Bitcoin ETFs make Coinbase a ‘honeypot’ for hackers and governments: Trezor CEO

According to Prague-based hardware wallet provider Trezor, there are currently 420 million global exchange users but only eight million self-custody hardware wallet users — that’s around 2% of the total.

This would imply a huge potential market for Trezor, but there have been recent disturbances in the Force, not least the recent approval of Bitcoin exchange-traded funds (ETFs) and the potential for Ethereum ETFs.

These financial products allow investors exposure to crypto without the need to hold the asset itself. It’s the opposite of self-custody and potentially not good news for hard wallet providers.

Trezor CEO Matej Zak says that for existing Bitcoiners and aspiring Bitcoiners, the ETFs should not be the first port of call.

“The ultimate aim for everyone holding Bitcoin should be to self-custody the asset in a hardware wallet where it is safe, private and protected.”

Coinbase is Bitcoin honeypot… put your crypto in a hardware wallet

And he issues a stern warning about the dominance of Coinbase, which is where eight of those 10 ETFs reside. When so many assets are corralled in one place, there is always the threat of hacking and, worse, state intervention.

“With the current major inflow of capital into spot ETFs, Coinbase is likely to become the largest Bitcoin honeypot, attracting hackers, social engineers and other attackers in volumes never seen before,” he says.

“Yet these bad actors may not be the highest risk in this case. The major threat here comes from governments that may be tempted to confiscate bitcoin stored at Coinbase in whole or in part, such as. through specific taxes or simply just by legislating and confiscating.”

If this sounds like the CEO of a self-custody company sounding a false alarm, it’s not — because it’s happened before, in 1933, with President Franklin D. Roosevelt’s Executive Order 6102.

The state confiscated citizens’ gold because federal debt was out of control, and the geopolitical headwinds were blowing in an uncertain future. That’s a little close for comfort to the circumstances today, where the United States federal debt stands at $34 trillion.

Some speculate the temptation may be to tap the potentially huge value of Bitcoin stored at Coinbase or to somehow combat the threat from Bitcoin to the U.S. dollar.

Matej Zak’s 5 years at hardware wallet firm Trezor

Zak says Trezor was much smaller when he joined, but he knew it had potential, not just for the technology of the Trezor hard wallet but its mission.

“I joined Trezor initially to shake up the product development side of the business and could see its potential to grow globally. I was also attracted by the business’s commitment to the principles of freedom and, in particular financial freedom.

Also read: Crypto City Guide to Prague

“As CEO, I’m now in a position to build new value into and on top of the current Trezor products. Five years ago, Trezor was a much smaller company with latent ambition.

“Today, with a fantastic team full of world-class talent, we are gearing up for a significant increase in the global number of Trezor users – where we expect to multiply our base during the current bull market.”

Should you keep your crypto on an exchange or on a hardware wallet?

For all the benefits of self-custody, it still comes with risks, though, from losing your seed phrase to getting funds stolen in a $5 wrench attack — and clearly, around 400 million people appear to think it’s too much bother.

Also read: Pink Drainer creator defends his wallet-draining crypto scam kit

While it is true that individuals who don’t own their keys (self-custody) don’t own their crypto (exchanges go down and are regularly hacked), the trend seems to be that after 10 years of complicated keys and passwords, the self-custody dream may be dying.

But Zak makes a compelling argument to make the effort.

“Without self-custody, they’re missing out on a big part of what makes Bitcoin special – decentralization and real ownership of their money.”

Zak concedes that some potential users are intimidated by what they see as the complexity of hardware wallets compared to the ease of just leaving crypto on the exchange. But they’re working on it.

“We’re on a mission to make self-custody accessible to everyone, tackling it from two angles. First, we’re all about simplifying concepts through easy-to-digest education,” he says.

Second, he says, Trezor is constantly working on making the processes as simple as possible.

“Our research team is always chatting up a storm with all sorts of customers, digging deep to figure out what trips them up and what they find intimidating.”

When asked about the downsides of self-custody, Zak is refreshingly open about it and points out the dangers of handing over custody to an exchange or a fintech app.

“Apps such as Revolut do a good job. They hold crypto for customers, it’s easy to do, but there’s the long process of KYC, connecting credit cards and so on. In many respects, it’s the opposite of what Bitcoin was supposed to be.

