How Silvergate Became the Foremost Bank for Crypto Startups

For Alan Lane, the trip has long since CEO Silvergate's bank bought its first bitcoin in 2013.

It was the time when his small bank, headquartered in La Jolla, California, began his first cryptographic exchange as a client. It was a courageous move by a financial institution because at that time most bankers watched bitcoin as a grace, scam, or risk of reputation and regulation - if they even heard of it.

Speaking on Friday at the BlockFS conference in New York, Lane reminded:

"Hither are some of the companies that have raised money from renowned venture capital." They did nothing illegal, they did not have immoral, but they had trouble keeping their bank accounts, so I compared their need for deposits with their need for banking services. "

Five years later, Silvergate is probably the leading bank of cryptographic startups in the United States. Key Exchange Users include Coinbase, Gemini, Kraken and BitFlyer. As revealed by the bank's original brochure, filed earlier this month, the bank is now working with 483 cryptographic startups that generated $ 1.7 billion in deposits in the third quarter of 2018.

To overcome crypto phobia that has hitherto prevented most Silvergate peers from serving this sector, Silvergate has called on scholars to meet directly with bank regulators, Lane said during the roundtable Bitcoin's bank start.

Even in his early days, he said, he just wanted to work with startups with experts who had legal expertise in the traditional financial world and were devoted entirely to day-to-day monitoring of absolute compliance.

At that time most entrepreneurs with cryptographic computers at that time had managers with different responsibilities, which would not reduce the costs of the bank or its regulators. "The compliance officer is not a person with more handsets," Lane said.

Club Coinbase

At the same meeting, Nick Rosenberg, Metropolitan Bank Chief Information Officer in New York, said his institution, one of the few who competes with Silvergate in the universe, actively carries out a wide range of cryptographic startups.

But Lane said that Silvergate had reduced its focus to almost exclusively stock exchanges, stock market trading and institutional investors over the years.

As for Silvergate and Metro sharing Coinbase as a common buyer, Lane said,

"Coinbase is probably the best-funded company in the ecosystem. Coinbase probably has banked with all the other banks that do it deliberately and us."

Lane said this might be a largely popular early strategy when cryptographic companies develop relationships with several banks in case one of them falls.

To distinguish itself from other client banks, Silvergate integrates with platform platforms so that institutional investors with Silvergate accounts can execute instant transactions or deposits, even if the bank is closed.

It also gives investors a bit of rest that they can quickly and accurately withdraw their money.

"It's equally strong at the exit, on the ramps," Lane said. "Because we all heard about pirate exchanges."

Blockchain Data
The availability of data from an extensive public library helped Silvergate feel comfortable in a sector that has long been associated with the public, rightly or wrongly, with harmful activities.

In the early days, Silvergate has conducted a continuous tracking process that combines block buses with block data from bitcoins. So far, Lane has said that his staff will be able to make quarterly visits to exchange offices for providing them with the latest tools for tracking all blockchain-based assets, with day-to-day monitoring and routine communications.

"We wanted to see both sides of this transaction [bitcoin]," Lane said. "When you upload a $ 50,000 transfer, send us the block channel address ... what we want to see on the block network is a transaction that matches that $ 50,000 value."

Silvergate often applies the same pedantic approach by asking its clients to use external auditors for assets such as dollars denominated coins - and Gemini and Coinbase launched this year - to ensure that deposits in the fiat correspond to exchange records.

Although Lane said he first scoffed for the crypto-currency phenomenon that was designed to maintain its value as a fiat, his bank "is currently looking for stable currencies" to learn more.

Explaining why Silvergate is slow and selective when integrating new cryptographic clients, concludes:

"It's really important that everything is done properly, because if our platform is used illegally, it will hurt our business and system integrity, so we're very protective of what we've built."


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