The Evolution of Custody: From Bearer Bonds to Blockchain

The Evolution of Custody: From Bearer Bonds to Blockchain

How we secure assets, whether they be securities, bonds or currencies, has been in a state of flux over the past century. As markets and the needs of individuals change, so do the mechanisms by which we secure and exchange assets. Central to all of this is the question of custody. How does an individual maintain control, or custody, of their assets without compromising security or the ability to access liquid markets for exchange?

How we secure assets, whether they be securities, bonds or currencies, has been in a state of flux over the past century. As markets and the needs of individuals change, so do the mechanisms by which we secure and exchange assets. Central to all of this is the question of custody. How does an individual maintain control, or custody, of their assets without compromising security or the ability to access liquid markets for exchange?

Today, the blockchain enables self-custody of assets in a way that when combined with innovative technologies like Ethos Bedrock, provides cutting edge security, rapid access to funds and liquidity in a way unrivaled by any other time in history. Understanding how this came to be is best done through examining the evolution of asset custody over the last century.

When trying to understand custody, a great place to begin are with bearer instruments, like bearer bonds, which are issued on paper (or goatskin) and can be stored by individuals in a safe, under lock and key. When one has physical possession of a bearer instrument, they gain all the beneficial ownership right associated with the asset. Thus, safeguarding these documents is vital since they are unregistered, with no records maintained of the changes of ownership or of the current owner.

Naturally, some people don’t want to keep these at home for risk of theft and have historically turned to banks for storage in a safety deposit box for safekeeping. This is referred to as custodial possession. The customer could then be given a key so they could get into their safety deposit boxes and have access to the assets. Sometimes the bank would also have a key. When two parties have a key to gain access to the underlying asset, this is referred to as joint custody.

Looking Back

As financial markets grew through the 20th century, the management and transferring of stock certificates, bearer bonds and cash became very unwieldy. In the 1960s, the New York Stock Exchange saw securities trading volume more than double over a span of just 3 years.

Adjusted for inflation, it’s estimated that billions of dollars worth of securities were stolen or lost during this era. A consequence of poor record keeping, insecure mechanisms of transfer, and theft from centralized repositories

The overwhelming trade volume marked the start of the Paper Crisis, which illuminated that the standard deployed by brokers for transferring and record keeping on securities exchanges, which at the time relied largely on paper and pen, was ill-equipped to handle the growing trade volume. This crisis led to dozens of brokerage firms going out of business and the implementation of computers, alongside professional management, to handle the high volume of trading.

Present Day

Today, custody has legally been defined as “. . .holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them” (17 C.F.R. 275.206(4)-2). This definition, while applicable to the status quo, fails to encompass custody as enabled by the blockchain, which breaks away from the inherent relinquishment of control necessitated by current standards.

The blockchain provides a revolutionary means of tracking, efficiently transacting/exchanging and securely storing assets in a decentralized fashion, in turn offering a solution that can mitigate risks associated with centralized fund storage through the self-custody of assets.

In the following section, we will provide a brief technical overview of how custody of digital assets can function in the emerging digital economy, specifically highlighting how the Ethos Universal Wallet, through Ethos Bedrock, is able to deliver safe and practical solutions to consumers and institutions through building on industry standards.


The Technology: Hierarchical Deterministic Wallet & Bedrock

As you now know, the blockchain enables self-custody of digital assets. Over the past decade, creating a wallet to store your digital assets was a complicated process, requiring individuals to manage independent public and private key pairs for every wallet they wanted to maintain. In order for someone to have 10 Bitcoin address, they would need to manage 10 private keys and 10 public keys… and if that list of lengthy alphanumeric private keys was damaged or lost, there was no simple way to regenerate those missing keys.

Now imagine if there was a way to securely generate 10 private keys and 10 public keys, all derived from and restorable with a single set of words instead of a lengthy alphanumeric string, wouldn’t that be convenient? Enter hierarchical deterministic wallets! Hierarchical deterministic wallets commonly referred to as HD wallets, allow an individual to create a multitude of private/public key pairs without the need for complex backup mechanisms or individual key management by the user.