“We have a desktop and mobile app and it is a little more complicated, but as long as customers educate themselves and know what they’re doing, then it’s much better for them in the long run. They also get to have complete control over their assets.”

Bitcoin bull run foretold by funds coming into hardware wallets

Zak knows a lot about Bitcoin bull runs, and when we met in a bar in Prague last year for the first time, he told me that he knew that positive market sentiment was coming. He was seeing an influx of crypto funds coming into Trezor wallets and claims this happened during the start of every bull run.

A bold claim, I told him at the time, but a claim that has turned out to be on the money. Like many others in this volatile world, I should have listened and positioned accordingly. Zak has his finger on the pulse — he isn’t your average crypto bro, more like a tech entrepreneur.

Healthy, active lifestyle

Zak has an active lifestyle, certainly compared to others in the crypto industry who have a Lambo mentality and prefer the high-rises and luxuries of Dubai to healthier outdoor pursuits. 

He originally trained as a classical guitarist and still performs in a jazz band that plays regularly in Prague. A huge fan of the Spanish flamenco master, Paco De Lucia, Zak studied music because he loved it, but always enjoyed the company of tech-oriented people.

“In my free time, I perform in a jazz band and climb mountains around the world. I also compete in endurance sports, including hike and fly (paragliding) races. I find that really taking your head out of work pays dividends when you are back at your desk.”

He moved into a world of impactful tech from an early age. He built a few startups with varying degrees of success — a live-streaming app for concertgoers and musicians and an e-bike share company that didn’t take off but still exists five years later with others in charge. But failure doesn’t seem to bother him.

“You learn a lot from your mistakes. I’ve always been interested in shaping fast-growing and net-positive tech companies ever since high school. New technology has always fascinated me.”

When he studied a course for startups in Prague in 2015, he started hearing more and more about Bitcoin. He liked the look of Trezor and the company culture, applied for a job and worked his way up to his current position.

“I was an aficionado and user of Bitcoin before joining Trezor five years ago. However, a real spark was ignited through my experience working on Trezor’s product development. Contributing to and being part of something that millions of users worldwide subscribe to — privacy security and financial self-sovereignty — is a powerful motivation,” he says.

Trezor data breach of 66,000 email addresses for hardware wallet owners

The past five years haven’t been without its challenges for Trezor, not least a data breach that leaked 66,000 email addresses. Zak regrets that but also explains that nothing apart from email addresses was hacked.

“We were relying on a third-party supplier at the time, and it’s always kind of shitty when things like this happen. We were part of a wider phishing attack and lots of companies were affected at that time.

“To be completely honest, creating an emailing service by ourselves would be too expensive, but because of our mission to never handle personal information and not storing people’s data, this worked in our favor. However, we did have to find another supplier, and obviously, we are undergoing extra due diligence to protect our customers.”

So how does Trezor protect its customers from phishing and other such attacks?

“It’s simple. Don’t store anything online, adopt healthy practices, nobody needs to be phished if they educate themselves.”

Trezor hardware wallet at Bitcoin Prague

The annual Bitcoin Prague conference in June is a big deal for the industry.

It comes just a month before the company’s 10th anniversary, at a time when the current bull run is expected to be in full flow and, in theory, time for a huge celebration.

But will self-custody gain ground in its second decade or lose its share?

According to Zak, Trezor is again using Bitcoin Prague as a place to evangelize what the company is doing. They will be announcing “some exciting developments” in the range of self-custody solutions, “all geared toward serving the ever-growing number of users worldwide.”

Sure, but what are they?

Zak keeps his cards somewhat closer to his chest but, pressed for details, says the “developments” related to an extension of the Trezor Safe product that launched in October.

As for Bitcoin Prague?

“It’s a fantastic opportunity to make a significant impact right in our hometown for our loyal community while also extending a warm invitation to people from around the globe to experience Prague,” he says proudly.

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Andrew Fenton

Based in Melbourne, Andrew Fenton is a journalist and editor covering cryptocurrency and blockchain. He has worked as a national entertainment writer for News Corp Australia, on SA Weekend as a film journalist, and at The Melbourne Weekly.

Follow the author @andrewfenton