it.  I mean, I remember I got my first Ledger back in 2017, as the ad says!  When I got my first Ledger back in 2017, when I first got it, I was nervous.

Nick Neuman: It's intimidating.

Peter McCormack: It is intimidating.

Nick Neuman: It's something new.

Peter McCormack: Yeah, I backed up my private key, I wrote it down in a couple of places.  But that first time I sent Bitcoin to it, I was nervous and I still didn't send most of it, and it just took some time to get my head around.  It was a bit like multisig.  I put off getting multisig for about a year, until I reached out to you and said, "Fine, I'm going to do it".  But even after that, going through the process of actually completing it, distributing the keys, that still took some time, I was still a bit nervous.  I still am a bit nervous, but I'm technically competent enough to do something like that.  I'm telling you now, my dad, no chance.  He can't work a remote control!

Nick Neuman: Yeah.  So, we actually have people that are kind of along those lines using our product, and sometimes they've got family members that help them, but other times they've got our client service team that's helping them, that's why we have them.  But I totally agree that using private keys has been too difficult over the history of Bitcoin.  So, it's really important that companies like Casa are working super-hard to make this easier for people, because like we were saying earlier, it's really important that people are able to do this and that they're able to do it in a safe way.

So, things like your seed phrase, I think that kind of stuff has gone away.  I think we're getting to the point where ten years from now, nobody's writing down, unless you're a super-technical, "I want to do everything myself from scratch", nobody's messing with seed phrase anymore.

Peter McCormack: I only have a seed phrase for one of my Casa keys and a backup and I've been thinking of dumping it.

Nick Neuman: Yeah.  The reason with Casa and with other multisig setups like this that you don't need the seed phrase is because, if you lose that key, you just replace it.  You don't need to recover that key at all costs.  And so, that's just a big game-changer in how people manage keys and it lets you be a human, lets you make mistakes, that kind of thing.

Peter McCormack: Yeah.  It's super-interesting, I always talk to friends about this, always a good sounding board, and I've got some people who've got Bitcoin and some are still holding it on something like Coinbase, some have a hardware wallet.  I'm the only one who's got to multisig.  What's your experience with new customers coming in, because I'm assuming some people, they might be really green when they're coming to you, very new to Bitcoin, but someone's said, "Look, you're buying this much, you need multisig"?  Is it a tough learning journey for these people?

Nick Neuman: Not really.  So, what we actually see is a lot of people have this idea of multisig as something that's super-complicated.  So they're saying, "Okay, this word, 'multisig', is already blowing my mind and I am just getting started using a hardware wallet, I don't feel comfortable moving to multisig yet".  So, where that puts Casa and multisig is, you've maybe got your Coinbase all the way on one end of the spectrum, and then you've got your single-signature hardware wallet in the middle, and then you've got multisig all the way on the other end, if you're talking about how difficult it is to use.

But actually, when people come and try the product, they realise it's kind of flipped, and Casa's more of this inbetweener on that spectrum, where it sits more in the middle, because you've got the Casa software helping you through every step, you've got the Casa support team there to help you through every step, and at higher tiers, you've got people getting on the phone with you and actually walking you through this stuff.  So, this makes it much more approachable than simply getting a Ledger and going and watching some YouTube videos about how to set this thing up.  And that's really the anxiety-inducing side of things.

So, we have many customers that are coming off of Coinbase for the first time.  They've bought some Bitcoin on Coinbase, they've held it there for a few years, it's suddenly worth a lot more and they only feel comfortable self-custodying because Casa exists.  The thing people don't really realise, I think, about the risks, this is another risk of Coinbase and other exchanges.

Peter McCormack: Stop picking on Coinbase!

Nick Neuman: Yeah, sorry.  Sorry, Brian!

Peter McCormack: Sorry, Brian.  Stop selling shitcoins, Brian.

Nick Neuman: We were talking about more the systemic risks, like what happens if Coinbase loses all 2.5 million of their Bitcoin, right.  That would suck.

Peter McCormack: That would suck.

Nick Neuman: Very low likelihood, like we were saying.  But what is much higher likelihood is the risk of your individual account on Coinbase getting hacked.

