Tanaya Macheel

<div id="highlights-block_6027fb412ed4d" class="highlights">
 <ul>
 <li>BNY Mellon is a qualified custodian, which will allow larger pools of institutional capital to invest in digital assets</li>
 <li>JP Morgan, Citi and Goldman Sachs are all in exploratory stages</li>
 </ul>
 
</div>



BNY Mellon, the world’s largest custodian bank, is taking the leap into digital assets, opening the door to bitcoin for large pools of institutional capital with high fiduciary standards.



On Thursday the $41 trillion-asset bank said it will <a href="https://cms.blockworks.co/bny-mellon-offer-bitcoin-custody-this-year/" target="_blank" rel="noreferrer noopener">soon be able to</a> store and move (and “issue”) bitcoin and other digital assets for asset managers the same way it handles their other more traditional holdings.



The move from the oldest U.S. bank is symbolic for an industry that has thus far struggled to gain acceptance from regulators and financial institutions. While interest from hedge funds and family offices has been on the rise, pension funds, sovereign wealth funds and endowments have remained on the sidelines.



“Asset managers definitely have a preference for banks as custodians,” said Caitlin Long, CEO of Avanti Bank &amp; Trust. “That&#8217;s why the big custody banks of securities, like Bank of New York Mellon, are banks and not trust companies.”



There are plenty of digital asset custody providers today — trust companies like Gemini, Coinbase, BitGo, Bakkt and Paxos who identify as qualified custodians and fiduciaries. But while they may be so under state law, they aren’t federally recognized banks.



For some customers, their custodians don’t have to be traditional banks. But certain asset managers, like registered investment advisors, pension funds and mutual fund complexes, are required by the SEC to hold their assets with “qualified custodians” — which the SEC defines differently than state regulators do. These customers follow that rule as best practice.



“The title of ‘qualified custodian’ gets thrown around a lot,” said Tom Lombardi of digital asset fund manager 3iQ. “The idea that those custody providers are an appropriate custodian for digital assets – that’s not defined.”



If one of them were ever to go bankrupt, “you’d go through a lengthy, messy litigation to get your coins,” Lombardi said. “If you have your crypto with a bank and there&#8217;s a bankruptcy, there is a very orderly structured way to dissolve that entity and return assets to their owners.”



<h3>Much needed clarity</h3>



BNY Mellon also serves broker-dealers, so coming to market gives clarity on many other issues people don&#8217;t talk much about, according to Lombardi.



Glaringly absent has been input from FINRA, a self-regulatory organization that regulates member brokerage firms and exchange markets, on what broker-dealers can do with digital assets.



&#8220;There&#8217;s a reason you haven&#8217;t seen any brokers on Wall Street service digital assets,” he said. “It&#8217;s not because they were waiting for the OCC to wave its flag — it’s because it&#8217;s not in the rulebook.”



FINRA-registered broker-dealers can&#8217;t hold bitcoin and it’s partly because FINRA hasn&#8217;t outright said that a trust company is a permissible form of custody, he said, emphasizing that a proper custodian needs to be a fiduciary bank.



Lombardi is skeptical a U.S. bitcoin ETF will be approved in 2021. To manage an efficient and effective ETF, he said, FINRA-registered banks would have to own bitcoin. They can’t not only because they’re not a bank of custody, but also because there isn’t guidance from FINRA on how to manage digital assets.



“In the U.S. securities exams, no one talks about bitcoin or crypto,” Lombardi said. “The fact that it&#8217;s not even in the exams is basically an implied statement: it&#8217;s not in your securities license exams, so it&#8217;s not in the realm of your profession.”



<h3>When will other banks follow BNY’s example?</h3>



BNY Mellon is the first of the five major global custodian banks – which also include State Street, JPMorgan Chase, Citigroup and BNP Paribas – to offer a custody service for digital assets.&nbsp;



JPMorgan, Citi and Goldman Sachs are all in exploratory stages. On Friday, JPMorgan co-president Daniel Pinto said demand by asset managers “isn’t there yet” but that he’s &#8220;sure it will be at some point,” in a CNBC interview. “If over time an asset class develops that is going to be used by different asset managers and investors, we will have to be involved,” he said.



In December Northern Trust and Fidelity’s digital assets subsidiary began offering custody services to clients after forming partnerships with crypto startups.



“The fact that the largest asset security custodian in the world is building a track for digital assets, namely bitcoin — this is a part of the institutional stack for crypto adoption that moves us forward in a significant way,” Lombardi said.

Why BNY Mellon’s Bitcoin Blessing Could Draw in Larger Asset Managers

Ben Strack

Crypto mergers and acquisitions were up last year despite the value of such transactions falling significantly, as increased activity by non-crypto firms looking to get more involved in the segment could signal even more deals going forward.



Deal count in the segment was 204 in 2022, according to a report by advisory firm Architect Partners — an all-time high and up 13% from 181 during the prior year.&nbsp;



But the value of all crypto M&amp;A deals fell by 64% year over year, from roughly $6 billion in 2021 to about $2 billion last year.&nbsp;



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="733" src="https://cms.blockworks.co/wp-content/uploads/2023/01/2022-Crypto-MA-Chart-1024x733.jpg" alt="" class="wp-image-45037" srcset="https://cms.blockworks.co/wp-content/uploads/2023/01/2022-Crypto-MA-Chart-1024x733.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2023/01/2022-Crypto-MA-Chart-300x215.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2023/01/2022-Crypto-MA-Chart-768x550.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2023/01/2022-Crypto-MA-Chart-359x257.jpg 359w, https://cms.blockworks.co/wp-content/uploads/2023/01/2022-Crypto-MA-Chart-364x261.jpg 364w, https://cms.blockworks.co/wp-content/uploads/2023/01/2022-Crypto-MA-Chart-306x219.jpg 306w, https://cms.blockworks.co/wp-content/uploads/2023/01/2022-Crypto-MA-Chart-80x57.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2023/01/2022-Crypto-MA-Chart.jpg 1522w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>



The dollar volume of crypto M&amp;A represents just 0.3% and 0.4% of the tech and financial services sectors, respectively, Architect Partners data shows.



“The downturn in transaction value perfectly correlated with the exposure of massive counterparty risk and both hidden and disclosed leverage permeating the sector,” the report states.&nbsp;



<h3>Deals between traditional, crypto firms also up</h3>



Still, deals in which a non-crypto native company acquires a crypto firm, which Architect Partners calls “bridge transactions,” also increased, amounting to 36% of all 2022 crypto M&amp;A transactions.&nbsp;



The London Stock Exchange Group (LSEG), for example, bought cloud-based technology provider TORA the following month for $325 million. The buy included an order and execution management system and portfolio management system for customers trading equities, fixed income and digital assets.&nbsp;



Ryan McCullough, told Blockworks he believes bridge transactions are the biggest indicator of future M&amp;A in the segment.&nbsp;



“Traditional groups will continue to invest heavily in the space via acquisition,” he said. “We saw bridge M&amp;A pick up last year and expect that trend to continue despite a slowdown in the beginning of 2023.”



Other larger deals, like LSEG’s buy of TORA, happened early in the year before segment-altering events such as the crash of Terra’s algorithmic stablecoin and crypto exchange FTX.



January deals included <a href="https://blockworks.co/news/coinbase-acquires-regulated-futures-exchange-to-expand-derivatives-offerings">Coinbase’s $275 million acquisition</a> of derivatives exchange FairX and <a href="https://blockworks.co/news/facebook-led-crypto-project-diem-to-be-sold-off-for-200m-report">Silvergate’s roughly $200 million buy</a> of Facebook-led Diem Association’s blockchain and crypto infrastructure.



Blockchain.com made headlines in March after it <a href="https://medium.com/blockchain/accelerating-institutional-growth-through-the-acquisition-of-altonomy-3a2ebd4e351a" target="_blank" rel="noreferrer noopener">bought</a> Singapore-based Altonomy for $250 million in an effort to boost its institutional business.



<h3>Most active acquirers</h3>



Digital entertainment company Animoca Brands was the sector’s most active acquirer last year, buying Grease Monkey Games, Eden Games, Darewise Entertainment, WePlay Media and Pixelnyx.&nbsp;



Second was now-bankrupt FTX, as well as its US affiliate not included in the November bankruptcy filings, which combined bought four companies in 2022 — Liquid, Good Luck Games, Bitvo and Embed Financial Technologies.



The theme of acquirers targeting decentralized applications, games, exchanges and marketplaces reflect “the strategic imperative to capture and onboard more users,” the Architect Parners report notes.&nbsp;



The only companies to buy three entities last year were SmartMedia Technologies and <a href="https://blockworks.co/news/wonderfi-continues-to-consolidate-canadian-market-with-second-acquisition%EF%BF%BC">WonderFi</a>, while about a dozen firms made two acquisitions, according to the report.



Among those with two buys in 2022 was Binance, which purchased Indonesia crypto exchange Tokocrypto and Japan-based <a href="https://blockworks.co/news/binance-expands-into-japan">Sakura Exchange BitCoin</a> (SEBC).&nbsp;



Galaxy Digital revealed its second acquisition of the year just days before the start of 2023, committing to buy Argo Blockchain’s Helios bitcoin mining facility for about $60 million.



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Crypto M&A Deals Hit Record High in 2022, Despite Downturn

Bessie Liu

Ordinals, a non-fungible token protocol, has launched on Bitcoin mainnet, causing a ruckus in the community.



Ordinals were created by software engineer Casey Rodarmor, and can be described as a numbering scheme for satoshis — the smallest denomination of bitcoin — which can track and transfer individual sats and allow “inscriptions” or “digital assets” to be uniquely identified.



“Ordinal NFTs use an accounting-like method to distinguish between single (fungible) satoshis, making them non-fungible (differentiated) in this closed-off system,” <a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analyst <a href="https://twitter.com/MattFiebach" target="_blank" rel="noreferrer noopener">Matt Fiebach</a> said.



Ordinals store texts, images, SCG, or HTML on-chain and can be authorized through a transaction —&nbsp; they can also be purchased, stored and gifted.&nbsp;



This was accomplished using a loophole from the Taproot upgrade in 2021, which enabled “practically unlimited (capped by block size) storage using Opcodes, an executable script in a txn that can store arbitrary data,” Fiebach said.



Rodarmor notes in a <a href="https://rodarmor.com/blog/" target="_blank" rel="noreferrer noopener">blog post</a> that these digital artifacts will be held to a “higher standard” than NFTs, as they can not be stored off-chain and on centralized servers with back-door keys. 



“Inscriptions are immutable and on-chain, on the oldest, most decentralized, most secure blockchain in the world,” Rodarmor said. “They are not smart contracts, and do not need to be examined individually to determine their properties. They are true digital artifacts.”



<h2>A torn community</h2>



Bitcoin&#8217;s purpose has been hotly debated since its inception, and not all community members are thrilled about Ordinals.



For a long time, community members have been torn on whether Bitcoin’s ledger should simply be a space to record financial transactions or a distributed data store for different applications, the pseudonymous Pourteaux <a href="https://read.pourteaux.xyz/p/illegitimate-bitcoin-transactions" target="_blank" rel="noreferrer noopener">wrote in a blog post</a>.



Before the Taproot upgrade, Opcode was limited to 80 MB, Fiebach said.



“Many BTC supporters believe block space should be reserved for sending BTC rather than storing data, or anything else, given BTC is supposed to be peer-to-peer electronic cash,” he said. “Others may argue that increased demand for block space could be considered a positive for the long term sustainability of securing the network.”



<h2>The pros and cons</h2>



So, what are the chances of Bitcoin becoming the next big hotspot for NFTs?



One of the appeals of purchasing NFTs on Bitcoin is the price. Since the Segwit upgrade in 2017, Bitcoin has already included a heavily discounted <a href="https://www.eip4844.com/" target="_blank" rel="noreferrer noopener">eip-4844-style blob space</a>, cryptocurrency researcher Eric Wall <a href="https://twitter.com/ercwl/status/1619323900982349824?s=20&amp;t=30B8eLW76FWCi59II6pwKA" target="_blank" rel="noreferrer noopener">tweeted</a>.



“That blobspace is now being abused by taproot to make full-block (≤4mb) bitcoin NFTs 10x cheaper than ETH L1,” Wall <a href="https://twitter.com/ercwl/status/1619323900982349824?s=20&amp;t=30B8eLW76FWCi59II6pwKA" target="_blank" rel="noreferrer noopener">wrote</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">This should help you understand how cheap ordinals are. <a href="https://t.co/OoAgI6WCKF">https://t.co/OoAgI6WCKF</a>&mdash; Erica Wall (@ercwl) <a href="https://twitter.com/ercwl/status/1619644247313125376?ref_src=twsrc%5Etfw">January 29, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Despite this, a legitimate concern remains.&nbsp;



As Ordinals don’t operate on a separate sidechain or protocol and run on bitcoin mainnet, popular usage of Ordinals will increase transactions, creating congestion and hefty fees.&nbsp;



“Even though with op_codes, the cost of storing an image on Bitcoin is much cheaper than Ethereum, it is still much more expensive to store data on-chain than through centralized data storage services,” Blockworks Research analyst <a href="https://twitter.com/purplepill3m" target="_blank" rel="noreferrer noopener">Ren Yu Kong</a> said.



If NFTs on bitcoin were to take off, and more people began storing images on the network with op_codes, transaction fees per block would significantly increase and full nodes will have to download much more data, Yu Kong said.



“Over time, that leads to higher technical requirements to run a full node, and thus from a security standpoint, likely leads to further centralization for the set of full nodes verifying the chain,&#8221; he said.



