CEO of ICE, Parent of NYSE, Calls Bakkt ‘A Bit of a Moonshot Bet’

On Thursday (February 7th), during the Intercontinental Exchange (ICE) Q4 2018 Earnings Conference Call, Jeffrey C. Sprecher, the Founder, Chairman, and CEO of the ICE, the parent of the New York Stock Exchange (NYSE), referred to FinTech startup Bakkt, of which ICE is a majority stakeholder, as "a bit of a moonshot."

ICE,"a leading operator of global exchanges, clearing houses, data and listings services", announced Bakkt, "a Global Platform and Ecosystem for Digital Assets", on 3 August 2018. ICE said at the time that Bakkt's "first use cases will be for trading and conversion of Bitcoin versus fiat currencies," and that one of Bakkt's first offerings would be "a 1-day physically delivered Bitcoin contract" that it expected to launch in November 2018. Unfortunately, the launch did not go ahead as planned, it then got postponed to 24 January 2019, it still has not happened, and it is not clear when exactly it will happen.

During Thursday's earnings call, among the company participants, the first to speak was Warren Gardiner, Vice President of Investor Relations, who talked about how much money ICE expected to spend on getting Bakkt ready for launch:

"And finally, our investment in Bakkt will generate $20 million to $25 million of expense based upon the run rate in the first quarter. We will update you on progress at Bakkt and the level of investment as we move through the year."

Then, during the Q&A session, Mike Carrier, a managing director at Bank of America Merrill Lynch, asked Scott Hill, ICE's Chief Financial Officer (CFO), the following question about Bakkt:

"Thanks, good morning. Scott just on the on some of the guidance on the expenses just in terms of - like some of the buckets that you gave just anywhere like $30 million, $35 million on tech investment for new growth and then the $20 million, $25 million on Bakkt just wanted to get your sense on like what are those maybe initiatives? What are the expected returns or like revenue growth associated with some of those expenses whether it's a 2019 or further out?"

The ICE CFO said that "Bakkt is really an investment" and then handed over the question to the ICE CEO Sprecher, who had this to say about Bakkt (whose CEO happens to be Sprecher's wife, KellyLoeffler):

"Yes. Bakkt is a unique structure for us and that we've actually set it up as a separate company with a separate name, its own management team and separate capitalization. So right now ICE is the majority investor in the company, I expect that we'll do other rounds of financing. We'll make a decision as it goes forward whether we stay majority or allow it to spin three of us.

We believe that what ICE has if you step back and look at us is, we have obviously trading clearing. We have settlement capabilities, warehouse and custody management capabilities, large treasury operations, banking connectivity and a global infrastructure that is in many, many jurisdictions -- regulatory distinctions around the world with a massive cyber overlay.

That infrastructure has attracted a lot of very, very interesting companies that have come -- some that have invested in Bakkt, some are just working with Bakkt to try to tap into that infrastructure for some new use cases that will involve blockchain and digital assets and other things that we can provide these people. Obviously, we've announced the Starbucks -- our work with Starbucks and Microsoft. We have very, very large retail franchises global connectivity to end users that we hope will be brought into that ecosystem and could create a very, very valuable company out of that initiative if our business plan plays out.

So it's a bit of a moonshot bet and it's been organized in a manner that is very different than the way ICE typically does businesses. Bakkt has its own offices, its own management team and et cetera. And then we've entered into agreements with it to provide services, as I've described over that Bakkt -- over that ICE overlay.

So we'll see how it goes. They're well along in building out an infrastructure that I think you'll see launch later this year. And I'll let Bakkt talk more about how it wants to go about an what the business and use cases are its revenue model, et cetera, as it unfolds."

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CZ Explains How Binance Dealt With Aftermath of $40 Million Theft

On Sunday (May 19), Changpeng Zhao (aka "CZ"), the Co-Founder and CEO of digital asset exchange Binance, told the crypto community what he and his team had been up to since the May 7 security breach that resulted in a theft of over 7,000 BTC from their Bitcoin hot wallet. 

What Happened on May 7?

According to CZ, the hackers involved in the security breach somehow managed to get control over a number of user accounts and structured large withdrawals from these accounts in such a way thay managed not to be detected/noticed by Binance's "pre-withdrawal risk management checks." Their "post-withdrawal risk monitoring system" only noticed something was wrong after the hackers had moved the stolen BTC off of the exchange via a single transaction, at which time it immediately suspended all "subsequent withdrawals." 

At first, the Binance team was not exactly sure what had happened, and so they decided that the safest course of action was for CZ to send out a tweet to say that the "withdrawal servers" were in "unscheduled maintenance mode" while the team was investigating the incident. 

Communication With the Crypto Community

Once the team had confirmed that the exchange had been hacked, information about the security incident was broadcast to the outside world via all of Binance's communication channels (such as Telegram, Twitter, and Medium). 

Since the team could not be sure which user accounts the hackers had access to, it was decided that it would be too risky to allow further withdrawals to be made until the team had the chance to make "significant changes" to the platform (to make it more secure). Binance's announcement on May 8 estimated that the exchange needed to do "a thorough security review" and estimated that this would take about "ONE WEEK," and that during this period, "deposits and withdrawals" would need to "REMAIN SUSPENDED."

By being fully transparent in their communication with Binance users, they were able to receive "tremendous support" from them.

CZ's Periscope AMA Session on May 8

Seeing CZ live put much of the Binance community "at ease." Unfortunately, because CZ had been up all night, he was not in an ideal mental state when he did the AMA. Just before the AMA, his team told him that a Bitcoin Core developer had suggested that it would be technically possible to roll back the single Bitcoin transaction carried out by the hackers by "hugely incentivizing the miners." CZ made the unfortunate mistake of mentioning this "reorg" idea (which he now realizes is a "taboo topic") during the AMA, for which he took a heavy beating (especially from hardcore Bitcoin maximalists) on Twitter (and elsewhere). 

CZ's Mental State Right After Being Told About the Bitcoin Theft

Although he was in a "F***, F***, F***” state" for around 10 seconds, a few moments later, he "began to come to terms with it," and a quick mental calculation told him that the theft of around 7000 BTC (equivalent of around $40 million at the time) could be fully covered by their SAFU fund. Meanwhile, his team had already gone into "War Mode", and their professionalism and support cheered up CZ. 

Support From the Crypto Community

Binance received support from many sources: people defending him and Binance on social media platforms, and helping to answer questions; the Binance Angels (who are all volunteers) "addressing questions" and "reassuring" users on "multiple communities"; analytics firms helping with the tracking of the stolen funds; exchanges and wallet services offering to help by blocking "any deposits associated with the hacker addresses"; and "numerous offers for help from law enforcement agencies around the world."

A Blessing in Disguise?

"Speaking with various team members, and as correctly analyzed by community members, such as Gautam Chhugani, this incident may actually be a good thing for us in the long run. Security is a never-ending practice. There are always more things to do in security, and we have implemented many of them in this last week and will continue to implement more in the future. Given this incident, Binance has actually become far more secure than before, not just in the affected areas, but as a whole."