Peter McCormack: That's happened.

Nick Neuman: Multiple times over the last few months, thousands of customer accounts getting hacked.

Peter McCormack: Hold on, have I just missed this?

Nick Neuman: Yeah, there was an article in CNBC back in August, there was an article in Reuters in September, two different incidents talking about thousands of customer accounts getting hacked, because they had weak two-factor authentication on them.  And the thing with using a custodian for your Bitcoin, the reason it doesn't work is that Bitcoin transactions are irreversible.  You can use a custodian for your dollars, because if somebody hacks your account or gets your credit card, you just tell your bank to put the money back, and they can usually go track it down for you.  With Bitcoin, somebody gets access to your exchange account, it's gone and there's really no recourse.

So, all of the end points end up being the points of failure with these exchanges, and they become big honeypots, because people know that if they can find some vulnerability, like the 2FA vulnerability, and then go run a password dump from somewhere else on the internet and just see what accounts they can get into, well that's a much bigger, more real risk to individuals.  People have lost hundreds of thousands of dollars because of that.

So, when you are holding your own keys, let's say somebody gets access to your Casa account, they got nothing because the key is on your device, or the key is on your device plus hardware wallet, or three other hardware wallets.  And so, it's just a significantly safer system, and people are starting to realise this more and more.  And even Coinbase themselves are seeing this.  They are seeing the writing on the wall, that custodians don't scale to a massive amount of individuals in Bitcoin. 

Brian was on another podcast a month ago saying, "Self-custody is Coinbase's number one priority", so the custodians see that the writing's on the wall here, and I'm glad that Coinbase is starting to prioritise some of this stuff, because they do have such a massive customer base and I hope this helps decentralise the holdings on the Bitcoin Network more.

Peter McCormack: Did Brian say why that was the number one issue for them?

Nick Neuman: He said it was the number one issue, because it allows them to be more flexible around moving into things like DeFi, and that kind of thing.  But I'd be willing to guess that there's a big piece of this that underlies it as well, which is the security model just does not work in Bitcoin, and so that's something that I think they're really thinking about.

Peter McCormack: Is there enough competition in the market, both with multisig solutions being provided -- you obviously don't want competition, but I think competition's good, I think we all know competition's good; but is there enough competition for multisig provision, and also within hardware wallets?  I use the main three of Coldcard, Trezor and Ledger.  I know Blockstream have got a hardware wallet, I know that Jack Dorsey's talking about doing one.  Is that actually even problematic for you, because you would have to support so many different ones, and how do you feel about that?

Nick Neuman: We like having the diversity of hardware wallets that we can integrate and there are way more hardware wallets than you think.

Peter McCormack: There are lots of smaller ones, yeah, I know.  They all send me them!

Nick Neuman: Exactly.  And so basically, in order to integrate a hardware wallet, we have to vet it, it needs to be something that's easy to use, they need to have a decent-sized user base to prove that they've been doing this for a while and they're a secure device.  So, having more hardware to integrate, I think is always good, and having competition there and seeing somebody like Square come in, who we know is good at building hardware, that can only be a good thing for the Bitcoin user experience, which is great.

The same thing goes for the software wallet side of things, and some of the things that Casa's doing.  As we see competition in the space and other people pushing for the same goals that Casa is, which is help more people self-custody, protect the Bitcoin Network, give people their personal sovereignty, these things are important goals that's going to take more than just Casa working on it.  So, we like seeing other people working towards those same goals.

Peter McCormack: Are you supporting any other hardware devices beyond those three?

Nick Neuman: Yeah, so today we've got, like you said, Trezor, Ledger, Coldcard.  Then we also support Keystone, which is relatively new.  That one's interesting because it's got a screen and it's a QR code wallet.

Peter McCormack: Keystone?

Nick Neuman: Yeah.

Peter McCormack: I'm going to have a look.

