From left CTO and co-founder Idan Ofrat, CEO and co-founder Michael Shaulov, VP R&D and co-founder Pavel Berengoltz.

Fireblocks riding major fundraise to boost digital banking support effort

Powered by their $300-million fundraise over the summer, Fireblocks is looking to drive infrastructure efforts of digital banking and crypto companies as the industry is poised for explosive growth.

With two decades of experience with telcos and cybersecurity, company co-founder and CEO Michael Shaulov had the perfect resume to serve as a springboard to this effort.

Fireblocks provides 600 cryptocurrency and digital asset businesses with software and APIs to custody, manage treasury operations, access decentralized finance, mint and burn tokens and run digital asset operations.

The company raised more than $300 million at a $2.2 billion valuation back in July.

Shaulov began his career in Israel’s Unit 8200, an Israeli Intelligence Corps group within the Israel Defense Forces charged with collecting signal intelligence and code decryption. The largest single unit within Israel’s Defense Forces, Unit 8200, is the equivalent of the NSA in the United States.

In the mid-2010s, Shaulov was contacted after the Lazarus Group hacked four South Korean exchanges and stole $200 million of bitcoin. Working for cybersecurity firm Check Point, Shaulov had his introduction to cryptocurrencies.

Identifying gaps

And it did not take long for him to see gaps in existing infrastructure serving businesses who need to hold large sums of money safely. The lessons he and his co-founders took from that experience form the foundation for Fireblocks.

“What we provide today is what is the most advanced and probably most utilized infrastructure for handling cryptocurrencies on the institutional and business level right now,” Shaulov said.

“We don’t serve consumers, but a lot of the consumer brands that people interact with on a day-to-day basis, they are actually using our infrastructure.”

Fireblocks also serves institutions like hedge funds, banks, and brokers, he added.

It’s important to note Fireblocks was born almost five years ago, when institutional involvement in cryptocurrencies, and the crypto world as a whole, was not as well-developed as it is today.

Credit the founders for quickly seeing where the market was going well before it got there.

Shaulov confirmed he quickly realized DeFI and cryptocurrencies would be essential components of the future of finance.

His experience in cybersecurity and the South Korean hack, in particular, was also pivotal, as the North Koreans were, out of necessity, quick to see the possibilities behind crypto.

“Those guys from North Korea… they’re a nation-state group,” he explained. “Most nation-states, hacking groups, they go after things that are not financial assets. The Russians like to interfere with elections, the Chinese like intellectual property, the Americans would usually infiltrate defense on counterterrorism. So they have all different objective objectives. 

“The North Koreans are the exception because of the sanctions that are imposed on them. They will go after financial assets, and before moving into the cryptocurrencies, they were behind a really famous breach of the SWIFT network and some of the biggest breaches of the ATM networks.” 

Bitcoin paper changes everything

Then Shaulov read the Bitcoin white paper and dove into the clearing and settlement infrastructure. He knew this would change everything, and it has.

“I think a lot of the stuff we envisioned back in the days are becoming reality today with stablecoins, payments, and tokenization,” he said. “And it took it two or three years to become a big part of this ecosystem. But it’s clearly transformational. The transformational opportunity here is the entire financial market.”

Institutional involvement in cryptocurrencies is growing, thanks mainly to the security offered by firms such as Fireblocks. But other areas need to develop too, beginning with regulation. Shaulov said the progress of late has been incremental. For every Singapore that is providing clarity, there is a United States bringing uncertainty.

Just as important as clarity is the correct type of regulation, he explained. Having spent part of his career in the highly regulated mobile and telco sectors, he learned the regulations must be present and aligned with the technology, its benefits, and the positive directions in which it is taking society.

Shaulov learned that regulation eventually adapts to what people want and need. He cites the battles between law enforcement and Apple over encryption.

“The reason why Apple won is that the public opinion at that point, especially post-Snowden, shifted to privacy, and the regulation had to shift from lawful interception,” Shaulov said.

“The FBI and all those people are able to get access to communication for good reasons, like chasing terrorists, right? (Now it’s) to the point where what people really care about is their own privacy.”

Fighting fraud and harm

Many of these points directly translate to finance, as AML and KYC regulations are designed to combat harmful activity like terrorism and child pornography, Shaulov said.

Important issues also need to be addressed to what extent individuals prioritize their financial freedom and financial activity compared to fighting those issues.

For Shaulov, the jury’s still out.

“I think summarization is important around consumer and customer protection, which currently doesn’t exist,” he offered.

“So, for example, trying to find a lot of the fraud that inevitably exists in this space and making sure that there’s a lot of transparency around the financial products that are being offered to the people.”

He believes many of the products designed should exist, but regulators can help by explaining why they should exist and letting investors decide whether or not to buy them.

Look no further than GameStop stock, which Shaulov believes was being used as a speculative asset to a greater extreme than Bitcoin or XRP.

Fireblocks is very passionate about DeFi, Shaulov said. They want to provide access to it from their infrastructure while also helping to solve some of the regulatory challenges they have.

Multi-party computation is an integral part of Fireblocks’ technology, Shaulov said. It allows them to distribute the private key, so there is essentially no single private key with one individual.

The key is usually distributed between the company and client to sign a transaction, with the client designating a backup. But through disintermediation, you can give the user complete control over the asset without worrying about the associated security and operational complexities.

Serving as backstop

Fireblocks serves as the backstop, and their infrastructure allows them to deploy some of the most sophisticated governance and policy engines that exist in the industry today, Shaulov said.

Clients then choose the rules, policies, and access they want to have around their funds.

Shaulov said Fireblocks decided to use stablecoins for B2B payments because they improve existing systems, Shaulov explained.

An expensive SWIFT transfer that takes days to clear can be completed in 15 seconds at a small fraction of the price.

“Overall, it reduces the capital inefficiency and makes the capital much cheaper,” he said. “And it’s programmable. You have the different vehicles that allow you to earn yield right through that.”

With Shaulov’s background in cybersecurity, telcos, and, now, cryptocurrency, I had to ask him for his thoughts on how their combination can raise the living standards of people living in emerging regions.

He said many would benefit from the interoperability that often exists between the few available carriers.

“I think that the reason why a lot of those telcos see this as an opportunity is because they currently have the local access or rails to enable those payments. If they basically upgrade and change it from a local payments, local mobile payment into cryptocurrency-based payments, but they keep the same distribution then they unlock the potential of this to receive capital from abroad, unlock the economy and create more access.”

“I think it’s very creative.”

  • Tony Zerucha

    Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.