The Ethos Universal Wallet is built 100% on Ethos Bedrock, with Bedrock being utilized as an institutional-grade custody engine. Bedrock Custody will solve the “custody trifecta” where you have your funds rapid, accessible and secure. Let’s take a dive into how all this works and examine how Ethos is building on industry standards to provide safe and secure custody solutions to consumers and institutions at scale through Ethos Bedrock.

BIP32

BIP stands for Bitcoin Improvement Proposal. A BIP is a standardized way of introducing proposals for alterations of Bitcoin, including the network protocol, block or transaction validation, and more. BIP-32 describes what HD wallets are and how they operate. An HD wallet is a system for deriving seemingly infinite private/public key pairs from a single point referred to as a seed. This creates a hierarchical tree-like structure of private/public keys.

From a mnemonic phrase, the seed is derived. That is hashed and a master key, also known as a parent key, is derived. From that parent key, you can then derive child keys underneath that. From each of the children, you can derive more child keys, and so on. Think of it as a tree branching out. This structure also allows the owner of the wallet to provide one of the branches, or sub-trees, to someone else and they can then generate more addresses further down that tree.

Deterministic wallets eliminate the need for a user to document every single private/public key because they can be regenerated at any time with the single mnemonic phrase that’s held by the wallet owner

BIP39

When creating a cryptocurrency wallet, a mnemonic phrase is sometimes generated in order to provide an easier way to remember your private key, instead of having to memorize or document a random alphanumeric string. BIP-39 provides a framework for generating that mnemonic phrase. Sometimes referred to as a “seed phrase,” it’s vital to keep this somewhere safe! The individual in possession of this set of words has full access to the assets associated with the given address, think of it as the combination to an otherwise uncrackable safe.

Under BIP-39, standardized lists of words in different languages are provided and can be used for creating a mnemonic phrase. The English language word list has 2048 words and can be found here.

For the Ethos Universal Wallet, your SmartKey is a 24-word mnemonic phrase (vs the 12-word standard used in many wallets). A single 256-bit seed, 24-word mnemonic provides master encryption for all of the private keys in each wallet you create.

Did you know the number of possible 24-word combinations of 2048 words exceeds the number of atoms on Earth!?

BIP44

BIP-44 defines a logical hierarchy for deterministic wallets and expands on the capabilities of the HD wallet as defined in BIP-32 to allow for support of different coin types (i.e., BTC, ETH, ADA) and accounts. This allows for a single mnemonic phrase SmartKey to be used to recover seemingly infinite wallet addresses that hold assets across different blockchains.

While Ethos adheres to BIP32 and BIP39, we found BIP44 as it stands would limit the ability for Ethos to provide unique solutions to our users; namely, the ability to dynamically generate addresses for users to receive payment on blockchains they haven’t used, which enables airdrops into wallets where the address has not yet been generated by the user. In considering these benefits along with additional security risks, we decided to pursue a non-standard approach to unlock use cases that will be beneficial to the overall user experience.

Ethos Bedrock utilizes “extended public keys” to securely generate addresses on our servers without having to transmit private keys. These extended public keys are used to generate all child public keys that exist below it in the derivation path – which are then transformed into addresses that follow the scheme defined by each blockchain. For a full description of the mathematics of these extended keys, see the BIP-32 / BIP-44 documentation.

Through unlocking and expanding on the capabilities of the powerful mathematical structure outlined above, consumers and institutions can now have access to industry leading custody solutions at scale.

Looking Forward

While the application of this wallet technology may be clear to our Universal Wallet users who already enjoy the benefits of self-custody and the convenience of a mobile storage solution, it’s important to note that Bedrock also enhances the custody offering for Voyager as well. Through Bedrock, we are opening up support of coins that Voyager’s existing custody partners do not support and increasing the speed to market for new coins. This enhances both the Voyager retail trading application, in addition to the Voyager institutional offering. For both businesses, Ethos helps solve one of crypto retail and institutional markets biggest problems – secure custody.

The combined Bedrock and Voyager B2B offering will enable businesses of all types to build crypto applications rooted in custody, payments, investing and more. Together, we look forward to granting Voyager’s institutional partners access to the powerful custody solutions enabled by Bedrock.

From bearer bonds to blockchain, we have arrived full circle to what the people need, true and secure asset ownership. Individuals and institutions can rest assured that Ethos is here to provide them with unprecedented security over their assets, without sacrificing ready access to rapidly transact and exchange them.