Nick Neuman: So, you can actually, typically with the Trezor, Ledger, Coldcard side of things, you need a computer to sign a transaction.  With the Keystone, you are actually able to do it all from the phone.  So, you can scan the QR code from the phone to the Keystone, pass a transaction that's going to be signed, the Keystone signs the transaction.  You scan the QR code again to send it back to your phone and it all happens just between those two devices.  I think we'll start to see more of these types of wallets coming out and being developed, and that helps build a better user experience, more of a mobile-friendly user experience around these things.

Peter McCormack: So, in terms of institutions self-custodying, how do you think we get more of them to do it?  Because, it feels like they will have been explained the risk, they will understand the risk, yet they're still taking the risk.  And let's forget about the ones that have some kind of regulatory reason they can't.  Is it the responsibility for everyone in the community to be doing this?  Do you think the people who are pushing for self-custody have kind of been lost in this growth of Bitcoin becoming this institutional asset?  

Like MicroStrategy, as we probably would guess, probably don't have a Casa multisig.  And do you think that perhaps the institutionalisation of Bitcoin has maybe, I don't know, harmed some of the principles on which Bitcoin should be built?

Nick Neuman: I think it's a tough question.  It's hard to say, because as you see Bitcoin get more institutionalised and more roped into the existing system, you start to lose some of those benefits of Bitcoin.  And, I don't want to be saying MicroStrategy's doing a bad thing.  They're out there really educating people about Bitcoin, they're helping institutions who also need the same types of inflation protection that individuals do, so you don't want to cut them out.  So it's, how can we do this in a way that makes it so it's still sustainable for the Bitcoin Network?

I think, where part of that comes in are the smaller and medium-sized businesses.  They're self-custodying their Bitcoin, and they're doing it in a way that's safe.  They're using a multisig, maybe they're handing keys to different partners in the business.  We have businesses that use Casa that do that today.  And so, there are some pretty interesting ways to actually manage a business treasury as a team, and as a business that is self-custodying.

I think it's going to come, but it's going to take some time and some education.  A lot of businesses are already taking this big leap just to put Bitcoin on the balance sheet.  And then you ask them to self-custody, and they're thinking about things like fiduciary duty and, "Can I get sued by my investors if I accidentally lose this Bitcoin due to making a mistake?" that kind of stuff.  They need to work through that. 

But as they're working through that and understanding, even for them it's important to protect the Bitcoin Network, because that protects their own Bitcoin investment.  So, as they understand that and they understand why self-custody helps them do that, I think we'll start to see more people shifting on the business side.  But I see this more of a lag, compared to individuals who can make those types of decisions much faster.

The other thing that I think is going to be interesting to see is, as Bitcoin makes the transition from just this digital gold store of value that you stick somewhere and don't touch, to more of a medium of exchange, unit of account, more of a base layer for parts of the internet, suddenly you're using Bitcoin as this more decentralised settlement layer.  Well, you're paying miner fees to do that; you're paying more fees as a user, as a business.  If you're using apps that are built on Bitcoin, those are going to be more expensive than a typical centralised app running in the database, whatever.

These things don't make sense if you are self-custodying, because why would you want to pay more for the network fees, etc, if you're just going to have it all running through a financial institution in the first place?  So, as we see Bitcoin start to make this transition from digital gold, store of value that doesn't move to something that, yes, you've got a chunk of it that's acting as your savings for you, but you've also got some of it moving around and you're utilising it in your day-to-day life, really the logic doesn't make sense unless you are self-custodying and taking advantage of those benefits that self-custody gives you.

If you look back at the whitepaper, the very first sentence of the whitepaper says, "Bitcoin is a peer-to-peer electronic cash system that can allow people to send payments without going through financial institutions".  That's the first sentence, built around self-custody, not around inflation protection, not around digital gold.

Peter McCormack: What about self-custody for emerging markets?  We obviously have this year had the big story of El Salvador becoming a Bitcoin nation.  $100 of Bitcoin might be a huge amount of money to somebody there, or even a few hundred dollars of Bitcoin, but there is a risk that they don't have the technical skills to set up their own multisig, or can't afford a multisig service.  Also, logistically based on some of the places I've been in El Salvador, the thought of somebody creating a multisig and saying --

Nick Neuman: And distributing wallets and stuff.