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Bitcoin NFTs: Love ‘Em or Hate ‘Em, You Can’t Ignore ‘Em

Casey Wagner

As regulators around the world continue to take a closer look at the crypto industry, firms are starting to bring in third-party help. But a lack of clear technical standards means even the industry’s most popular choice for compliance software has a tough job on its hands.



Texas-based compliance software company Eventus works with traditional and crypto-native firms, including exchanges, banks and broker-dealers, to provide trade surveillance, transaction monitoring and anti-money laundering services.&nbsp;



Eventus has emerged as a popular choice for crypto companies, working with major names in the space including Coinbase, Gemini and, most recently, options exchange Deribit.&nbsp;



“Because additional crypto regulations are still in development across the globe, clients come to us to discuss how they can apply institutional-grade compliance to their businesses now,” a representative from Eventus said. “Global crypto regulations are not as specific and clear as what we see in other asset classes.”



But even as crypto companies take a more prescriptive approach to compliance, regulators are bringing the hammer down on past indiscretions. And some of them have involved companies that partner directly with Eventus.



Earlier this month, Coinbase, an Eventus client since 2021, agreed to settle for <a href="https://blockworks.co/news/coinbase-stock-up-after-settlement">$100 million</a> with the New York State Department of Financial Services for violating anti-money laundering laws.&nbsp;



Coinbase <a href="https://www.coinbase.com/blog/how-coinbase-thinks-about-market-integrity-and-trade-surveillance" target="_blank" rel="noreferrer noopener">said</a> in October 2021 it used Eventus for trade surveillance, noting the company helped “provide 24/7/365 monitoring across all of Coinbase’s trading platforms in a way that manual tracking alone cannot.” A representative from Coinbase confirmed to Blockworks that the exchange is still partnered with Eventus. 



In April 2022, FTX <a href="https://www.prnewswire.com/news-releases/ftxcom-selects-eventus-for-global-trade-surveillance-and-risk-monitoring-on-all-of-its-markets-301532661.html" target="_blank" rel="noreferrer noopener">announced</a> it had contracted with Eventus for trade surveillance and risk monitoring services. The partnership came months after FTX US, the exchange’s American subsidiary, revealed it had started using Validus, Eventus’ platform for “surveillance, market risk, algo monitoring and anti-money laundering/transaction monitoring,” according to the firm’s <a href="https://www.eventus.com/validus-overview" target="_blank" rel="noreferrer noopener">website</a>.



Gemini, which has been working with Eventus since 2020, was recently <a href="https://blockworks.co/news/genesis-gemini-charged-with-securities-violations-by-sec">charged by the Securities and Exchange Commission</a> with an unregistered securities offering through its Lend program in December 2020. Genesis was also charged.&nbsp;



The representative from Eventus declined to comment on the company’s relationship with specific customers.&nbsp;&nbsp;



When asked if there is adequate infrastructure to effectively manage market surveillance for crypto companies, Eventus said the support is there. 



“The technology exists to monitor crypto trading at scale and in near real-time,” the representative said. “The data needs for crypto are enormous but this is also the case for monitoring stocks, commodities, and derivatives, which our company does as well.”



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Despite Enforcement Actions, Eventus Says Crypto Compliance Can Work

A competitor of Grayscale Investments has sued the cryptoasset manager, claiming Grayscale has misled investors about its services in an effort to steal market share.&nbsp;



In a suit <a href="https://civilinquiry.jud.ct.gov/DocumentInquiry/DocumentInquiry.aspx?DocumentNo=24393260">filed</a> Monday in Connecticut Superior Court, Osprey Funds alleges Grayscale engaged in “deceptive acts and unfair competition” in the asset management industry.



“Grayscale has made materially false and misleading statements in its advertising and promotion to the effect and in substance that turning its bitcoin asset management services into access to a bitcoin ETF was a foregone conclusion, when it knew that access was never likely to happen,” the complaint states.



An Osprey Funds representative declined to comment beyond the filing.&nbsp;



A Grayscale spokesperson called the lawsuit “frivolous” in an email to Blockworks.&nbsp;



“The conversion of GBTC to an ETF is the best long-term product structure for Grayscale’s investors, and approval of a spot bitcoin ETF in the United States would directly benefit our industry peers,” the spokesperson added. “At Grayscale, we remain confident in our common sense, compelling legal arguments, and we look forward to a final decision from the US Court of Appeals by fall 2023.”



Grayscale is seeking to convert GBTC to an ETF — a process that executives have said would essentially eliminate the roughly <a href="https://ycharts.com/companies/GBTC/discount_or_premium_to_nav" target="_blank" rel="noreferrer noopener">40% discount</a> at which the vehicle currently trades.



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12595927/embed#?secret=gIcH4tfWhz" data-secret="gIcH4tfWhz" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">GBTC has returned 905% over the past six years, while BTC has given more than 2,200% | Chart by David Canellis</figcaption></figure>



The company <a href="https://blockworks.co/news/grayscale-sues-sec-over-rejection-of-proposed-spot-bitcoin-etf">sued the SEC in June</a> after it chose to block GBTC from becoming an ETF. That case crawls on, as the <a href="https://blockworks.co/news/grayscale-sec-illogical-denial-of-gbtc-conversion">cryptoasset manager called out the regulator</a> for “illogical” reasoning in its latest brief earlier this month.&nbsp;Oral arguments are <a href="https://grayscale.com/wp-content/uploads/2023/01/22-1142-Oral-Argument-Notice.pdf" target="_blank" rel="noreferrer noopener">set for</a> March 7.



Grayscale CEO <a href="https://blockworks.co/news/no-gbtc-redemptions-but-considering-other-options">Michael Sonnenshein said in December</a> if the company is unsuccessful in converting GBTC to an ETF, the firm would consider a tender offer.



The Monday filing comes after Osprey CEO Greg King earlier this month called his company <a href="https://blockworks.co/news/osprey-proposes-gbtc-takeover">the “best-positioned third party” to manage GBTC</a> in an <a href="https://ospreyfunds.io/wp-content/uploads/Open-Letter-to-Barry-Silbert-regarding-Grayscale-Bitcoin-Trust-from-Osprey-Funds-CEO-Greg-King-1.pdf" target="_blank" rel="noreferrer noopener">open letter</a> addressed to Digital Currency Group (DCG) CEO Barry Silbert.



DCG is the parent company of Grayscale Investments, which has operated <a href="https://blockworks.co/tag/gbtc">GBTC</a> since its 2013 launch. The trust now has roughly <a href="https://grayscale.com/products/grayscale-bitcoin-trust/" target="_blank" rel="noreferrer noopener">$14.6 billion</a> in assets and imposes a 2% management fee.



Osprey operates <a href="https://ospreyfunds.io/products/obtc/" target="_blank" rel="noreferrer noopener">its own bitcoin trust</a>, which has $64 million in assets. The trust carries a fee of 0.49%.



Hedge fund firm <a href="https://blockworks.co/news/lawsuit-against-grayscale-likely-to-drag-on">Fir Tree Partners sued Grayscale in December</a> in an effort to explore what it alleges to be potential “mismanagement” of GBTC. <a href="https://blockworks.co/news/grayscale-to-fight-fir-tree-lawsuit">Grayscale told Blockworks</a> the suit is “baseless and without merit.”



Updated Jan. 306, 2023 at 3:44 pm ET: Added quote from Grayscale.



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Grayscale Slapped With Another GBTC Lawsuit – This Time From Osprey

The debate between self-custody crypto solutions is rapidly evolving. Our last article in this series explained the <a href="https://blockworks.co/news/what-are-seed-phrases">seed phrase</a> and why new custody solutions have started calling the recovery tool into question.&nbsp;



But to fully grasp the security advantages and drawbacks of the latest alternatives, users must first understand an older self-custody debate.&nbsp;



When it comes down to it, all self-custody options are divided into two categories: hot wallets and cold wallets. Both types have advantages and disadvantages; choosing one will depend on an individual&#8217;s specific needs and preferences. This guide will help weigh options and offer strategic ways to combine solutions.&nbsp;



<h2>Hot wallet vs. cold wallet</h2>



A hot wallet is connected to the internet and used for regular transactions such as sending payments or interacting with decentralized applications (dapps). They are primarily mobile or desktop applications and represent an easy self-custody option for investors.



A cold wallet, by definition, is a custody solution that stores funds entirely offline. Because sending crypto with cold wallets requires more steps than hot wallets, their primary purpose is to receive funds and provide secure, long-term storage. And although cold storage solutions use hardware wallets, not all hardware wallets are considered cold storage. If the hardware wallet uses Bluetooth or can automatically connect to the internet, it is vulnerable to many of the same threats as hot wallets. 



Both hot and cold wallets offer the benefit of self-custody, where users hold private keys that allow them to move assets on their respective blockchains. When proper security measures are in place, either approach can be a safer option compared to centralized exchanges, which can expose users to additional third-party risks.



<h2>What&#8217;s the difference between the two?</h2>



The primary difference between cold and hot wallets is that users mainly use cold wallets for long-term storage and protecting coins, while hot wallets are used regularly. Thus, as their names suggest, funds in cold wallets are &#8220;cold&#8221; and largely untouched, while funds in hot wallets are &#8220;hot&#8221; because of their frequent use.



In a typical example, a cryptocurrency investor may set up a hardware wallet only used to receive funds designated for long-term investments. These funds are rarely transferred out and could lie &#8220;cold&#8221; in the wallet for several months or even years.&nbsp;



The same investor could set up a browser-based or mobile wallet to interact with dapps and smart contracts. Funds in this wallet are &#8220;hot&#8221; because of the risks associated with smart contracts and internet connection. A hot wallet ideally holds a lesser portion of a crypto investor&#8217;s portfolio – an amount they can afford to lose. 



Centralized cryptocurrency exchanges are other entities that utilize cold and hot wallet solutions. Many centralized cryptocurrency exchange hacks have come from compromised hot wallets, underlining the risks associated with this storage method. Coinbase, for instance, claims to <a href="https://help.coinbase.com/en/coinbase/other-topics/legal-policies/what-does-coinbase-do-with-my-digital-assets" target="_blank" rel="noreferrer noopener">store up to 98%</a> of customer funds in &#8220;guarded cold storage,&#8221; with a smaller amount kept in hot wallets to fulfill deposit and withdrawal requests.



<h2>Hot Wallets: Pros and Cons</h2>



<h3>Pros</h3>



<ul>
<li>Hot wallets provide greater convenience, as they are primarily mobile and desktop-based apps.</li>



<li>Hot wallets are free to use and are relatively easy to set up.</li>



<li>They provide a seamless gateway to access opportunities in the Web3 economy (including NFTs, DeFi and gaming applications). </li>



<li>Hot wallets are ideal for regular crypto trading and payments. They often provide third-party integrations for buying coins or even performing cross-chain swaps.</li>



<li>Hot wallets generally allow investors to store more cryptocurrencies. Hardware wallets support fewer cryptocurrencies, as such functionalities take longer to build.</li>



<li>Hot wallets usually provide a more intuitive user experience, including a portfolio tracker, dapp browser, NFT display, etc.</li>
</ul>



<h3>Cons</h3>



<ul>
<li>Being connected to the internet exposes hot wallet users to a greater risk of security breaches.</li>



<li>Users could suffer substantial losses resulting from malicious software updates or installing apps from unofficial sources.</li>
</ul>



<h3>Examples of leading hot wallet solutions</h3>



The most popular examples of hot wallet solutions include:



<ul>
<li>Metamask: Ethereum development studio Consensys initially released Metamask in 2016. Since then, it has become the leading wallet for accessing Ethereum dApps and other EVM-compatible networks. Metamask is available as a browser extension and mobile app.</li>
</ul>



<ul>
<li>Trust Wallet: Trust Wallet went live in 2017 and grew in prominence after the founding company was acquired by the leading cryptocurrency exchange Binance. Although Trust Wallet gained most of its initial market share as a mobile-first application, it has since expanded to offer a browser-based extension.</li>
</ul>



<ul>
<li>Coinbase Wallet: Coinbase Wallet is a self-custodial crypto storage solution developed by crypto exchange Coinbase. Coinbase Wallet enables access to Web3 apps and basic functionalities such as sending and receiving many cryptocurrencies. The application is available as a browser extension and mobile application.</li>
</ul>



<h2>Cold Wallets: Pros and Cons</h2>



<h3>Pros</h3>



<ul>
<li>Cold wallets provide unparalleled security as private keys are stored offline, sometimes in air-gapped devices and multiple locations.</li>



<li>Cold wallets encourage long-term investments, which are historically profitable for cryptocurrency investors.</li>



<li>Cold wallets lower the risk of physical crypto theft, as users do not usually move with private keys or hardware wallets.</li>



<li>Cold storage solutions rarely require software upgrades, making them more immune to new security issues.&nbsp;</li>



<li>Cold wallets also encourage greater privacy as associated addresses mainly receive funds and have fewer trails on the blockchain.</li>



<li>Users require a less proactive approach to secure funds in cold storage than a hot wallet.</li>
</ul>



<h3>Cons</h3>



<ul>
<li>Cold-storage wallets are not free to use. Getting a decent hardware wallet could cost between $50-$300.</li>



<li>Cold storage wallets could be more convenient. Users must currently go through several steps to sign transactions.</li>



<li>Investors must replace cold storage wallets in the event of a loss to guarantee security.</li>
</ul>



<h3>Examples of cold wallet storage solutions</h3>



<ul>
<li>Ledger: Ledger is a leading provider of cryptocurrency hardware wallets and has sold four million devices since launching in 2014. The company currently offers the Ledger Nano X, Ledger Nano S Plus and Ledger Stax. Although these devices offer varying functionalities, they keep cryptocurrencies in secure cold storage.</li>
</ul>



<ul>
<li>Trezor: Trezor wallets are cold-storage hardware devices developed by Czech-based startup SatoshiLabs since 2014. The wallet currently comes in two variants, the Trezor Model T and Trezor One. The latter offers fewer features, as it was Trezor&#8217;s flagship product. Yet, both provide secure offline storage for cryptoassets.</li>
</ul>



<ul>
<li>Paper wallets: This method involves generating a pair of public and private cryptographic keys printed on paper. The user transfers funds to the associated address and safely puts away the paper wallet until a future date when they choose to move the assets. The advent of hardware wallets has made this cold storage method archaic. Yet, it comes in handy for long-term storage or gifting cryptocurrencies.</li>
</ul>



<h2>A closer look at the wallet comparison</h2>



Cryptocurrency investors make several tradeoffs when choosing between a hot and a cold wallet. Both wallets have unique strengths that determine what&#8217;s best for individual users. This section presents a head-to-head comparison of cold versus hot wallets.



