With the implosion of Mt.Gox and the rising popularity of cryptocurrency, it makes sense that someone would want to build an FDIC for BTC. Xapo thinks it may have figured out how.
The company, founded by Wences Casares, raised $20 million from Benchmark Capital and Fortress Investment Group LLC, among others, and has been in stealth mode for two years managing bitcoins for large institutional clients – think investment banks and financial firms. Now they’re opening their service up to consumers.
“If you have one or a couple rogue employees there’s not anything they can do to take the coins out of our vault,” said Wences. “The coins that are in the vault are on servers that are never online — have never been online.”
The private keys — essentially the way you access your BTC — are under armed guard and behind layers of physical security in deep storage spaces around the world.
“In the wild west of Bitcoin, it’s disorder that makes people realize just how much they want civilization,” said Adam B. Levine, Editor-in-Chief of Let’s Talk Bitcoin Network. “Private ‘Vaults’ are a natural response to Mt.Gox, the equal and opposite reaction, but I’m truly excited about these early insurance products. We’re now seeing the evolution of the open source cryptocurrency experiment where the tokens are worth enough and the concept is viewed seriously enough to make it warrant professional, institutional-grade security and insurance.”
Users can create a Bitcoin wallet using the service and then move their coins into a vault for an “annual custody fee of .12% of your vault balance.” This service also insures your bitcoins against theft and hacking, a valuable asset for those worried about getting Mt.Goxed. Your wallet is protected by a four-digit PIN, which isn’t very heartening, but it makes the creation and management of BTC wallets far simpler.
“To break into that you need to break the technology, break the processes, and break into different vaults on different continents,” said Wences.
Wences noted that one client came to him with a laptop containing 30,000 bitcoins. The IT team had physically ripped out the Wi-Fi card but in the process they had almost damaged the CPU and hard drive, essentially losing those coins. “And these were some pretty sophisticated people,” he said.
The wallet, said Wences, works like a checking account while the vault works like a savings account. They have no intention of ever becoming an exchange.
If the service sounds simplistic, there’s a reason. The company aims to make the storage and protection of Bitcoin far simpler for everyone, from big banks to the average Satoshi. The $20 million investment is going towards managing the massive amount of security required to maintain a secure bitcoin environment and, more interestingly, apply enough security to convince insurance houses to pay up if someone hacks into the vault.
“To this point in Bitcoin, there’s been no way to outwardly tell if an institution is competent or not – they’re all black boxes. The introduction of these insured plays, and believe me this is the first but not the last, means that any service advertising it’s got this insurance is one who has been vetted, and who is being watched like a hawk by its insurers because if something goes wrong it’s their funds that’ll fill the gap,” said Levine.
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