Peter McCormack: Yeah, where am I going to distribute these?  It's not like they have access to a safety deposit box.  And to be honest, some of these houses don't have the kind of security that maybe people in the West have.  Is much thought going into security for emerging markets as well?

Nick Neuman: Yeah, so there's a few different people and companies that are working on things like this.  So, there's actually a company, I might mispronounce the name, I apologise, Galoy.  They're doing a multisig-based system where it's actually a community wallet.

Peter McCormack: Interesting.

Nick Neuman: So, it's at El Zonte in El Salvador, and everybody is pooling their Bitcoin into this community multisig wallet.  And instead of having necessarily a bunch of Ledgers and Trezors for each individual person, there's generally somebody in the community who is leading this effort and is making sure that they're keeping people's Bitcoin secure for them.  So, this is just a different approach for a different culture and a different set of needs, exactly like you were saying.

Peter McCormack: So, it's almost like a bank, "Bitcoin banking, infrastructure for communities and institutions.  Offering financial services on Bitcoin and Lightning is made easy with the open-source software from Galoy".

Nick Neuman: Yeah, so I think they're doing some really interesting things, and this goes back to what I was saying where it takes an army to really build this in a way that everybody around the world can self-custody their Bitcoin.  One company alone can't do this, but it's critical that we're all working towards it, because that's what the network needs.

So, in places like El Salvador, where they may only have $50 of Bitcoin and can't pay a $5 on-chain transaction fee every time they send money, you need Lightning integration.  You aren't going to be able to have a distributed multisig that somebody is paying for every year; you want a shared community multisig.  People are going to come up with these interesting ways to build this.

What's so exciting about that is that Bitcoin itself is a permissionless open network.  And being able to tie into that network through self-custody, so that anybody can participate, there are no gatekeepers, that's one of the huge innovations of Bitcoin.  Any time you've had these more open ecosystems or networks or economies, immense value's been created.  So, you look back to when the US was created, it was relatively, compared to other countries in the world, one of the most open and capitalistic economies in the world, permissionless relative to the others.  So, that set the US on this course to be such a powerhouse of an economy today.

You look at that for Bitcoin compared to other monetary networks that are more closed and don't have as much of the ability just to plug in and innovate from anywhere in the world, the writing is on the wall.  Bitcoin, if it maintains that permissionless nature and really leans into that, huge value will be created.

Peter McCormack: Can I tell you a feature I want for a wallet?  I wonder what you'll think about this.

Nick Neuman: Yeah.

Peter McCormack: So, I don't often move much Bitcoin around, but even moving $10,000 of Bitcoin, I'm always a bit like, "Fuck, what if I get this wrong?"  I'm always slightly nervous about it!  I want to have something in my wallet where I have a different send button, whereby what it does is you create the send, and it just sends $10 first and you can check it's got there.  Once you checked, you say, "Send the rest".  I know it sounds pathetic, but every time, I'm like --

Nick Neuman: No, it's always nerve-racking.  You're quadruple-checking an address and everything.

Peter McCormack: I've never got one wrong in the history of Bitcoin, and every time it's been a copy, control C, control V, and it's worked.  But I always panic.  If I was ever going to send a huge amount, I'd love to be able to just send $10 first so you can confirm it there.

Nick Neuman: Yeah, it depends on your setup.  Some setups, that's really easy.  If it's just coming from a single key on your phone, that's super-simple to build.  But if you're trying to do it with a multisig, that gets a little more complicated, because that's actually two transactions from Bitcoin Network's perspective.  So then you're adding signatures from each key twice.  And if you got those distributed around geographically, that just adds a whole other loop.

Peter McCormack: All right, it's a pain!  Listen, you told me subaccounts would be too difficult.

Nick Neuman: We got it done though!

Peter McCormack: You got it done!  Are you planning to do anything with Lightning, and it's one of these stupid questions where people are like, "You're a fucking idiot, Pete"; but is multisig a thing with Lightning, do people use multisig for Lightning?