<h3>Security</h3>



Cold wallets provide the highest level of security for cryptoassets. They store private keys offline, eliminating most online vulnerabilities. Bad actors must gain physical possession of the cold storage device and the owner&#8217;s consent to move funds. There is also an additional hurdle if the wallet utilizes a multi-signature feature where several entities must sign a transaction before it is approved.



Learn more about <a href="https://blockworks.co/news/what-are-seed-phrases">multi-signature and MPC wallets</a> in our explainer on seed phrases.



In stark contrast, hot wallets are susceptible to online attack vectors, including device malware, malicious smart contracts and software upgrades. For example, an unprecedented hack that affected 9,231 Slope Wallet users directly resulted from a software upgrade that allowed attackers to <a href="https://blockworks.co/news/solana-based-wallet-users-drained-in-suspected-exploit">steal private keys</a> holding approximately $4.1 million worth of assets. The losses later affected even users who merely imported (to a different wallet) a seed phrase created with Slope Wallet.



But both hot and cold wallet users risk falling victim to phishing attacks such as those perpetrated through email and social media platforms. The attack was traditionally only a threat to hot wallets. But a recent <a href="https://blockworks.co/news/hardware-wallet-provider-trezor-targeted-in-phishing-attack">Trezor malware hack</a> proved this to no longer be the case.&nbsp;



<h3>Pricing</h3>



Cold wallet solutions are usually expensive to set up. The cheapest hardware wallet devices cost around $40 and offer minimal functionality. Users must acquire a mid-budget-sized device for about $100 to enjoy a relatively high-quality experience.&nbsp;



Most hot wallets are free to use and available on respective app stores for Android and iOS users. They are also easy to set up and offer a superior user experience to cold storage solutions.



<h3>Convenience</h3>



Being mobile and desktop-native applications make hot wallets more convenient than cold wallets. For cold storage solutions, the user must physically possess the device and pass through several security steps to validate transactions. In most cases, the screens are relatively small and barely display a few lines of text.



However, hot wallets are mobile and routinely come in the shape of smartphones, tablets, and PCs. Features such as fingerprint authentication, QR codes, and advanced transaction fee customization make hot wallets more convenient for signing transactions. This is especially helpful if users want to send payments frequently or interface with smart contracts.&nbsp;&nbsp;



<h3>Interaction</h3>



Hot wallets are more interoperable with Web3 applications and smart contracts. Users immediately find the option to connect to dapps using these wallets. In contrast, most cold storage wallets do not provide functionalities for new-age crypto innovations such as NFTs and DeFi protocols. For instance, some do not support sending and receiving NFTs or liquidity provider (LP) tokens.



Most hot wallets come equipped with a dapp browser, NFT display, staking portal and gaming hubs. Cold storage solutions are not designed for such use cases and thus provide fewer user interactive opportunities.



<h2>Final considerations</h2>



The most experienced investors combine cold and hot wallet solutions to ensure the best security for their cryptoassets. Such a combination is advantageous, especially for investors with diversified portfolios who need to explore Web3 applications. 



Cold wallets are essential to protect funds in the long term, while hot wallets are helpful for anyone who needs regular engagement. Users can decide to create multiple hot wallets for different purposes. For instance, the best security practice is to create a new &#8220;burner wallet&#8221; for participating in NFT mints. Users may also create specific wallets for interfacing with DeFi protocols or gaming applications. This diversification protects against losing funds to a single hot wallet breach.



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Self Custody 101: Hot Wallets vs. Cold Wallets

Major crypto tokens retreated Monday and erased their weekend gains as traders gear up for a potentially volatile week ahead of the Federal Reserve’s interest rate decision. 



<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">Bitcoin</a> was trading about 2.5% lower Monday afternoon in New York, hovering around $23,000 after briefly approaching $24,000 on Sunday. <a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">Ether</a> was similarly down, trading almost 4% lower and remaining around the $1,500 level. 



The whipsaw pattern has some traders crying “bull trap,” since both bitcoin and ether were unable to rally past their breakout levels, but analysts say there is likely steam left in the rally after this week’s uncertainty.&nbsp;



&#8220;I’d really view this as natural volatility rather than any major market signal,” Darius Tabatabai, CEO of decentralized exchange Vertex Protocol, said. “With the Federal Open Markets Committee meeting this week, I’d expect the market to take a breather and positioning to slow down slightly as traders clean up their books ahead of the meeting.”



Markets are nearly certain the Fed will opt for a slower-paced hike this week and decide on a 25 basis point increase, according to <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">data</a> from CME. With cooling inflation, slowing growth and a general sentiment among international central banks that a pause in rate hikes is warranted, some investors are wondering if the Fed’s hawkishness is fading.



“Reaching peak hawkishness is one of our three keys to a bottom, and the most important one, so if the Fed has reached peak hawkishness that’s a powerful positive to consider,” Tom Essaye, founder of Sevens Report Research, wrote in a note Monday.&nbsp;



Of course, with inflation still running far above the Fed’s 2% target, its work is not yet complete, Essaye added.&nbsp;



Retracement or not, the next few days will be telling in terms of future price action, Marcus Sotiriou, market analyst at GlobalBlock, said in a note, Monday. If crypto tokens can manage to break through these key resistance levels, traders can rest assured the rally will be sustained, he added. 



Even amid Monday’s falter, crypto is poised to lock in a strong month. Bitcoin and ether are up about 40% and 32%, respectively, since the start of the year, <a href="https://twitter.com/DaanCrypto/status/1608078976949403649" target="_blank" rel="noreferrer noopener">a historic feat</a> for January, Josh Olszeqicz, head of research at Valkyrie Investments, said. A minor selloff is not yet telling of a lasting trend, he added. 



“Low timeframe technical analysis, including a rising wedge or channel with declining momentum on relative strength index, does support a near term pullback in price,” Olszeqicz said. “This combination of technicals is commonly seen when rallies become overextended and can trap entrants who were late to the party.”



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Fed Watch: Bitcoin Gives Up Weekend Gains, Analysts Say Not To Worry

Shalini Nagarajan

Venture capital-backed, layer-1 blockchain Aptos saw huge price growth in January, with its value surging over 400% in the last month.



Native token <a href="https://blockworks.co/price/apt" target="_blank" rel="noreferrer noopener">APT</a> traded at just $3.59 last month, but last traded at $18.37. Its nearly $3 billion market cap has now surpassed Stellar and Bitcoin Cash and is approaching that of Ethereum Classic and Monero.



When you consider the fully diluted value, Aptos is currently the fourth-largest chain at $18 billion. But interest in the network has <a href="https://blockworks.co/newsletter/issue/30389460" target="_blank" rel="noreferrer noopener">raised some eyebrows</a>, largely because it has a low user and developer base.&nbsp;


<div class="wp-block-image">
<figure class="alignright size-medium"><img decoding="async" loading="lazy" width="300" height="279" src="https://cms.blockworks.co/wp-content/uploads/2023/01/Screen-Shot-2023-01-30-at-11.02.32-AM-300x279.png" alt="" class="wp-image-44970" srcset="https://cms.blockworks.co/wp-content/uploads/2023/01/Screen-Shot-2023-01-30-at-11.02.32-AM-300x279.png 300w, https://cms.blockworks.co/wp-content/uploads/2023/01/Screen-Shot-2023-01-30-at-11.02.32-AM-768x714.png 768w, https://cms.blockworks.co/wp-content/uploads/2023/01/Screen-Shot-2023-01-30-at-11.02.32-AM-276x257.png 276w, https://cms.blockworks.co/wp-content/uploads/2023/01/Screen-Shot-2023-01-30-at-11.02.32-AM-281x261.png 281w, https://cms.blockworks.co/wp-content/uploads/2023/01/Screen-Shot-2023-01-30-at-11.02.32-AM-236x219.png 236w, https://cms.blockworks.co/wp-content/uploads/2023/01/Screen-Shot-2023-01-30-at-11.02.32-AM-80x74.png 80w, https://cms.blockworks.co/wp-content/uploads/2023/01/Screen-Shot-2023-01-30-at-11.02.32-AM.png 966w" sizes="(max-width: 300px) 100vw, 300px" /><figcaption class="wp-element-caption">Aptos co-founder Avery Ching</figcaption></figure></div>


“That is pure insanity for a chain with near zero users and applications; what are investors pricing in? Aptos was shamed for its poor token allocation that favored insiders and investors, which allowed them to stake vesting tokens to earn liquid rewards,” said <a href="https://www.blockworksresearch.com" target="_blank" rel="noreferrer noopener">Blockworks Research</a> Senior Analyst <a href="https://twitter.com/smyyguy" target="_blank" rel="noreferrer noopener">Dan Smith</a>.



Blockworks spoke with Aptos co-founder and Chief Technology Officer Avery Ching, who broke down the network’s development, insight on its user base and why he thinks it’s gaining traction right now.



<h3>Confidence in a tech-bro team</h3>



Ching worked at Meta, formerly Facebook, for about a decade. His focus was data infrastructure and scaling systems to support insights and analytics for products within Meta.&nbsp;



Three years into working there, he joined the Diem (or Libra) team, where the mission was to build an innovative financial infrastructure for Facebook’s billions of daily active users.&nbsp;



The project ultimately didn’t work out, and Ching left, along with co-founder Mo Shaikh, to work on a related project, now known as Aptos.



The duo’s experience at the social networking site “allowed us to build this technology in a way that would be even more open and more permissionless than within the boundaries of something that happened at Meta,” Ching said.



Aptos currently has a team of more than 100 people, and there are no plans to grow too fast. The network has people based around the world including Palo Alto, New York, Seattle, Florida, Israel and Asia, which Ching credits as having “fueled the rise of Aptos.”



“And some of them come from other backgrounds like myself that know how to operate machines at scale in large production environments for supporting goods for customers,” Ching said.



<h3>As impactful as cloud computing infrastructure?&nbsp;</h3>



Ching said the main goal for Aptos is to be for decentralized applications what cloud computing is for Web2.



“Think about what Netflix relies on, or Dropbox, or Amazon, or Meta? These products rely on millions of machines running in data centres across the world, they can scale up and scale down at a minute’s notice so that they can have a tremendous amount of volume to support their products.”



But the Web3 industry is still far from being the decentralized internet for everyone, and Aptos wants to be around for the long term.



“There&#8217;s just a ton of things to solve before we can make this more mainstream. So that&#8217;s our mission. That&#8217;s our purpose,” he said.



<h3>But what’s driving the buzz behind Aptos?</h3>



The network claims its mainnet launch had 10,000 full nodes and more than 30 projects, which, according to Ching, is the highest number of projects a blockchain ever counted at launch.



Aptos’ <a href="https://github.com/aptos-foundation/ecosystem-projects" target="_blank" rel="noreferrer noopener">Github</a> page shows a number of projects built in gaming, DeFi, infrastructure, marketplaces, NFT tooling and bridges.



Aptos proponents <a href="https://twitter.com/Aptosians__/status/1618572239791878146" target="_blank" rel="noreferrer noopener">tout</a> an increase in total value locked (TVL) in recent weeks with respect to DeFi protocols, such as decentralized exchange PancakeSwap — a DEX which originated on Binance Chain. But a TVL measured in US dollar terms is misleading when much of a chain’s DeFi activity is taking place in volatile tokens.



When tracking the Aptos TVL in APT terms, there is a downward trend since late 2022.



&#8220;Looking at this data, I don&#8217;t see a meaningful TVL change,&#8221; Smith said.



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/1fEZlxrNiuw31AJJ7xglSBQrBM_znle3l8LalaYPXbPtonY8f0tna-_MG2-nXW6Lld0jpO9bXNaUcoIWFaymiMU8o6kCbPPji6RXuwxYjLqsi_K5R_vJX2rnG4NIk1U9Vwg2hqyTQZo1yndzLD1igQb23IHb-G_RMRpdDyumriXvgCS4ardh_VEOxmD4eg" alt=""/></figure>



The network’s market cap to TVL ratio, shows it attracting <a href="https://twitter.com/henriquecentiei/status/1619898913816981504">many multiples</a> of the ratio for Ethereum at the current APT price.



Ching doesn’t care for the tired ‘Ethereum-killer’ trope.



“We&#8217;re not here to kill anybody,” Ching said, noting, “I think Ethereum is a great technology. In fact, we&#8217;re inspired by many of the things that Ethereum had done.”