How We're Working to Tackle Crypto’s Biggest Pain Points

How We're Working to Tackle Crypto’s Biggest Pain Points

Crypto can be confusing, overwhelming and downright scary for anyone, whether they are tech savvy or not. Managing private keys, multiple wallets, passwords and dodging phishing sites and even the fear of getting hacked, has often been too intimidating for average people to take a real foray into Crypto.

While the casual investor relies on a third-party custodian, we all know that unless you control the private keys, you don’t control the crypto. Ironically, it’s these barriers to entry which are also the underlying qualities that gives crypto its revolutionary value.

Since Ethos began, we’ve been focused on tackling the biggest barriers to entry into crypto, while streamlining the utilization of it in the real-world as we play our part to help catalyze a revolution to a more fair and free new economy. We do this by building products which are simple, safe and secure, yet dynamic and innovative.

In this article we highlight the biggest pain points in crypto, and our approach in solving them.

1) Crypto is Too Complicated (and Intimidating!)

Ain’t that the truth! Imagine that you’re trying to buy Bitcoin so you can buy altcoins from an exchange, only to then have to figure out how to download four different wallets. Once you have those wallets, you have to keep them updated plus manage the private & public keys. The process to acquire crypto right now takes too many steps, so it’s no surprise that people just give up and walk away from the possible benefits.

In fact, every person that works for Ethos has personally overcome these hurdles and intimately understands the struggles consumers are facing.

The idea was simple – if we give users the power to safely and simply store, track, send & receive crypto, then it can be a more integrated part of their daily lives. The Universal Wallet gives users the ability to send crypto as easily as they could with PayPal or Venmo, thus increasing the likelihood of exchanging crypto among peers.

Soon you will be able to swap and purchase coins and have them directly show up in your wallet. Making it a one-stop shop for acquiring, accumulating and storing.

Benefits include:

  • Store your tokens, coins and digital assets safely and securely on your mobile device.
  • You’re in complete control thanks to your PIN and biometric data (i.e., fingerprint) combined with safe and secure leading encryption techniques.
  • Generate new wallet addresses and manage multiple wallets at the touch of a button.
  • Sending and receiving just got breezier. Do you have a friend that wants to send you crypto? No problem, you are just two-clicks away from pulling up your wallets public address and QR-code!

Securing your assets doesn’t have to be panic-inducing. Ethos has smoothed out the barriers so you can focus on making wise crypto investment decisions.

2) Centralized Storage

As we just covered above, being able to safely and securely store assets in a simple (even beautiful) way has been a pain point since the early days of crypto. With traditional assets like fiat currency, our current financial system is structured in a way that pushes us to participate in centralized storage – forcing us to hand over full control (or self-custody) of our assets.

The consequences of such a system have been at times grave. Case in point, the financial crisis of 2008 left banks unable to provide consumers with ready access to their funds, requiring a government bailout to keep the broken system afloat. Unfortunately, the crypto space has seen a similar push towards centralized systems of storage and asset exchange, and at times the outcomes have not been pretty.

Mysterious disappearances of digital assets on exchanges like Mt. Gox, Bitfinex, and a multitude of other centralized cryptocurrency exchanges have shown time and time again that entrusting custody with 3rd parties is often ill advised and risky.

If it’s so dangerous, then why are people doing it?

Frankly put, because it’s easy. Instead of needing to manage multiple unique cryptographic private keys and regularly updating software wallets that have confusing user interfaces, it’s easier and less scary to have that done for you. But at what cost?

We saw the challenges people were facing and decided that if we were to truly advocate for financial empowerment, there needed to be a better solution that enables decentralized storage and self-custody. Enter the Ethos Universal Wallet. The capabilities of this mobile-first smart wallet smooth out and simplify the process for you, so that you can maintain control. One wallet, your assets, with you in complete control.

3) The fees are too high!

Whether you are buying crypto or trying to sell crypto to fiat, the fees are plentiful! It’s undeniable. If you’re storing your assets on a centralized exchange that does not offer Crypto-Fiat services, you likely need to pay a fee that exceeds the mining costs to just get your coins off the exchange. If only it stopped there – those fees are quickly followed by additional fees tacked on by the Crypto-Fiat exchange provider, often far exceeding 1% of the total balance being converted to fiat.