Nick Neuman: So, Lightning actually uses multisigs in the background to open channels.  But multisig on Lightning to send Lightning funds, as far as I know is not a thing.  I'm not a Bitcoin protocol engineer, so I could be wrong.  Maybe there's something in the works that's going to allow this, but right now that's not a thing.  However, Casa has a history with Lightning.  You know we used to have the Casa node.

Peter McCormack: Loved the node.

Nick Neuman: We were one of the first really somewhat easy ways to use Lightning.  We will definitely get back to that.  I mean, it's been great to see -- not the Casa node, sorry, just to clarify, but we will get back to offering Lightning functionality.

Peter McCormack: What are you thinking of bringing in, can you say?

Nick Neuman: What do you mean?

Peter McCormack: What functionality are you thinking of bringing in?

Nick Neuman: Making it super-simple for people to send and receive over Lightning. 

Peter McCormack: In your light wallet?

Nick Neuman: Yeah.  We're starting to see more people want that.  It makes sense from, right now, we've got within the Casa app, the free, single, mobile wallet.  And if that was really easy to also send from Lightning over that, I think that's great.  There's some things that you have to figure out actually on the custody side with that though, because due to some of the technical stuff around Lightning that I won't get into, it's much easier to have it be custodial than non-custodial.

So, some of the really simple mobile Lightning wallets today, like Strike or I think Wallet of Satoshi might be one of these, they are actually custodial Lightning wallets.

Peter McCormack: BlueWallet's a custodial.

Nick Neuman: I think it's semi-custodial in a weird way.  Some of the other ones, like BlueWallet and Muun wallet, these are in a little bit of a grey area around whether they're custodial or not.  They have custodial pieces to it basically.

Peter McCormack: Okay.

Nick Neuman: But anyway, we would really love to build an amazing simple user experience around Lightning that still maintains as much of the non-custodial angle to it as possible, because that lets more people around the world use it, right.  It lets anybody in Latin America sign up for Casa and use it, rather than us having to worry about, "We don't have the right licences", in whatever country that people want to use this in.  So, those are some of the benefits of self-custody that we haven't even talked about. 

But we would love to bring back a Lightning feature, and it's something that, as we've seen the Lightning Network grow so much over the last year, and some of the exciting things that are getting built there, some of the really exciting integrations, like Twitter integrating Lightning, it's starting to become something that we're hearing from customers more and want to add back into the product.

Peter McCormack: Interesting.  How long have you been at Casa now, is it two years?

Nick Neuman: Three.

Peter McCormack: Three years now?

Nick Neuman: Almost four.

Peter McCormack: Damn!

Nick Neuman: Casa, in its current iteration, was started at really the beginning of 2018, end of 2017.

Peter McCormack: Yes, I remember.

Nick Neuman: And I joined in March or April of 2018.

Peter McCormack: How long have you been in the hot seat?

Nick Neuman: Since December 2019.

Peter McCormack: Yeah, so about two years?

Nick Neuman: Yeah.

Peter McCormack: Yeah, I thought so.  How have you found it?

Nick Neuman: It's amazing!  I mean, it's totally different than I expected, right.  Even being an employee at Casa as Head of Product, before I took over as CEO, I thought I knew what it might be like to be the CEO of a company.  Then you actually do it and it's just totally different, just a different level of responsibility that you just didn't really realise was there. 

But I love it, because it's actually like -- it's not like I'm some hero doing all this work.  I get to see all the amazing stuff that our team is doing, and we're hiring people, we've grown to over 30 people now, and all of the new people that have been joining our team are just awesome, and they're not all people who have just been in Bitcoin forever.  They're people who've been wanting to get into Bitcoin because they learned about it during the pandemic and decided they wanted to give up whatever they were doing and start working in Bitcoin.  They come on and they're so excited to be working at Casa, and the things that they can do are amazing.

Peter McCormack: So, you get to be like Steve Jobs, you just go around yelling at people what you want and then take the credit!

Nick Neuman: I would like to think that I'm a nicer version of Steve Jobs, and that I don't take as much credit!

Peter McCormack: Do you feel pressure with it?

Nick Neuman: With what?

Peter McCormack: Being a CEO.