The core team’s 19% token allocation is locked for 12 months, <a href="https://aptosfoundation.org/currents/aptos-tokenomics-overview" target="_blank" rel="noreferrer noopener">according to</a> the Aptos Foundation’s tokenomics breakdown, however, the full APT allocation is available for staking <a href="https://research.thetie.io/aptos-vs-sui/" target="_blank" rel="noreferrer noopener">even while unvested</a>, meaning that the team, the foundation and investors can all profit from selling daily staking rewards into the surging market.



Ching declined to comment on the price of the token.



&#8220;I can&#8217;t speak to the token specifically, I can just speak about what our mission is and kind of what we&#8217;re doing and why we think it&#8217;s getting traction now,&#8221; he said.



<h3>Early NFT foray and other activity</h3>



Aptos reports having added over 5,000 NFT collections, with the top ones being Aptos Monkeys, Aptosmingos and Bruh Bears, according to a press release.



Aptos Monkeys shows about 1,700 APT in traded volume (about $30,000) over the past 24 hours on the leading Aptos NFT market <a href="https://www.topaz.so/" target="_blank" rel="noreferrer noopener">Topaz</a>.



OpenSea’s <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">currently</a> top-ranked BAYC Sewer Pass traded 907 ETH ($1.4 million) over the same time period.



The network’s native wallets have over 1.4 million downloads, the release notes, however daily active accounts have remained stagnant in the past month, ranging from about 25,000 to 30,000.



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/DspyF2uSYcSJr4zTQvPaw26oBEqaK-_thcmLVo2eBiz5dAFAiYrO7PydczcUCTxi80WS8vpYXAytc4BVtMXcku8FGH7pwW7qpJ7PFVJpOhe-D7trvYr3eYq1K0r36GUAbY13dpmE4jSvse48svieKXC3vQEatAfMNNfRzPzRkh9gxwDKYrp-8lBYXhY6Ng" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://explorer.aptoslabs.com/analytics" target="_blank" rel="noreferrer noopener">explorer.aptoslabs.com/analytics</a></figcaption></figure>



The network’s developer and user base is <a href="https://blockworks.co/newsletter/issue/30389460">considered</a> low compared to other major blockchains.



But Aptos told Blockworks that by the end of 2022, it counted 2.85 million cumulative unique addresses and 60.6 million user transactions.



“For a network that’s just like a little more than three months old, this is pretty tremendous,” Ching said.



Another point of interest for the network is some of its recent partnerships, including Seoul-based gaming studio Megapixel, which is set to announce its first Web3 game on Aptos.



Korean interest has largely been <a href="https://blockworks.co/news/aptos-surge-mirrors-ripple-bull-run">driving the APT price</a> rally, Blockworks previously reported. Aptos pointed to its <a href="https://aptosfoundation.org/currents/aptos-world-tour-hackathon-coming-2023" target="_blank" rel="noreferrer noopener">world tour hackathon</a> starting next week, with the first stop in Seoul.



<h3>A rough time for the industry</h3>



Aptos had a <a href="https://blockworks.co/news/aptos-mainnet-launch-draws-criticism">rocky launch</a> in October, with observers noting that it didn’t actually live up to its promised transactional speed. However, Blockworks’ Dan Smith said the chaos was to be expected because “launching a layer-1 is a multi-year undertaking.”



Ching said many people would say the network’s launch happened at possibly the worst period, given the bearish environment around the industry.&nbsp;



“But for us, we were not really focused on a lot of the exterior things like that,” he said.&nbsp;



“Hundreds of projects had been waiting for us to launch and asking us to get going on the technology stack and wanted to build, and we felt like serving those builders was more important than anything else at that time.”



Ching notes a focus on four verticals: gaming, social, finance and immediate entertainment.



Social seems like an obvious choice for Ching, given his experience at Meta and the fact that this is a great way to attract people to blockchain. Aptos expects to soon make an announcement in this space.



Macauley Peterson contributed reporting.



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Aptos ‘Not Here To Kill’ Any Blockchain: Co-founder

Sebastian Sinclair

The supply of leading stablecoin <a href="https://blockworks.co/tag/tether">tether</a> has clawed back recent losses to reach two-month highs as speculation of this year’s market rally continues to drive digital assets further.



USDT witnessed a 3.8% increase in market capitalization from a Nov. 27 low of $65.3 billion to $67.8 billion on Sunday — its highest point since the collapse of FTX led the market lower.



The asset, whose value is pegged one-to-one to the US dollar, is the industry’s most widely used stablecoin, eclipsing rivals USDC and Binance’s BUSD.



Data compiled by NYDIG across the previous 30 days show <a href="https://blockworks.co/tag/usdt">USDT</a> has facilitated more than $980 billion in exchange trading volume, compared to BUSD’s $323 billion and USDC’s $135 billion.



The tech and financial services firm points to an increase in the stablecoin’s supply as evidence of a capital flow boost into the market and a positive sign based on prior events.



“We think the continued growth of Tether supply is a positive indicator for the continued price rally,” the firm said in a Friday newsletter.



The supply growth resembles 2019’s recovery which coincided with another rally for bitcoin whose price jumped from $3,250 to more than $13,000 before retracing in the second half of that year.



That was also true with the lead-up to the industry’s most recent bull run, where the stablecoin’s supply ballooned 100% from August 2020 through to January 2021 alongside a 130% increase in bitcoin’s price.



Though not all are convinced the appreciation in USDT’s supply is closely correlated.



“We have definitely seen an elevated interest in digital asset accumulation as well as transaction flows in stablecoins recently,” William Fong, Treasurer at Australian trading firm Zerocap told Blockworks. “However, we cannot be sure if it&#8217;s directly related to USDT supply movement or is really simply a risk adjustment on macroeconomic events.”



More likely catalysts are the several central bank policy meetings this week, including a potential reduction in the <a href="https://blockworks.co/news/bitcoin-ether-prices-strong-markets-eye-easing-rate-hikes">pace of tightening</a> from the US Federal Reserve, Fong said.



BUSD, the industry’s third-largest stablecoin, has been unable to keep up the pace. Binance’s stablecoin supply has instead fallen 27% from $21.8 billion on Dec. 13 to $15.7 billion.&nbsp;



Pressure on BUSD was exacerbated, in part, due to the <a href="https://www.ft.com/content/bb50a204-5239-4db0-9964-c3bf9339c594" target="_blank" rel="noreferrer noopener">outflows</a> from the token’s native exchange in mid-December and those pairings facilitating traders exiting the platform. 



A general drop in the confidence of the Binance brand following Mazer’s decision to halt its <a href="https://blockworks.co/news/circle-taps-deloitte-as-new-auditor-doubles-down-on-proof-of-reserves">auditing services</a> of the exchange’s assets only strengthened the stablecoin’s decline in the fourth quarter of last year.



Tether has failed to deliver on years-long promises to engage an accounting firm for an audit of its own reserves.



USDC, the industry’s second-largest, has fared better — down about 4.6% from $45.1 billion to 43 billion over the same period.



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Growth of Tether Supply ‘Positive’ Indicator for Further Crypto Gains

The majority of crypto-related equities finished up in positive territory last week, with US-traded mining firms gaining distance from historical lows set at the end of last year.



Bitcoin is also pushing for further gains on the day after closing the session roughly 3.2% higher to $23,800 Sunday, while its market capitalization also leaped 3.3% to $458.6 million.



Ether clocked a higher daily close above $1,645, gaining 4.5% alongside a $10 billion uplift to its market value. Bitcoin and ether are now up 43.9% and 37.6% year-to-date respectively.



Bitcoin miners continue to rise alongside market sentiment, witnessed by the positive jump in spot prices for digital assets as the beleaguered sector takes stock of a shifting risk-on attitude.



Hong Kong-based Bit Mining (BTCM), listed on the New York Stock Exchange, posted a Friday close of 7.6% to $3.55 while Chinese miner SOS ADR, also listed in New York, rose almost 2%.



NASDAQ-listed mining firms Bitfarms, Stronghold Digital, Cipher Mining, Cleanspark and Bit Digital rose between 2.8% and 16.6% on Friday.



Marathon Digital and Iris Energy were the US’s main outliers in the bitcoin mining category, shedding 8.3% to $8 and 4.3% to $2.10 respectively by the end of last week’s closing bell.&nbsp;



Greenidge Generation Holdings, which also fell 0.8% on Friday, has begun to reverse prior losses, with a 2.6% gain in after-hours trading to $0.90.



Prices for most US-traded miners have more than doubled this year, following daily lows set at the end of 2022. It comes as the average mining difficulty for bitcoin hit a new all-time high beginning Jan. 18 — now 41% greater than a year ago, <a href="https://ycharts.com/indicators/bitcoin_average_difficulty#:~:text=Bitcoin%20Average%20Difficulty%20is%20at,41.09%25%20from%20one%20year%20ago.">data from YCharts</a> show.



Global hashrate — a measure of bitcoin network security — hit a fresh all-time high on Friday at 316 exahashes per second (EH/s), while miners have until Feb. 11 before the next <a href="https://www.coinwarz.com/mining/bitcoin/difficulty-chart">difficulty adjustment</a> will make it an estimated 4.3% harder to mine.



Both a rise in the price of bitcoin and <a href="https://www.reuters.com/business/energy/us-wholesale-power-prices-broadly-expected-fall-this-year-2023-01-10/" target="_blank" rel="noreferrer noopener">anticipation</a> of cheaper power prices this year are beginning to erase previous sector sell-offs that had begun amid last year’s Q2 market rout.



Read more: <a href="https://blockworks.co/news/bitcoin-mining-nuclear-energy">Going Nuclear: Bitcoin Mining’s Potential Energy Future</a>



Other sectors across the industry also posted positive gains Friday, with exchanges Coinbase (COIN) and Robin Hood (HOOD) up 15.7% and 7.8% respectively. COIN has <a href="https://blockworks.co/news/coinbase-stock-soaring">continued to outperform</a> both the broader tech sector and bitcoin, up an eye-watering 80% since the new year began.



<a href="https://twitter.com/MacroAlf/status/1619380322004766721" target="_blank" rel="noreferrer noopener">Analyst fears</a> over a global recession remain firmly entrenched, with several leading indicators now pointing to declining economic growth in the second quarter of this year.



The impact for risk-on assets, such as crypto, would likely result in further market sell-offs as traders seek to book profits and allocate capital into cash, large market cap equities and gold.



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Bitcoin Price Boosts Miners, as Hashrate Climbs

Crypto companies with US operations — including Wirex and B2C2 — withdrew their applications to register with a United Kingdom financial watchdog in recent months after the standards for acceptance were raised.&nbsp;



The vast majority of crypto firms that have attempted to register with the UK’s Financial Conduct Authority (FCA) have been denied, the agency <a href="https://www.fca.org.uk/cryptoassets-aml-ctf-regime/feedback-good-poor-quality-applications#section-who-this-is-for" target="_blank" rel="noreferrer noopener">reported</a> this week. There are now 41 companies listed on the FCA’s cryptoasset firm registry, according to the <a href="https://register.fca.org.uk/s/search?predefined=CA" target="_blank" rel="noreferrer noopener">agency</a> — or about 15% of applicants. 



An FCA executive, Sarah Pritchard, in a <a href="https://committees.parliament.uk/publications/33650/documents/183917/default/" target="_blank" rel="noreferrer noopener">letter</a> earlier this month said 85% of the firms vying for the regulator’s approval “were unable to demonstrate they met the required, minimum standards.”



Added Pritchard: “As part of the registration process we identified significant failures in relation to key controls such as customer due diligence, risk assessments, transaction and ongoing monitoring [and] governance.”&nbsp;



Representatives for Wirex, a crypto payments platform, and B2C2, a digital assets liquidity provider, did not immediately return requests for comment.&nbsp;



The FCA also had doubts that the people leading some of the denied crypto firms lacked the experience and knowledge needed to effectively and safely run the business.&nbsp;



&#8220;It is difficult to judge whether leading personnel in firms ‘lack appropriate knowledge, skills and experience’ when it is judged against a lack of transparency and an absence of benchmarks and guidance from the FCA,” said Alexander Carter-Silk, cryptocurrency solicitor at Keystone Law. “There is no clear explanation as to what is applicable to crypto asset businesses, possibly because the FCA is fearful of the new technology.”&nbsp;



Earlier this year, the UK set a deadline that any crypto entity hoping to conduct business in the country had to register with the FCA by April 2022.&nbsp;



By March, just 27 of the 100-plus companies under consideration had been approved. A total of 58 firms withdrew or were denied by March 15 of the same year, the regulator said, and a “small number” of companies were found to be allegedly involved in criminal activities, the FCA said.&nbsp;



Wintermute Trading, Galaxy Digital’s UK branch and Fidelity Digital Assets are among the firms that were able to make the cut.&nbsp;



In the US, states have some control over which crypto services can be offered by which companies. For example, New York’s BitLicense law has prevented several companies from conducting business in the state, including Binance.US and Kraken.&nbsp;



Companies hoping to operate in the UK have expressed frustration with the current system, which some leaders say puts too much emphasis on scrutinizing individual firms versus creating a set of standards.&nbsp;



“Former chancellor Philip Hammond has declared that the UK needs to take measured risk in order for the UK to excel as a leader in cryptocurrencies, but for that the community needs measurements to abide by,” said Katharine Wooller, business unit director at digital asset protection firm Coincover.



“If we want to get ahead as a global leader in digital assets, we need to stop assessing firms, and start working with them to develop a regulatory framework.”



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UK Denies Crypto Companies the US Lets Operate 

Crypto infrastructure companies scored significant funding this week.&nbsp;



Among them was Blockstream, which landed $125 million in a convertible note from London-based Kingsway Capital, with participation from bitcoin-focused Fulgur Ventures. The <a href="https://blockworks.co/news/fundraising-wrap-over-800m-in-investments-poured-into-crypto-this-week">overall infrastructure trend isn&#8217;t necessarily new</a>, but such efforts do appear to be escalating. 