A low cost, self-custodied solution has yet to surface in the market. Until now. Through the powerful partnership between Ethos and Voyager, we enable a new era of crypto-fiat trading. We venture to solve the multiple layers of crypto dilemmas, by mitigating losses to conversion fees and all the many concerns over whether or not you will be paid what is rightfully yours when airdrops or forks occur to an asset you own.

Together, Ethos and Voyager bring forth crypto solutions in real terms.

4) It’s a Scam

There is often a gut reaction to assume the worst of things we don’t understand. Most especially when it involves people making or losing money. At Ethos, we understand that our users want to truly feel comfortable and confident navigating the cryptoverse. That’s why we have been working hard to build out a wealth of educational content.

From our video series that can be found here to the coin profiles in the app, we are building out resources to educate newcomers and veterans on the underlying technology, and what different projects in the space are building!

Our coin profiles will soon feature an enhanced rating and review system as well as links to the official websites, social accounts, githubs, and other resources vital to understanding a blockchain project. The Universal Wallet will be a central hub of data, allowing you to develop a deeper understanding of what different blockchain projects are building and how others view those endeavors.

5) Poor to No Customer Support

A common complaint voiced about most industries is the experience of contacting customer support. The crypto space is no exception, and may in fact be known for exceptionally poor customer support. Whether it takes days to hear a response to your inquiry, there’s an inability to provide a solution to the problem or there is simply no response at all, most of us leave feeling uneasy or frustrated.

When you raise a support ticket through Ethos Customer Support, we have customer support reps responding within 10 minutes. We believe that ongoing education and open lines of communication are key to providing a high level customer support experience. Our support reps and community moderators have meetings twice a week, regularly speaking with our Chief Product Officer, head of IT & Security and Marketing Director to stay up to date with the latest developments at Ethos and have all their questions answered. At Ethos, we genuinely pride ourselves on having the best 24/7 customer support team in the industry.

We know that providing security should not stop at building formidable technology. Beyond exceptional management and enthusiastic support reps, a central tenet to our hiring process is identifying people who truly understand. People who understand the technology, our products and the sometimes overwhelming experience of navigating this emerging sector. Because, we’ve all been there. We have sent that transaction and been worried it was lost in the ether, we have forgotten our passwords and we have felt the panic of not hearing back from support.

Through firsthand experience, a strong sense of empathy and human-centered design, our support reps, developers and team as a whole understand the importance of your needs in the New Economy.

Your needs are our needs. As a collective – community members, technologists and creatives – we are Ethos.

We are here for you.



Q&A with Voyager CEO and Co-Founder Steve Ehrlich

Q&A with Voyager CEO and Co-Founder Steve Ehrlich

Getting to Know You

Tell us the origin story of Voyager. How did it all come about?

My co-founders and I sat down last year for breakfast in Soho to talk about a potential crypto business. After that, the breakfasts continued weekly and our idea grew bigger, and bigger. The five of us have each respectively built successful businesses in the technology and finance sectors, and when we looked at the current offering in the crypto market we knew we could do better. We believed (and still do) that crypto was here to stay and that the market was only going to grow larger and more mature. We wanted to be a part of the financial revolution and we knew that we could give investors the solutions they deserved.

What inspired you to make the switch from traditional finance to crypto?

Early in my career I worked at TIR, one of only 3 global soft dollar brokers when the Soft Dollar Brokerage industry emerged. At Lightspeed Financial, I led the first Broker Dealer solely focused on active traders and automated trading. As CEO of Tradier, I led an API brokerage before any broker dealers were utilizing that technology. I’ve been fortunate enough to be at the forefront of many financial revolutions, including online trading at E*Trade. Crypto seemed like the obvious next step for me and is too exciting to miss out on being a participant in that community..

This industry being so new, what gave you the confidence in crypto and blockchain to take the big leap?

As soon as I learned about the technology, I knew it was the next big thing. It’s one of the few emerging technologies that I felt had major growth potential. We had seen the “internetization” of information and media. Money seemed like the logical next evolution.That being said, when I looked into the existing infrastructure, I could see it was lacking many of the components that drove equities and online trading to be successful.

What are the biggest hurdles you have had to overcome while building Voyager?