Nick Neuman: Oh, yeah.  I mean, there's times when I'll wake up in the middle -- this actually happened more a few months ago, I've kind of fixed this; I'll get to that in a second.  There's times when I would wake up in the middle of the night and just be spinning through my to-do list in my head.

Peter McCormack: Yeah, I know that feeling!

Nick Neuman: And just stress, right, because of the weight of responsibility to make Casa a successful company, but also to accomplish our mission.  Then what I figured out was, I can change my perspective on that a bit, and just realise the fact that these are the fun parts of building a business, the challenges that you can either look at them as these anxiety-inducing, stress-inducing problems, or you can look at them as challenges to overcome.  And, that makes it more exciting, because you're learning and growing and getting to solve new things. 

I just realised, if I wasn't doing this, I mean let's say I was back working at some bank or something like that, I'll be seeking this out anyway.

Peter McCormack: I was talking to Jaime Leverton from Hut 8 in this morning with Amanda Fabiano from Galaxy, and she was talking about -- because she's been the CEO of Hut 8 for about a year.  She says, "Yeah, basically I just don't sleep anymore".  I have a slightly different thing.  I sometimes wake up in the middle of the night, I just wake up and an idea comes to me.  It might be 3.00am in the morning and I want to work on it; I don't want to sleep!

I honestly think all of us are really fortunate to work in this, because I feel like we're all part of changing part of the world and maybe end up, it could be this huge thing or just be this thing that a bunch of us nerds, a couple of hundred million people around the world use.  But just to be in it, creating part of it.  I don't know about you, I wouldn't want to do anything else.

Nick Neuman: We're lucky.  And even saying, "Only a couple of hundred million people around the world", is pretty insane.  But on the sleep thing, I've got to say this, because I think there's a lot of people in the start-up world that are like, "I never sleep".  It's actually really bad for you!

Peter McCormack: Oh, no, I know that.  But I've been getting better at it.

Nick Neuman: Actually, I'm ruthless about this.  I get eight hours of sleep as much as possible, or more, every night.

Peter McCormack: Do you just sleep through and just wake up eight hours later?

Nick Neuman: Well, it depends.  Like I said, a few months ago, I wasn't doing that.  But actually now, I'm back to doing that.

Peter McCormack: I've never slept a solid eight hours without waking up, unless I was blind drunk.  I haven't done that in years.  I always wake up a couple of times.  Do you wake up?  I wake up a couple of times a night.

Nick Neuman: I mean, I'll wake up, but it's a five-minute thing and then you roll over.  I fall back to sleep.  I've always been a decently good sleeper.

Peter McCormack: So you don't then pick up your phone, check the Bitcoin price?

Nick Neuman: No, picking up your phone is what ruins you and keeps you from going back to sleep.

Peter McCormack: Play a few levels of Angry Birds!

Nick Neuman: No, but eight hours of sleep is this magic number for humans, and it's something that makes your decision-making much better, puts you in a much better mood.  Anyway.

Peter McCormack: Yeah, I know.  I've been taking Sleep Gummies, CBD Sleep Gummies.

Nick Neuman: Yeah?  I haven't tried those before.

Peter McCormack: Brilliant, made a huge difference.  I don't know why, but they just made a huge difference.

Nick Neuman: And it's better than like an Ambien or something.

Peter McCormack: Yeah, we don't have those in the UK.  I mean, I don't want sleeping pills, but these Sleep Gummies work great.  Just drift off in a happy little sleep.  And I also started taking magnesium at one point, having the weirdest dreams.  If you ever want weird dreams, take magnesium before you go to bed.  You can have the weirdest dreams.

Nick Neuman: Not Melatonin?

Peter McCormack: No, magnesium, definitely magnesium.  Weird dreams, some of them are amazing.  So, what's coming up, Nick, what can we look forward to, man?

Nick Neuman: It's all about self-custody and continues to be about self-custody, and how can we make this as simple as possible and bring as many people as possible into holding their own keys.  But beyond that, we're starting to get asked for other things by our customers, and one of the big things that people are starting to ask for is financial services.  So, they're saying, "Hey, I've got a bunch of my Bitcoin sitting with Casa, and then I've got some of my Bitcoin with some other 'Name Your Lender' or borrowing company in the industry, because Casa doesn't offer the ability to borrow against my Bitcoin or to lend out my Bitcoin".