The latest capital haul <a href="https://blockworks.co/news/bitcoin-infrastructure-firm-blockstream-reaches-unicorn-status-with-3-2b-valuation">follows the firm’s Series B in August 2021</a>, when the company procured $210 million from investors to expand mining facilities and acquire Spondoolies, a crypto mining gear startup.



Erik Svenson, Blockstream’s president and chief financial officer, said in a statement that the fundraise allows the company to “accelerate” its year-over-year revenue growth and “build infrastructure for the future Bitcoin economy.”



Added Svenson: “We remain focused on reducing risk for institutional bitcoin miners and enabling enterprise users to build high-value use cases on the most secure, robust, and scalable blockchain in the world — Bitcoin.” 



Another infrastructure company that corralled funding this week was QuickNode. The end-to-end development platform <a href="https://www.theblock.co/post/205028/quicknode-reaches-800-million-valuation-in-series-b-round" target="_blank" rel="noreferrer noopener">closed</a> a $60 million Series B led by 10T holdings. Other investors who participated in the round include Tiger Global, Seven Seven Six, Protocol Labs and QED. 



The latest funding brings QuickNode’s total valuation to $800 million, and will be used to grow the company’s international presence.



“The long-term health and success of Web3 are dependent on scalability, accessibility, and interoperability,” ​​said Alexis Ohanian, founder of Seven Seven Six, which also invested in the company’s seed round.



”[QuickNode’s] foundational technology and platform is building not only to meet the current needs of top Web3-native companies and flagship global brands but also those of the future decentralized web,” he said.



In a smaller fundraising effort, Tholos, an MPC wallet platform — similar to Fireblocks — landed pre-seed funding of $1.5 million.



The round was led by four crypto-native venture capitalists, including North Island Ventures, Lattice, Dispersion Capital and Chainforst. A handful of angel investors also participated, Abraham Litwin-Logan, the founder of Tholos, told Blockworks.



Tholos’ team currently consists of the co-founders, a full stack engineer, a mobile engineer and the head of product and design, as well as two part-time senior back-end engineers. But additional hiring, enabled by the cash infusion, is already under way, according to the team.



“On the cryptography side of things — we’ve partnered with a multi-party computation cryptography team in Israel, which is made up of three cryptographers,” Litwin-Logan said, adding that the remaining cash would be used for product development and testing before it goes onto the market.



Other notable fundraises this week include:



<ul>
<li>Spatial Labs <a href="https://www.theblock.co/post/205813/spatial-labs-iddris-sandu-seed-funding" target="_blank" rel="noreferrer noopener">lands</a> $10 million from Blockchain Capital, with participation from Marcy Venture Partners, a firm co-founded by Jay-Z. </li>



<li>Gemba, a software developer for virtual reality training, secures $18 million from Parkway Venture Capital, bringing its valuation to $60 million.&nbsp;</li>



<li>London-based blockchain infrastructure company Calimero Network closes an $8.5 million seed round led by Khosla Ventures, Lyrik Ventures and NEAR Foundation.</li>
</ul>



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Funding Roundup: Crypto Infrastructure All the Rage

Despite rocky digital asset markets, a couple crypto-related firms are set to soon shell out Super Bowl ad dollars — though another would-be buyer of one of the coveted slots has pulled back.&nbsp;



Overall representation from the sector’s companies during the NFL’s championship appears to be shaping up as muted, though. That’s especially true compared to last year’s display, when FTX, Crypto.com, Coinbase and eToro all touted television spots.&nbsp;&nbsp;



Viewers can safely assume FTX won’t be running a Super Bowl ad.



The bankrupt exchange — whose founder, Sam Bankman-Fried is under <a href="https://blockworks.co/news/sbf-wont-actually-pay-250m-for-his-bail-bond">house arrest</a> — in <a href="https://www.youtube.com/watch?v=x_VZpH9dG2o" target="_blank" rel="noreferrer noopener">its commercial</a> last February featured the comedian Larry David, who implied the company was doomed to fail.



Ironic.&nbsp;&nbsp;&nbsp;



LeBron James appeared in <a href="https://www.youtube.com/watch?v=FUygWsIj_GU" target="_blank" rel="noreferrer noopener">Crypto.com’s ad</a> during last year’s title game. <a href="https://www.youtube.com/watch?v=eIUD_NE1BDo" target="_blank" rel="noreferrer noopener">Coinbase’s spot</a> was simpler, displaying a floating QR code box directing people to a promotional page that temporarily spurred traffic-fueled <a href="https://blockworks.co/news/super-bowl-ads-spark-public-interest-coinbase-site-crashes-from-traffic">connection issues</a>. 



Crypto.com declined to comment on its Super Bowl plans this time around. The firm has become one of many industry players <a href="https://blockworks.co/news/crypto-com-cutting-5-of-workforce-amid-digital-asset-downturn">to cut staff</a> as markets have tanked.&nbsp;



Coinbase — which itself took <a href="https://blockworks.co/news/coinbase-lays-off-950-staff-cuts-operational-costs-by-25">cost-cutting measures</a> earlier this month — did not return a request for comment.



Social investing network eToro, which <a href="https://www.youtube.com/watch?v=7O4rP3qwlfo" target="_blank" rel="noreferrer noopener">ran an ad</a>, too, is not taking part this year, a spokesperson told Blockworks.



“We dial up or down specific channels based on many factors including market conditions,” the representative said in a statement. “We&#8217;re building for the long-term and will continue to invest heavily in marketing and in building brand awareness in our key markets, including the US.”



<h3>What about others?</h3>



Canadian crypto exchange Bitbuy is set to follow up <a href="https://www.youtube.com/watch?v=aI3LNq_lres" target="_blank" rel="noreferrer noopener">last year’s ad</a>, which featured NBA star Kyle Lowry, with a spot that introduces a new brand ambassador.



Binu Koshy, Bitbuy’s branding and communications director, declined to identify the celebrity — beyond dropping the hint that he is “one of the NBA&#8217;s most popular rising stars.”


<div class="wp-block-image">
<figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="682" src="https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352-1024x682.jpg" alt="" class="wp-image-44903" srcset="https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352-1024x682.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352-300x200.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352-768x512.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352-1536x1024.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352-386x257.jpg 386w, https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352-392x261.jpg 392w, https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352-329x219.jpg 329w, https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352-80x53.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2023/01/220917-RV-BitBuy-Ad-BTS-6352.jpg 1772w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Bitbuy&#8217;s Super Bowl ad set. Bitbuy covered the NBA player&#8217;s face with an emoji for the time being. | Source: Bitbuy</figcaption></figure></div>


The firm’s new 60-second spot is set to appear on the Canadian broadcasts of the title game — shown on the networks CTV and TSN — within an hour before kick-off. He did not share how much the company paid for the ad.&nbsp;



The messaging will be different from last year’s spot, which was designed to establish the company’s brand in Canada before larger players fully entered the market, Koshy said.&nbsp;&nbsp;&nbsp;



“One year later, the landscape has completely changed,” Koshy told Blockworks. “As more and more unlicensed international crypto exchanges target Canadians, we wanted to remind people that Bitbuy is 100% Canadian, fully regulated and transparent.”&nbsp;



Blockchain gaming company Limit Break said in October it bought a Super Bowl ad for $6.5 million, adding that the television spot would feature its <a href="https://opensea.io/collection/digidaigaku" target="_blank" rel="noreferrer noopener">DigiDaigaku</a> NFT collection. The company gave away the collection during a free mint in August around the time the Limit Break raised $200 million.



“Having this ad is exciting for us because prior to the Super Bowl, there’s going to be millions of people who have never heard of an NFT,” Limit Break co-founder Gabriel Leydon <a href="https://blockworks.co/news/what-crypto-super-bowl-ads-can-we-expect-in-2023">told Blockworks</a> at the time.&nbsp;



Leydon more recently <a href="https://venturebeat.com/games/limit-break-will-do-free-nft-mint-during-super-bowl-commercial/" target="_blank" rel="noreferrer noopener">told GamesBeat</a> the commercial would include a QR code directing players to apply for a free NFT mint. 



The company did not return a request for additional comment.&nbsp;



Crypto exchange OKX, meanwhile, has had a change of heart.&nbsp;



OKX Chief Marketing Officer Haider Rafique told Blockworks in October the company was planning on buying a spot for the Super Bowl, adding that the commercial could cost more than $10 million.&nbsp;&nbsp;&nbsp;



The executive said at the time the exchange’s <a href="https://www.youtube.com/watch?v=6U2Nai5xVvA" target="_blank" rel="noreferrer noopener">“What is OKX?”</a> campaign was a preamble to its 2023 marketing efforts. Rafique added the potential Super Bowl spot could focus on OKX’s self-custodial Web3 wallet. 



A few weeks later crypto markets were once again rattled as FTX collapsed, shaking confidence in centralized exchanges and similar entities.&nbsp;



A spokesperson said this week that the firm has decided not to pursue a Super Bowl ad this year.&nbsp;



“This will allow us to better plan for what we have in mind for Super Bowl 2024,” the representative said, declining to comment further.



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Who’s Coughing Up Crypto Winter Dollars for Super Bowl Ads?

Web3 venture builder Chainway recently announced a tool that would interest <a href="https://blockworks.co/tag/tornado-cash">Tornado Cash</a> users — a tool that would provide data supposedly showing their funds are from a legitimate source. 



At issue is that Tornado Cash — at least for <a href="https://www.fincen.gov/who-united-states-person" target="_blank" rel="noreferrer noopener">US persons</a> — is, for now, off limits.



The US Treasury’s Office of Foreign Assets Control <a href="https://blockworks.co/news/us-treasury-bans-citizens-from-using-mixing-service-tornado-cash">sanctioned the crypto mixing service</a> in August, accusing it of allowing users to launder billions of dollars in stolen cryptocurrencies, including $445 million by <a href="https://blockworks.co/tag/lazarus">North Korean hacking group Lazarus</a>.



In September, the Treasury said Tornado Cash’s website had been deleted from the internet but that it could be found on some internet archives. It is also indefinitely <a href="https://twitter.com/TornadoCash/status/1213660104743981058">available</a> on decentralized storage network IPFS.



“While engaging in any transaction with Tornado Cash or its blocked property or interests in property is prohibited for U.S. persons, interacting with open-source code itself, in a way that does not involve a prohibited transaction with Tornado Cash, is not prohibited,” the agency says in its <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/added/2022-09-13" target="_blank" rel="noreferrer noopener">list</a> of frequently asked questions. 



The move sparked much debate, raising questions about instances where people may want to use Tornado Cash for legitimate reasons such as donations. Ethereum creator Vitalik Buterin himself <a href="https://twitter.com/VitalikButerin/status/1556925602233569280" target="_blank" rel="noreferrer noopener">revealed</a> that he donated funds to Ukraine through the service. 



Still, &#8220;proof of innocence&#8221; as a concept may not hold any water, because — regardless of whether it works as intended — Tornado Cash is a sanctioned entity.



<h3>Proof of innocence goals and pitfalls</h3>



Chainway says Tornado Cash users may want to show that their use of the mixing service is unrelated to any illicit activity. Its tool allows users to show that their funds don’t come from specified deposits and allows them to “clear their name and demonstrate their innocence without revealing their identity.” 



However, even if the tool prevents law-abiding citizens from inadvertently mixing cryptoassets with illicit actors, many legal experts believe it won’t resolve the main issue for US persons.



To the extent such conduct is “willful,” US persons using the proof of innocence tool with Tornado Cash may expose themselves to criminal prosecution, Anand Sithian, counsel at Crowell &amp; Moring, told Blockworks.



Richard Mico, chief legal officer at Banxa, agrees that it’s highly unlikely that a tool like proof of innocence would mollify the US Treasury.



“I doubt that this proof of innocence technology has any legs in terms of making Tornado Cash legally viable or regularly used in any way, shape or form in the short to medium term,” Mico said.



<h3>License for use unlikely</h3>



Only those who initiated transactions with the service prior to Aug. 8, 2022 (the date of the ban) may apply for a specific license to engage with the service to extricate funds. 



“I think a general license to deal with Tornado Cash, even using a proof of innocence protocol, is unlikely to be granted considering that the US government has made crypto-related enforcement matters a top priority in light of the recent bankruptcies of FTX and others,” said Jeffrey Blocking, general counsel at Quadrata.



<h3>Ask a lawyer first, but expect ‘no’</h3>



Jason Gottlieb, partner and chair of Morrison Cohen’s digital assets and white collar and regulatory enforcement groups, found the proof of innocence concept an interesting one, and he hopes that regulatory bodies can eventually adopt ways to allow users to control their own assets and protect their privacy while being full compliant.



“For the moment, however, interacting with sanctioned wallets, even in the name of trying out a new technology, could carry heavy penalties. Anyone considering interacting with the Tornado Cash wallets should first call a lawyer, and be prepared to hear ‘no,’” he said.



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Why Proof of Innocence Won’t Work for US Tornado Cash Users

John Gilbert

Estimates suggest that&nbsp;over a third of the current supply of bitcoin is made up of potentially lost or dormant coins. This statistic and the horror stories of people digging through landfills for a lost seed phrase continue to keep skeptics on the sidelines.&nbsp;



Industry experts have long debated how to solve this problem without losing the self-custody of the BIP39 seed phrase standard. For example, wallet manufacturers such as <a href="https://zengo.com/mpc-wallet/" target="_blank" rel="noreferrer noopener">ZenGo</a> and <a href="https://www.argent.xyz/blog/argent-secure-decentralised-ethereum-wallet-recovery/" target="_blank" rel="noreferrer noopener">Argent</a> launched seedless alternatives, but their critics argue that they sacrifice a degree of autonomy and censorship resistance for convenience.&nbsp;



And as the application layer of the crypto ecosystem grows, wallet manufacturers are competing to own the layer of user experience in Web3. The simple offline paper wallets of the early days in crypto can’t support this new demand for smart contract functionality and security.