The crypto market is so new and because of that it’s sort of the wild west. There is very little regulatory guidance and there’s still a lot of confusion surrounding the technology. For us, a lot of work went into making sure we were following the existing regulation and preparing for a more regulated future while still honoring the disruptive nature of crypto.

There’s also a major liquidity issue in the market. We knew from day one that we wanted to be aggressive in the assets that we offered. It was difficult to find reputable custody partners that supported a wide range of crypto assets. By building a Smart Order Router that connected to multiple exchanges and partnering with elite partners like Ethos we’ve been able to create a custody and liquidity network unlike any other in the market.

Tell us a little bit about the team culture at Voyager. How does the team currently operate and how do you see it expanding?

Collectively our founders and employees have built businesses in nearly every sector — finance, technology, healthcare, crypto, and more. We’re not scared to pave the way and cause disruption – which is really important in this space. All of our experience seemed to prepare us perfectly to take on the crypto market. Over the last year we’ve grown from a couple of friends getting coffee, to a full fledged team across multiple offices. It’s been a lot of fun! Every employee at Voyager is passionate about crypto and genuinely wants it to be for the masses.

The Voyager Technology

Voyager has built your signature Smart Router technology, how does that work and compare to other order execution engines?

The current crypto asset market structure forces investors to find liquidity and competitive pricing on their own – often leading customers to open multiple accounts on different exchanges and trading platforms. Our smart order router does the work for you. We’re connected to multiple trusted and secure exchanges and liquidity providers. The router is designed to be constantly monitoring order books and always knows where to achieve best execution, even if that means filling an order fractionally across multiple exchanges. It processes data in real-time and executes orders within milliseconds of a customer placing a trade. (You can learn more about it here.)

Can you share about the differences and similarities of how your technology is used for the purposes of a Fiat Gateway vs Crypto Trading?

Trading is just the beginning. We want to make more crypto assets available to more people. In order to do this, there needs to be a reliable fiat gateway to the crypto market. We’ve built this by partnering with the best liquidity providers and custodians in the industry. Our technology allows users to convert their fiat currencies from a bank account to a wide range of crypto assets instantly. There’s no crypto trading, investing, or purchasing without a fiat gateway.

So the big question! Can I just simply pay with cash via Debit Card or Bank Account to purchase crypto, and then it shows up in my Universal Wallet?! Will it be that easy?

Yes, that’s the goal! Customers will be able to connect their bank accounts and buy 15+ crypto assets (including Ethos in the near future) with USD. Ethos wallet holders will be able to seamlessly transfer their assets in and out of their wallets with fiat trading being integrated soon.

Ethos x Voyager – Explained

We see Ethos and Voyager as a “match made in heaven.” How do you envision Ethos and Voyager working closely together to build the future of finance?

We’re creating a truly integrated product built solely to benefit customers. Together with Ethos we’re bringing news, research, best execution trading, a wide range of crypto assets, self-custody, a payment mechanism and world class service to the crypto market. Execution and custody are the biggest hindrances in the crypto industry maturing. With Ethos, we help solve that directly!

The Ethos Universal Wallet will be integrated into the Voyager retail and institutional businesses, allowing customers to self-custody their crypto assets and seamlessly convert back-and-forth to fiat. Together, we’ll offer both retail and institutional crypto investors unparalleled liquidity, speed, and security.

Voyager and Ethos share the joint vision of a financial system that is open, safe, and fair for everyone. We believe that crypto is the future, and together we’re building the infrastructure to support and drive mass adoption.

Ethos has built Bedrock – an enterprise application making blockchain accessible to institutions like yours. How does Voyager intend to integrate and utilize Ethos’ Bedrock technology?

Bedrock will help strengthen the institutional offering. The combined Bedrock and Voyager B2B offering will enable businesses of all types to build crypto applications rooted in custody, payments, investing, and more. Voyager’s institutional partners will have access to Bedrock for a powerful custody solution, while Ethos Bedrock customers now gain access to trade execution. We get to offer the full package.

The Timeline

We are on the edge of our seats…When will Voyager release?

Soon! Our public beta is just weeks away. After release, we will upgrade and evolve the app quickly but we are extremely proud of the application that we will ship this year.

So it will be available to the US first, what’s the plan for international expansion?