So, we're bringing that inhouse, where people can do all of that from within Casa, they can manage that there, and it's just much more convenient.  Casa is meant to be the home for your keys.  And so, giving people the ability to build their security portfolio and their financial portfolio all in one place, within the Casa app, just adds this level of convenience.  So, you can have your 3-of-5 multisig, you can have your Bitcoin collateral account that you're borrowing dollars against, because you wanted to go build your Bitcoin citadel without selling Bitcoin, you can have your Lightning hot wallet on the phone.  So, all these things can be within the same place, because it's the place that you want to manage your keys.

Peter McCormack: You're building a bank.  You're building a sovereign bank with high-grade custody.

Nick Neuman: Casa's not the bank though, you're the bank and we're just letting you be that bank in an easy way.

Peter McCormack: You allow me to be my own bank?

Nick Neuman: Yeah.

Peter McCormack: Interesting.

Nick Neuman: That's the dream, right.  Give you all of the services that a bank has today, but give you more control over it, let you be the one who decides where your money goes.  If you don't want your money being lent out, you don't have to have that; you don't want to take that risk, you don't have to.  So, you keep that in your cold storage multisig.  You want to lend out a little piece of it because you're getting an interest rate from BlockFi or whoever, you do that, and you can manage it all in one place.

Peter McCormack: Interesting.  Well, congratulations, man.  It's been great to get to know you over this last couple of years.  I love what you've done and how you've shaped the company since you took it over.  I think Casa's a great product.  I will wax lyrical as an ad read, but I'd wax lyrical with you here.  I wanted you on, not because you're a sponsor, but I also agree people should self-custody.

Like I say, it took me about a year from the point of wanting to multisig until I actually phoned you and said, "Nick, it's about time".  Even then, once I did it, to actually then do the setup, to actually go through the process, and then once I had it set up, then to actually transfer the Bitcoin and then move the keys, it just all felt a lot.  And then, by the time I did it, I was like, "This is so fucking easy".  Everyone should do it.

So, I fully support you that people should self-custody and I wish you all the best.  I hope Casa is a huge success and I appreciate you as a friend and a sponsor.

Nick Neuman: Thanks, Peter.  I've enjoyed watching the show, being on the show over the years.  You've done a great job with it and I can't wait to see what you do with the football team.

Peter McCormack: Oh, yes, we'll talk about that soon.  All right, man, well listen, tell people where to go.  Keys.casa.

Nick Neuman: Keys.casa is the website.  I tried to buy casa.com.  Let me tell you, it's owned by Amazon.

Peter McCormack: Motherfuckers.  Can't you do that thing where, have you got the brand; have you got the trademark?

Nick Neuman: Yeah.

Peter McCormack: Can you not force it out of them?  What are they using it for?

Nick Neuman: They're not, it's a dead website.  We were looking into it a little bit, and --

Peter McCormack: I thought under trademarks, because didn't Madonna force hers off somebody at one point?

Nick Neuman: I don't know, maybe I'll look into that.  But I think that they own it free and clear, and from what we were looking into, we can't do it, unless we want to be offering minimum seven figures.  It's crazy.

Peter McCormack: I always like keys.casa though.

Nick Neuman: It's fun.

Peter McCormack: I know why you want casa.com.  Have you got any of the other ones, like casa.io or casa.co?

Nick Neuman: We've looked at them and it's like keys.casa has this underlying meaning to it that we really like, so if we were going to switch, we'd switch to casa.com, but if we can't get casa.com, we might as well stick to our roots.

Peter McCormack: Have you not spoken to Jeff?

Nick Neuman: Jeff?

Peter McCormack: Bezos.  Actually, he's not in charge anymore, is he?

Nick Neuman: No, he's not.  I'll write him a letter.

Peter McCormack: Well listen, look, have a great Christmas, have a great New Year and thank you for everything and good luck in 2022; it's going to be a big year for you.

Nick Neuman: Thanks, Peter.