Watch: <a href="https://www.youtube.com/watch?v=hYbWNGx63cs" target="_blank" rel="noreferrer noopener">The Wallet Wars: Rise of the SuperApp | Qiao Wang</a>



But these developments also come with new risks. A recent <a href="https://www.certik.com/resources/blog/5Kz34Vyv4WhrIgjmhAn5II-bombflower-backdoor-uncovering-an-evasive-fake-wallet-campaign" target="_blank" rel="noreferrer noopener">report</a> published by CertiK exposed malware that can steal the private keys of mobile wallets.&nbsp;



Noisy debate and increased complexity makes it even more difficult for average users to navigate the different ways to safely store their assets.&nbsp;



This explainer series on crypto wallets will attempt to make this journey a little less mind numbing. In this article, we will start with explaining the seed phrase debate and will follow up with a <a href="https://blockworks.co/news/hot-wallets-cold-wallets">hot vs. cold wallets</a> breakdown and then a full wallet security guide. 



<h2>What is a seed phrase?</h2>



A seed phrase is a series of 12 or 24 random words that provides the data needed to recover a lost or broken crypto wallet. It is also known as a mnemonic phrase and is best understood as a security measure for self-custodied digital assets.&nbsp;



Both hot wallets and cold wallets can use a seed phrase for recovery. For example, MetaMask (hot browser extension wallet),&nbsp; Exodus (hot mobile wallet), and Ledger (cold hardware wallet) all use seed phrases for recovery.&nbsp;



<h2>The difference between seed phrases and private keys</h2>



Seed phrases and private keys are often used interchangeably, but they are different. The private key is a string of numbers and letters used to approve a transaction from an owner&#8217;s public address.&nbsp;



They are safely stored in wallets so that users don’t have to manually enter them everytime they want to approve a transaction. The wallet seed phrase provides the users with a way to recover that wallet if it is ever lost or broken. If for whatever reason someone gets access to a private key though, they can move the funds without using the mnemonic seed phrase. As in the case of the <a href="https://www.certik.com/resources/blog/5Kz34Vyv4WhrIgjmhAn5II-bombflower-backdoor-uncovering-an-evasive-fake-wallet-campaign" target="_blank" rel="noreferrer noopener">BombFlower Backdoor</a>, hackers used wallet imitation malware to steal the private keys directly from users’ phones.



<h2>What’s the point?</h2>



A general driving force behind crypto and the push to self-custody is a distrust of the banking system and more specifically, ‘centralized entities.’ Many who have been burnt by custodial crypto platforms and are concerned with their country’s monetary policy want to take full ownership of their assets. We can save the merits of their reasons for another article, but the point self custody activists make is, if users want an alternative that is truly permissionless, they also need to take security into their own hands.&nbsp;



So don’t think of a seed phrase as a username or password. Because unlike online banking, there isn’t tech support available to verify identity and restore access. A better analogy is a fire-resistant safety box. Its effectiveness is completely contingent on how the owner uses it.&nbsp;



<h2>How seed phrase recovery works</h2>



One of the most widely-used standards for seed phrases is BIP39 (Bitcoin Improvement Proposal 39). And while it was initially proposed for bitcoin wallets, it became a popular standard across the board. It outlines how crypto wallets generate the phrase and reinterprets each word for wallet recovery.



The sequence of events is essential to understanding how this works. Before a user’s new public and private keys exist, a wallet automatically generates a seed phrase or asks the user to provide one. It is a mnemonic phrase that is made up of 12, 18 or 24 words.&nbsp;



The wallet software then converts the string of words into a binary seed (ones and zeros) and uses it to produce a set of private keys and public address pairings. BIP39 is not the only standard wallet manufacturers use in account creation and recovery.&nbsp;



They can also use BIP44 and BIP32. These standards work together with BIP39 and specify a tree structure for organizing addresses derived from a seed phrase. This method is often called a hierarchical deterministic structure and allows for the creation of multiple private/public key pairings and child pairings. This structure is important because it adds a layer of privacy and security protection by using a different address for every transaction.



Once users set up their wallet address and child public and private pairings, they don’t need to use the recovery seed phrase for access. Instead, they login to their hardware wallet (cold) or software wallet (hot) with a passcode or pin to automatically sign transactions. This keeps the private keys out of view from the public.&nbsp;



The backup seed phrase comes back into play if the user loses the device. In that event, the user should ideally have stored that seed phrase in a location separate from the cryptocurrency wallet. They would then use it to restore access on another compatible device.



<h2>Argument for seed phrase recovery</h2>



The seed phrase recovery system offers full control over the security and accessibility of crypto assets. By using standards such as BIP39, manufacturers can provide clear instructions for recovering private keys from other compatible wallets.&nbsp;



For example if two manufacturers use the popular combination of BIP32, BIP39 and BIP44 to create hierarchical deterministic wallets, then seed phrase recovery is compatible on both devices. This system can give users more control over their assets and also provides a safety net in case the wallet manufacturer is no longer in operation.&nbsp;



The seed phrase is protected from hackers if it is secured properly offline (on an air-gapped machine or device) and out of view from anyone else. But it is important to consider that depending on the wallet type, there are other security vulnerabilities outside of hackers accessing the keyphrase. We will cover these differences in greater detail in our full guide on crypto wallet security.&nbsp;



<h2>Argument against&nbsp;</h2>



The seed phrase creates a single point of failure. And its protection is not an easy endeavor, as it requires extensive knowledge on best practices. For example, users commonly store the seed phrase on paper. While this protects the phrase from online threats, it can easily become unreadable over time through natural wear and tear. For this reason, some use a prefabricated metal plate, also called a seedplate, with an etched version of the seed. But if they are stored in the same location of the wallet, they become subject to the same risks such as fire, natural disasters and theft.



If a seed phrase is stored on a computer or any device that can connect to the internet, then it is vulnerable to hackers. Even computers that are disconnected from bluetooth and wifi are prone to various malware that can expose the seed phrase.&nbsp;



These extra security measures add burdens to an already clunky user experience that average consumers are not accustomed to in Web2. And even if a user takes every precaution to protect the seed phrase, their wallet can still be hacked if it is not entirely offline and air gapped from any bluetooth connections.&nbsp;&nbsp;



<h2>What about seedless wallets?&nbsp;</h2>



A seedless wallet is a type of crypto wallet that does not rely on a single seed phrase for account creation and recovery. Instead, it uses multi-party computation (MPC) or smart contract technology to distribute key generation and signing processes among multiple parties or devices.&nbsp;



It is important to remember that the seed phrase was never a necessary component for wallet functionality. In the early days of bitcoin, users relied entirely on the private key for sending BTC. So seedless wallets are really just an alternative way to secure those private keys.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



The main purpose of seedless wallets is to help users lighten that security burden. Like the seed phrase, these options still require more responsibility than traditional banking, but they use innovations aimed at removing the central point of failure in conventional seed phrase wallets.&nbsp;



Many institutions and decentralized autonomous organizations (DAO) are beholden to security compliance that requires these types of security solutions. And if implemented correctly, they can offer a secure alternative for people not wanting the burden of protecting their seed phrase. But they still have security risks and trade offs that some argue run counter to the spirit of decentralization.



<h2>Multi-party computation (MPC) protocols</h2>



MPC wallets use a technique called Threshold Signature Scheme (TSS) to remove the central point of failure in conventional wallets. Two examples include <a href="https://zengo.com/mpc-wallet/" target="_blank" rel="noreferrer noopener">ZenGo</a> (mobile) and <a href="https://www.cypherock.com/how-it-works" target="_blank" rel="noreferrer noopener">Cypherock</a> (hardware). TSS is a cryptographic method that allows a group of people or machines to generate and store a private key in such a way that no single person or device controls the entire key.&nbsp;



But unlike the popular multi-signature (multisig) wallets, MPC wallets don’t require multiple individual private keys to sign a signature. Instead, it divides one private key into separate shards. This distinction may sound semantical, but it unlocks more features and protections that multisig wallets can’t offer.&nbsp;



For example, many DAOs use multisig wallets to manage their treasury. If they wanted to add or move a participant, they would need to move their funds into another multisig wallet. Every time an organization is forced to move all funds to a different location, it opens them to a new set of unnecessary risks.&nbsp;&nbsp;



With MPC wallets, organizations can use something called a ‘private key rotation’ to recreate private key shards without moving funds.&nbsp;



<h2>Why does splitting the key help with security?</h2>



Mobile wallets can benefit from this approach because it prevents the entire private key from being stored on the device (a central point of failure). For example MPC wallets like ZenGo store the second key share on their servers. So, theoretically, if a hacker was only able to acquire one half of the key, they would be unable to approve any transactions without ZenGo’s permission.



According to a recent <a href="https://twitter.com/i/spaces/1ypJddodvMqJW?s=20" target="_blank" rel="noreferrer noopener">Twitter Space</a> conversation with CertiK&#8217;s chief security expert, Kang Li, multiparty computation (MPC) is a safer method for transactions in general, as it requires multiple parties to sign. However, he warns that the level of security can vary depending on the implementation. In some cases, an attacker may only need one half of the key and a token from another signer to predict and sign a transaction, bypassing the need for the other half of the key. Li emphasizes that while MPC is generally a better scheme, it is important to pay attention to the details of the implementation to ensure the best level of security.&nbsp;&nbsp;



In the event that a MPC device is hacked or broken, the user still needs a way to recover the wallet. Mobile wallets such as ZenGo offer a recovery system that would enable users to reinstate their wallet without using a crypto seed phrase. Upon downloading their wallet app, they provide instructions on setting up a <a href="https://help.zengo.com/en/articles/2603673-what-is-zengo-recovery-kit" target="_blank" rel="noreferrer noopener">recovery kit</a>.&nbsp;



The recovery kit consists of two parts: a face scan and a recovery file. The face scan is performed locally and privately on the user&#8217;s phone. And the unique recovery file is stored in the user&#8217;s default personal cloud storage system.&nbsp;



As long as these two items are accessible on the user’s cloud, they can use it to authenticate ownership when redownloading the app.&nbsp;



Early concerns that hackers would be able to use a 2D image of a face to hack scans have proven to be false. However, a <a href="https://www.forbes.com/sites/daveywinder/2019/08/10/apples-iphone-faceid-hacked-in-less-than-120-seconds/?sh=23404ade21bc" target="_blank" rel="noreferrer noopener">black hat hacker conference in 2019</a> proved that it was possible to trick the liveness detection of an Apple face scan using spectacles and black tape.



<h2>What if the wallet servers shut down?</h2>



This recovery system though is contingent on ZenGo’s servers authenticating ownership and the cloud service storing the recovery file. 



In response to concerns of users being unable to access funds in the event that ZenGo shut down, ZenGo&#8217;s Chief Technology Officer Tal Be’eri told Blockworks that &#8220;recovery is indeed mandatory.&#8221;



&#8220;In the case of ZenGo going out of business, we have a trustee that would effectively release ZenGo remote share, and the app will be able to unite its personal share with the remote share and create a private key that can be mounted by many non-custodial wallets.&#8221;



This type of key recreation is very similar to the private key rotation made possible by the MPC protocol. If this wallet was a multisig wallet, the contingency plan would not be possible. Yet, while this does offer another layer of protection, it still requires the participation and permission of the trustee — a fact that self-custody maxis like to point out.&nbsp;&nbsp;&nbsp;



<h2>Final considerations</h2>



At the end of the day, this explainer only begins to scratch the surface of new alternatives to seed phrase wallets. There are still smart account wallets that unlock a whole new set of functionality in the Web3 world. The challenge with these new innovations is in understanding the complexity. But in the Web3 culture of ‘trust, don’t verify’, this increased complexity means that the vast majority of users will still end up trusting the company behind the decentralized and transparent systems.



This can present a problem because, <a href="https://twitter.com/i/spaces/1ypJddodvMqJW?s=20" target="_blank" rel="noreferrer noopener">according to Li</a>, not all claims of decentralization are created equal. Upon investigation of certain wallets, Li and his team at CertiK discovered that these wallets were actually centralized, with key management and transaction signing taking place at a centralized location. Despite these centralized practices, the wallets continue to advertise themselves as decentralized.



Opponents of both sides of the seed phrase debate can agree that better education is needed. Without it, the technical transparency holds no real value to users.



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What Are Seed Phrases and Are They Necessary?

David Canellis

Insiders at public crypto companies have bought millions of dollars worth of their own stocks since FTX crumpled last November — an event which sent the price of bitcoin spiraling 25%.



Coinbase director Tobias Lütke, perhaps better known as the CEO of Canadian ecommerce giant Shopify, has led the charge. He’s been busy buying the Coinbase dip, spending $4.86 million on the stock over the past three months, per SEC filings.



Lütke has snapped up nearly 110,000 <a href="https://blockworks.co/tag/coinbase">Coinbase</a> shares in that time for an average price of $44.37. COIN traded for about $60 on Friday afternoon, which means he’s up 35% on his recent haul.&nbsp;



As Blockworks previously reported, Lütke has been regularly buying Coinbase stock, spending upwards of $350,000 practically every single week since August.