We’re spending significant time with US counsel to bring Voyager to all 50 states. We’re also working with international regulators to bring Voyager outside of the US as quickly as possible, but we don’t have a set timeline in place yet.

As a visionary, how do you foresee crypto transforming how money is used in our daily lives and in a digital age?

I believe that crypto evolution will happen in 4 areas: buying (converting fiat to crypto), trading (investing), holding (custody), and paying (or transferring). Today, we’re seeing people participating in all four of these pillars but mass adoption hasn’t occurred yet in any single one. Trading is the only crypto use case that has seen any significant adoption. I believe that with time, people will use crypto assets in their daily life but first, the market needs to grow and mature to support this shift. Some of the strongest use cases for crypto are happening in countries with hyperinflation. People living in Venezuela, for example, have an alternative, independent currency that’s actually worth something. Crypto will democratize finance and I think that’s a really good thing. It’s about time that money moves as fast as information does these days. Crypto and Blockchain are what make that happen.

Thank you for your amazing answers, last big question! We jumped in Doc’s car, hit the gas and gunned it to the future. It’s now the end of 2020, what do you see for Voyager?

We believe that the financial industry is in a transformational phase. Payments, trading, custody and clearing are all changing because of crypto. Some changes will take place in the short term, but the bigger disruption will probably take more time. We want to be at the forefront –– educating consumers and regulators, developing solutions, and leading the way towards a more democratized financial future. Long term, the possibilities of blockchain technology and crypto are endless. We are confident that equities will take form as digital assets, crypto will be used at your corner store, and many companies will look more like decentralized networks. In the meanwhile, the industry has a lot of work to do!



what is an api

What is an API?

what is an api

What is an API?

For a while now we have been talking about Ethos Bedrock, a high-performance Blockchain Financial Services (BFS) platform, which is composed of many APIs on which our flagship application, the Ethos Universal Wallet, is built. You may have found yourself wondering, what is an API? So we put together a brief introduction to what APIs are!

API stands for Application Programming Interface. For many of us the term API may not carry much meaning, but it’s important to understand that well designed APIs can provide strong building blocks on which a developer can create new programs, and serve as powerful software intermediaries for applications to communicate with other applications.

Most of us have experience using applications. In fact, you are likely viewing this article through a web browser. You can see links that you can click and you can scroll through the content. Unlike this type of application interface, an API is an interface designed for developers to more easily create new programs that can then interact with a base of code and microservices.

A common analogy used to describe APIs are Lego building blocks. Each Lego block has bumps and holes that fit together with another piece, and they can be stacked to build unique systems based on the builders end goal. Regardless of the builder, they are using the same pre-existing and functional base components. Similarly, an API allows developers access to those base blocks and the ability to seamless communicate with a number of underlying applications and microservices.

At the base of Bedrock lie an array of microservices. Microservices are services that are oriented around a specific task (i.e., listening for blockchain transactions, sending notifications, generating addresses, etc) that are used in combination to deliver robust features. For instance, the Universal Wallet relies on a multitude of APIs (i.e., xWallet, xTransact, xAlert) and underlying microservices that let a user know when crypto has been successfully transfered to their wallet.

Let’s take a closer look at an Ethos Bedrock service, xTransact, which consists of several APIs: TXN constructor API, TXN Signer API, and TXN Submission API.

  • TXN Constructor API: when a user or institution wishes to transact, they communicate to Bedrock how many of which coin they want sent to a given address – TXN constructor API  prepares the transaction and conducts a fee analysis.
  • TXN Signer API– after the transaction is constructed, TXN Signer API sends the transaction to the user, which is then signed on the device.
  • TXN Submission API – the signed transaction is now broadcast and verified!

Instead of an institution or developer being required to build a custom-developed application, they can now build one that is referencing APIs to incorporate the rich features they seek to deliver without spending precious resources on building from scratch. Additionally, they are able to mitigate risk of errors by referencing battle tested code.

Innovative, elegant and highly-scalable API platforms, like Ethos Bedrock, are crucial to the future development and adoption of blockchain based financial applications and tools by existing and emerging financial service providers. Whether they seek to create a fiat gateway, query price data or provide custody solutions to consumers, Bedrock is the foundation they need to build tomorrow’s consumer and institution facing products and services.