<ul>
<li>Lütke joined Coinbase’s board of directors in January 2022, when its shares were worth more than $200 a piece.</li>



<li>In total, he has acquired just under 172,000 Coinbase shares for about $9.3 million, at an average price of $54.30.&nbsp;</li>



<li>His total haul is currently worth more than $10.3 million — his dip buying has, so far, paid off.</li>
</ul>



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12569721/embed#?secret=ERGFPbJboS" data-secret="ERGFPbJboS" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Chart by David Canellis</figcaption></figure>



Three insiders at major <a href="https://blockworks.co/tag/marathon-digital">bitcoin miner Marathon</a> have also recently backed their own stocks. Directors Douglas Mellinger and Kevin DeNuccio respectively spent $104,000 and $339,000 on Marathon shares throughout December.&nbsp;



Marathon CEO Fred Thiel himself plonked around $19,000 on 5,000 shares; altogether those three execs bought stock at an average price of $4.40. Marathon now trades for $8.18, which means they’ve collectively gained 86% — another win for the dip buyers.



CleanSpark Chief Financial Officer Gary Vecchiarelli grabbed $34,500 or 19,400 shares at $1.78 apiece in mid-December. CLSK is now at $2.90; Vecchiarelli is up 63%, lodging more than $21,000 in paper gains.



Altogether, these insiders spent $5.35 million buying the dip on their own stocks since the start of November. That same cache is now worth $7.48 million — a 40% gain.



<h3>Others insiders tapped out at local lows</h3>



Coinbase CEO Brian Armstrong is the yin to Lütke’s yang. While the Shopify CEO has relentlessly bought COIN, Armstrong has been busy fulfilling his pledge to offload 2% of his company stake.&nbsp;



Armstrong has dumped $8.57 million in Coinbase stock since the start of November (often coinciding with exercised options), most recently $4.55 million on Jan. 13. He’s overall sold more than 178,000 shares for $48.05 a pop, on average.&nbsp;



Coinbase stock is up 25% from that price point. He previously pledged to funnel that cash into science and tech projects, such as life extension unit NewLimit, which he co-founded last September.



Coinbase General Counsel Paul Grewal, CFO Alesia Haas, and Chief Accounting Officer Jennifer Jones also sold the dip, cashing in more than $15.8 million in COIN since Nov. 1. Haas is responsible for the lion’s share of the selling between the three, hitting an average price of $40.16. 



Had Haas waited until now to sell her stock, they would’ve generated an additional $7.75 million — a prime example of selling the dip gone wrong. (Almost all trades cited were made in accordance to pre-set trading plans lodged with the SEC in the months prior.)



<ul>
<li>Chad Harris, chief communications officer at bitcoin mining stock Riot, sold 75,565 shares for $4.15 a piece to generate around $313,600 in the first week of December.&nbsp;</li>



<li>RIOT now trades for $6.26, so Harris missed out on about $160,000.</li>



<li>General Counsel William Jackman sold 25,000 shares for $100,000 for $4 each — the same amount would fetch nearly $157,000 today.</li>
</ul>



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12570072/embed#?secret=L3kuzXNROI" data-secret="L3kuzXNROI" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Chart by David Canellis</figcaption></figure>



<a href="https://blockworks.co/tag/riot-blockchain">Riot Blockchain</a> Director Lance D’Ambrosio sold too, getting rid of shares worth $166,100. Tyler Page, CEO at rival firm Cipher Mining, joined in, giving up 35,000 shares at $0.82. The stock now trades at $1.46 — 78% above that price point.



But by far the most active sellers are a string of executives at Block, the payments firm behind Cash App formerly known as Square, founded by <a href="https://blockworks.co/tag/jack-dorsey">bitcoin bull Jack Dorsey</a>.&nbsp;



Block executives have altogether sold roughly $25.5 million in company stock since the start of November.&nbsp;



Square Lead Alyssa Henry, who joined the firm from Amazon back in 2014, made up 95% of those sales, selling more than 373,000 shares for $64.92 on average. SQ trades for $85.43 today, meaning Henry has effectively left $7.65 million on the table.



Other SQ insiders to offload stock over the dip include CFO Amrita Ahuja, CAO Ajmere Dale, Cash App Lead Brian Grassadonia and Chief Legal Officer Sivan Whiteley.



Our selling insiders collectively sold $50.5 million during their companies’ dips, but if sold today, they would’ve raked in $68.75 million.



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Crypto Execs Bought the Dip on Their Own Stocks — They’re Up 40%

Macauley Peterson

For small independent game studios, attracting an audience is a major challenge. Nascent gaming franchise Unioverse thinks Web3 can provide an answer — and be fun for gamers.



The only way to get gamers in the door nowadays is to spend 50% to 80% of a game’s revenue on user acquisition, Tony Harman, Unioverse co-founder and chief executive of Random Games, told Blockworks.



“The horrible thing about those markets is you can’t be seen — because there’s 4,000 Steam games a month,” Harman said, referring to the video game digital distribution service and storefront launched by Valve in 2003.



Unless you’re a giant company like <a href="https://blockworks.co/tag/square-enix">Square Enix</a> or Activision, it’s hard to get noticed, much less turn a profit, considering the 30% in fees taken off the top by Steam, Google and Apple.



Harman, who started his career at Nintendo, is a gamer at heart.



“I’ve had No. 1 hits in 8-bit, 16-bit, 32-bit, mobile, free to play, all those — I love games, I love new things,” he said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">From there I was able to head up other independent studios to launch hit franchises like Grand Theft Auto and Crackdown. But almost no one today can start like I did by just walking into a company building and asking for a job. (3/6)&mdash; Tony Harman (@tonyharman) <a href="https://twitter.com/tonyharman/status/1575136109969002496?ref_src=twsrc%5Etfw">September 28, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



But realizing that he doesn’t own any of his past successful franchises, like Grand Theft Auto — and fascinated by the rise of blockchain-based assets and their gaming applications — Harman had an epiphany:&nbsp;



<blockquote class="wp-block-quote">
“What if we just gave away the project to everyone from the beginning?” Harman recounted telling his co-founder, Wyeth Ridgway.
</blockquote>



Unioverse is in the world-building business.&nbsp;



The company hires experienced artists, writers and designers to craft stories, devise environments and develop characters — or “heroes” as they call them. Indie game developers can piggyback on it all: the code, models, animations and skins.



It’s what Harman describes as “tens of millions of dollars worth of assets” to build their games, all without paying Random Games a penny.



The business model is focused on the company’s initial ownership of the heroes, which are represented by NFTs the company sells to provide an access pass to any future games in the Unioverse franchise network.



“We want to be the Roblox for professional game developers,” Harman said, estimating that a small group of five to 10 Unity game-engine developers would be enough to build a game using the Unioverse toolkit.



Under the concept, the heroes are interoperable between all Unioverse games, and once you own one, all the games are free to play. Hero owners just have to download a game — which helps indie developers build a following — and log in with a <a href="https://blockworks.co/tag/wallet">Web3 wallet</a>, to drop their character in and start playing.



“You get the Unioverse crowd, the community, coming over to your project,” Harman said.



<h3>The first (hero) of many</h3>



To kick off that community, the project <a href="https://opensea.io/collection/unioverse-collectibles" target="_blank" rel="noreferrer noopener">distributed</a> around 900,000 NFTs on the Polygon version of <a href="https://blockworks.co/tag/opensea">OpenSea</a>, collectibles that could earn their holders points called “protens.” Those points, gathered from completing activities like collecting sets of NFTs, then made the holder eligible to mint the first hero, Reyu, which launched on Ethereum last week.&nbsp;



The hero came in five distinct <a href="https://opensea.io/category/unioverse" target="_blank" rel="noreferrer noopener">collections</a>, distinguished by traits of varying rarity, from “common” to “legendary.” But the visual distinction — like skins in other games — doesn&#8217;t necessarily make them more powerful or useful in the virtual worlds they will later inhabit. And Harman says it might just put a target on a player’s back.



But that’s not the point; it’s a status symbol, and one that may solve a perennial problem with in-game purchases.



Unlike games where accessories are worthless if you stop playing — what Harman calls “buyer’s remorse” — the fact that Unioverse heroes can be resold by the player on secondary markets gives them lasting value. Players can, of course, opt to take their character with them to a new game in the Unioverse.



They also have full intellectual property rights to characters for creative endeavors, including making videos or selling merchandise — activities that would get you a sternly worded cease and desist letter from Star Wars owner Disney’s legal team.



The Reyu genesis collection trades for floor prices between 0.0009 ETH (about $1.60) for a common and 0.25 ETH (around $390) for a legendary, as of 2:00 pm on Jan. 27.



Any hero from the 20,000 initially released will give players free access to games in the network, Harman said, though the first proof of concept, “<a href="https://www.youtube.com/watch?v=Xw4BdesoM10">Danger </a><a href="https://www.youtube.com/watch?v=Xw4BdesoM10" target="_blank" rel="noreferrer noopener">Room</a>,” is slated for a second quarter 2023 release.



In the meantime, “you could go right now, you could take your Reyu model, 3D print him, and set up an Etsy store and start selling him, and you don’t owe us a penny,” Unioverse&#8217;s co-founder Wyeth Ridgway, who serves as Random Games chief technology officer, told Blockworks.



Other characters are set to follow suit. By the end of 2023 the team expects to have “at least a million NFTs just in this character set,” he said.&nbsp;



<h3>“Chain agnostic” design</h3>



The Unioverse use of blockchain is limited to asset rights management. Ridgway has a “chain agnostic notion of assets that can be moved across marketplaces,” Ridgway said.



The team began building on <a href="https://blockworks.co/tag/immutable">ImmutableX</a>, the layer-2 Ethereum startup, in early 2022. Immutable, alongside OpenSea, promised support for OpenSea&#8217;s marketplace by the end of the quarter. “Honestly, I was very hopeful,” he said, but the deadline came and went with no explanation from Immutable for the delay, so the project pivoted to Polygon. 



Immutable did not return a request for comment.



Ridgway criticized early efforts at on-chain games as “too error prone today,” leaving developers to deal with problems that distract from the development of a fun game.



<a href="https://blockworks.co/tag/axie-infinity">Axie Infinity</a>, he said, “was a kind of hellscape of the future of gaming,” adding that “we somehow managed to make gaming into a sweatshop industry.”



Axie Infinity developer Sky Mavis could not be reached for comment.



Ridgway finds the view of proponents of <a href="https://blockworks.co/tag/play-to-earn">play-to-earn</a> models, including venture firms like Griffin Gaming Partners and a16z, baffling.



“It’s just insanity. It defies basic common sense…that will certainly never be part of what we’re doing,” Ridgway said.



<h3>Advocate for creator royalties&nbsp;</h3>



The Unioverse business model relies on the 10% royalties for secondary sales of heroes, so the technical implementation of the <a href="https://www.blockworksresearch.com/glossary#erc-721-token" target="_blank" rel="noreferrer noopener">ERC-721 token</a> standard had to be augmented with bespoke <a href="https://polygonscan.com/address/0xed55e4477b795eaa9bb4bca24df42214e1a05c18#code" target="_blank" rel="noreferrer noopener">smart contract code</a> to limit its transfer function.



That means that NFTs can only be sold on whitelisted marketplaces — currently OpenSea and <a href="https://blockworks.co/tag/rarible">Rarible</a>, but in principle, any other marketplace that will publicly agree to honor royalties.



Read More: <a href="https://blockworks.co/news/nft-royalties-sometimes-they-work-sometimes-they-dont">How NFT Royalties Work — and Sometimes Don’t</a>



Those that choose to make royalties optional, Ridgway expects, will hide Unioverse collections rather than allow their users to run into opaque blockchain errors when they attempt to transact. But that’s just fine with him; Ridgway and Harman are firmly of the view that royalties on NFT sales should be <a href="https://www.unioverse.com/explore/how-the-unioverse-is-taking-on-marketplaces-that-dont-respect-royalties/" target="_blank" rel="noreferrer noopener">an industry standard</a>, and thinks that NFT creators will increasingly launch their collections using a similar enforcement mechanism in 2023.



“We look forward to the day where there’s an ERC-level solution to this,” Ridgway said.



It’s not only the principle of protecting creators at stake, it’s also the company’s bottom line — the 10% royalty across thousands, or even millions of hero sales can be quite significant, Harman said.



But why stop there?



“I want to be a community owned franchise equivalent in size — actually even bigger — than Star Wars and Marvel Universe,” he said.



Disney <a href="https://eu.usatoday.com/story/money/business/2012/10/30/disney-star-wars-lucasfilm/1669739/">purchased</a> Lucasfilm and the Star Wars franchise for about $4 billion back in 2012, but it’s brought in <a href="https://www.statista.com/topics/4362/star-wars/#topicHeader__wrapper">revenue</a> in the tens of billions.



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Rejecting Web3 Gaming’s ‘Hellscape,’ Unioverse Turns to ‘Heroes’

EffortCapital

STFX

STFX: The SocialFi Marketplace

Permissionless is the brainchild of Blockworks and Bankless. Over 5,500 people attended the inaugural event in 2022, making Permissionless the world’s largest DeFi conference.&nbsp;



What sets Permissionless apart? It’s a crypto native’s paradise, crafted specifically for both builders and investors who are dedicated to scaling the industry.&nbsp;



Permissionless is headed to Austin in 2023, and you know what they say… Everything is bigger in Texas.&nbsp;



Permissionless 2023 will feature the biggest names in Web3, a gargantuan exposition hall filled with the top brands in the space, an awe-inspiring NFT Gallery, inclusive, community-focused parties and events, metaverse experiences, and so much more.



See you in Paradise.

Tickets

Buy Tickets

Prices increase every 2 weeks. Only 250 tickets available in each drop. Register today and save!

General Admission Pass

Get notified 

Student tickets will be launching in early 2023

Student Ticket 

Prices increase every 2 weeks. Only 250 tickets available in each drop. Register today and save!

Speakers

Erik Voorhees

Mary-Catherine (MC) Lader is the Chief Operating Officer of Uniswap Labs, a developer of foundational web3-based products and applications. In this role, she oversees the company’s growth efforts, strategic initiatives, and operations. Previously, she held various leadership roles at BlackRock, including as the Global Head of the firm’s digital sustainability business, Chief Operating Officer of the firm’s digital wealth business, and leader of the firm’s strategic fintech investments and blockchain activities. MC began her career as an investor in Goldman Sachs’ Special Situations Group. She received her J.D. and M.B.A. degrees at Harvard Law School and Harvard Business School, respectively, and her B.A. at Brown University.

Mary-Catherine Lader

Zaki Manian is a Co-Founder of Sommelier, the most powerful coprocessor yet for DeFi traders and Liquidity Providers. He’s also a Co-Founder of iqlusion, which provides infrastructure like a data center and a Cosmos validator for next-gen crypto technologies. Previously, Zaki helped build the Cosmos ecosystem, including launching the first public Cosmos testnet, and served as a director of Tendermint. Zaki has been a leading developer in the blockchain space since 2014, when he taught himself cryptography and began contributing to projects including Bitcoin, Ethereum, Zcash, and Tendermint. Having studied history of science at the University of Pennsylvania, Zaki’s skill sets in software engineering, programming, and computer science are largely self-taught.

Zaki Manian

Justin Drake

At Alluvial, Chief Growth Officer Mara Schmiedt focuses on advancing industry participation and adoption of Liquid Collective, seeking out world-class partnership opportunities, and overseeing Business Development, Sales, and other strategic functions. Mara recently joined Alluvial as Chief Growth Officer from Coinbase, where she served as the Head of Sales for Coinbase Cloud, the leading developer platform for blockchain-based infrastructure products and APIs. She expanded Cloud's staking business, supporting large-scale organizations, enterprises, and institutional investors. Prior to joining Coinbase, she managed Business Development at Bison Trails, a leading provider of blockchain-based infrastructure acquired by Coinbase in February 2021. Mara also served as Strategy Manager at ConsenSys, where she supported the strategic development of Codefi, the blockchain application suite for Web3 Commerce and Finance.



Mara is passionate about open-source technology and has published multiple research reports and papers on liquid staking, such as <a href="https://drive.google.com/file/d/13-s15SvCIUBukhSZiNkpd0sTff3izQ5G/view">The Internet Bond</a> and <a href="https://consensys.net/insights/eth-2-staking-ecosystem-report/">Ethereum 2.0 Staking Ecosystem Report</a>.&nbsp;



Additionally, she has led various industry initiatives, including leading the working group with the Ethereum Foundation that developed the Ethereum Launchpad and the first distributed validator technology (DVT) PoCs. Mara's deep experience in bringing technology and blockchain-based products and services to market — as well as her track record of building world-class business and sales organizations — bolsters Alluvial's support of Liquid Collective.

Mara Schmiedt

Stani Kulechov

Hasu

Christine is a Partner and Head of Digital Asset Strategy at Apollo Global Management, Inc. In this newly created position, Christine leads digital asset strategy across the firm, exploring more ways to apply blockchain technologies to Apollo’s business. She also plays a key role in Apollo’s strategy to invest in some of the most innovative digital asset companies and founders, with a specific focus on those transforming the financial services sector where Apollo can serve as a validator and enabler of new technologies. Previously, she was a Managing Director at J.P. Morgan and led its Blockchain/Crypto/Metaverse program through initiatives in digital assets, tokenized payments, internet of-things, decentralized identity, NFTs, and virtual worlds. She is a graduate of Brown University. Christine was named in Fortune’s The Ledger 40 Under 40 list of “the most impressive, young superstars transforming business at the leading edge of finance and technology.”

Christine Moy

Santiago Roel Santos (CryptoPunk #9159) is an investor focusing at the intersection of DeFi and the Web3 metaverse (NFTs/gaming). Most recently was a Partner at ParaFi Capital, one of the largest crypto funds specializing in DeFi. Prior to that, he was at Sageview Capital investing in Internet and software and, before that, at JP Morgan investment banking. Santiago began investing in crypto in 2012.

Santiago Roel Santos

Michael Anderson is the co-founder of Framework Ventures, one of earliest and largest VC firms to enter the “DeFi” or Decentralized Finance industry. With over $1B in AUM, the firm has since expanded into additional maturing verticals like blockchain gaming and social crypto. Prior to Framework, Michael and his co-founder Vance Spencer launched Hashletes, a digital collectible startup with official licensing from the NFL. Before entering crypto, Michael served as a product manager at both Snapchat and Dropbox, where he helped build out their monetization platforms.

Michael Anderson

Soona Amhaz is founder and GP of Volt Capital, a venture firm that focuses on pre-seed and seed companies in the digital assets space. Soona is also an advisor to On Deck, Forbes 30 under 30 in VC, and an alum from the University of Michigan School of Engineering.

Soona Amhaz

Colleen Sullivan is Co-Head of Ventures at Brevan Howard Digital. Prior to joining Brevan Howard Digital, Colleen co-founded and served as CEO of CMT Digital, where she was also a partner with the broader CMT Group and commenced activities in the crypto industry in 2013. Prior to starting CMT Digital, Colleen co-founded Sullivan Wolf Kailus, a boutique law firm that specializes in hedge fund, private equity, venture capital, digital assets, and other alternative investment products. Colleen also previously practiced law in the Investment Funds and Derivatives group at Sidley Austin LLP and, at age 25, co-founded a company called iOptions Group LLC, which developed hedging and monetization strategies for holders of employee stock options. Ms. Sullivan currently serves on the Advisory Board of the Chamber of Digital Commerce.

Colleen Sullivan

Tarun is an alumni of D. E. Shaw Research (DESRES), Vatic Labs, an HFT firm, and Cornell. He fell into the blockchain world in 2011, when he was working on ASICs at DESRES and observed Bitcoin ASIC mining rigs substantially delay DESRES’s ASIC production. He has spent the last seven years working on simulation-based R&amp;D at the intersection of high-performance computing and AI and is applying this knowledge to the blockchain ecosystem.

Tarun Chitra

Kevin Owocki is the founder of Gitcoin.co — Where builders &amp; funders come together to build the open web.  Gitcoin has delivered <a href="http://gitcoin.co/results">$50mm worth of value</a> to OSS devs in the last several years. He has a BS in Computer Science, 15 years of engineering leadership experience in Open Source Software and Web Startups. Kevin is a community organizer in the Boulder Colorado Tech Scene.

Kevin Owocki

Meltem Demirors is Chief Strategy Officer of CoinShares, a publicly listed investment firm that manages over five billion in digital assets on behalf of a global investor base, and is a trusted partner to investors and entrepreneurs navigating the digital asset ecosystem.



 An established veteran of digital asset investing, Meltem draws on her substantial experience and widespread influence to accelerate growth and acceptance of the asset class. Prior to joining CoinShares, Meltem helped build and grow Digital Currency Group, raising capital from the world’s largest corporations and managing a portfolio of 120 companies and 4 subsidiaries. Before she was bitten with the bitcoin bug, Meltem worked in the Oil &amp; Gas industry in trading, corporate treasury, and M&amp;A roles. 



Meltem has been recognized for her personal contributions to the industry and serves as an outspoken advocate. She is a founding member of the World Economic Forum Blockchain Council. Meltem teaches at her alma mater MIT as well as Oxford, and is passionate about privacy and civil rights.

Meltem Demirors

Vance is the co-founders of Framework Ventures, a thesis-driven venture capital firm whose team of technologists, researchers, and investors partner with founders and teams to build token-based networks and develop the requisite cryptoeconomics, governance, and community to scale.

Vance Spencer

Jim Bianco is President and Macro Strategist at Bianco Research, L.L.C. Since 1990 Jim’s commentaries have offered a unique perspective on the global economy and financial markets. Unencumbered by the biases of traditional Wall Street research, Jim has built a decades long reputation for objective, incisive commentary that challenges consensus thinking. In nearly 20 years at Bianco Research, Jim’s wide ranging commentaries have addressed monetary policy, the intersection of markets and politics, the role of government in the economy, fund flows and positioning in financial markets.



Jim appears regularly on CNBC, Bloomberg and Fox Business, and is often featured in the Wall Street Journal, Bloomberg News, Grants Interest Rate Observer, and MarketWatch. Prior to joining Arbor and Bianco Research, Jim was a Market Strategist in equity and fixed income research at UBS Securities and Equity Technical Analyst at First Boston and Shearson Lehman Brothers. He is a Chartered Market Technician (CMT) and a member of the Market Technicians Association (MTA). Jim has a Bachelor of Science degree in Finance from Marquette University (1984) and an MBA from Fordham University (1989).

Jim Bianco

Mr. Forman is the Founder and Managing Partner of ParaFi Capital. ParaFi is a leading investment firm focused on the blockchain and digital asset markets, and an early pioneer in decentralized finance (“DeFi”). ParaFi is one of the largest investors, users, and governance participants within the DeFi ecosystem, spanning the full network lifecycle from pre-launch to full decentralization. Mr. Forman serves as the Chief Investment Officer across the firm’s strategies, which include investing in public and private cryptoassets, systematic credit and market neutral DeFi strategies, and blockchain-focused venture capital and growth equity investing.



Prior to founding ParaFi in 2018, Mr. Forman spent 10 years at leading alternative investment managers, including KKR and TPG. While at KKR, Mr. Forman served as a Director in the Credit business, investing across a wide array of industry sectors and strategies, including distressed special situations, private credit, and opportunistic and liquid credit. Prior to KKR, Mr. Forman served as a Vice President with TPG’s former credit business, Sixth Street Partners, as one of the first investment professionals to join the platform, helping scale its private credit vehicle, TPG Specialty Lending, which listed publicly in 2014. Earlier in his career, Mr. Forman worked in private equity at Littlejohn &amp; Company and investment banking at Rothschild &amp; Co. Mr. Forman graduated with a B.A. in Philosophy, Politics and Economics, magna cum laude, from the University of Pennsylvania.

Ben Forman

Haseeb is a Managing Partner at Dragonfly. He was previously a partner at Metastable Capital, and has a background in software engineering at Airbnb and Earn.com (acquired by Coinbase).

Haseeb Qureshi

Vanessa Grellet is a Managing Partner at Aglaé Ventures. Vanessa is a Global Executive with over 20 years of expertise in the Financial Services and Tech industry. At Aglaé Ventures she manages the Web 3 focused fund. Prior to joining Aglae she has Head of Portfolio growth at CoinFund and Executive director at ConsenSys where she focused on driving adoption for Ethereum based products,  Strategic initiatives, Alliances and Channels.  She was involved in setting up the Enterprise Ethereum Alliance (EEA), the Accounting Blockchain Coalition (ABC) and the Blockchain for Social Impact Coalition (BSIC). Prior to ConsenSys she was a Strategy Executive at NYSE focused on investments and M&amp;A and a key member of PwC’s global wealth management team. Vanessa is a Founding Board member of AABC focused on Blockchain and Art, a member of the Advisory Council of ConsenSys, a Milken Institute Associate, a contributor to the  World Economic Forum Digital Future Council and part of <a href="https://cointelegraph.com/top-people-in-crypto-and-blockchain-2022/vanessa-grellet">Cointelegraph’s list of 100 most influential people for 2022</a>. Mrs. Grellet graduated Cum Laude from Law School (Paris II Assas) and Business School (HEC).

Vanessa Grellet

Mihailo Bjelic received his MSc in CS from the University of Belgrade. Prior to entering Web3/blockchain industry, he co-founded an AI/ML-powered platform for automotive industry and several other smaller startups and side projects. In 2017, he decided to join the Web3 movement full-time, primarily as a researcher interested in Ethereum scaling and multi-chain paradigms. In parallel with his work, he became one of the prominent Ethereum proponents and community members. In 2019, he started working on Polygon and conceptualized its architecture, vision and brand. In 2020, he joined hands with the Matic Network team and they have been working together on Polygon since then.

Mihailo Bjelic

Ben is a co-founder of Optimism, a leading Ethereum L2 ecosystem. He served as Chief Scientist before becoming a director at the Optimism Foundation. In his free time, he makes Ethereum-based parody songs under his stage name, Weird ETH Yankovic.

Ben Jones

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Speaker applications can be submitted <a href="https://form.asana.com/?k=L3gwAY1GRAX-RRAGDZYc0g&amp;d=1199885946213540">here</a>. Due to the high volume of submissions, we will not respond to all applicants. We anticipate &lt;2% of applicants being selected.
Blockworks&#8217; content team will reach out in the event you are accepted to speak. Please do not follow up directly.

Speaker Application

<h2>Why Sponsor Permissionless 2023?</h2>
If you’re serious about crypto, you have to be at Permissionless. Permissionless brings together DeFi builders, DAO participants, protocol developers, crypto companies, funds and institutions, and more. It’s a true crypto-native’s paradise, where you’ll have the opportunity to showcase your offerings and form lasting connections with the community.
We’ll work with your team to define the perfect sponsorship opportunity that best fits your needs and budget. Want to do something completely revolutionary? Our team can help design a bespoke package that brings your vision to life.
Get in touch with us at <a href="mailto:sales@blockworks.co">sales@blockworks.co</a>
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