Xapo secures $20 million from Silicon Valley and Wall Street investors.
FORTUNE — Somewhere in the world sits a large vault, manned by armed guards and further protected by biometrics. But there is no gold, cash or jewels inside. Instead, it’s just a computer that has never been connected to the Internet.
The vault’s purpose? Protecting bitcoin.
It’s the brainchild of Wences Casares, former CEO of digital wallet company Lemon (acquired by Lifelock last December). His new company is called Xapo, and has raised $20 million in first-round funding led by Benchmark. Other investors include Fortress Investment Group FIG and payment-focused VC firm Ribbit Captial.
Xapo’s vault — actually there are two, both at undisclosed locations — is a so-called “cold storage” facility for storing bitcoin, which means that it is virtually impossible to hack (well, unless you get past the armed guards). Not only are the servers not online now, but the fact that they never were online means no one was ever able to “fingerprint” them, and predict how they would generate the randomness of public/private bitcoin keys (information that is essential to stealing bitcoin). And, on the off chance a breach does occur (or Xapo goes bankrupt), all of the bitcoin contained in the vaults is insured.
So far the Palo Alto, Calif.-based company has been holding bitcoin for large institutions, including hedge funds, family offices and sovereign wealth funds. Users pay 12 basis points per year, based on the number of bitcoin being stored. But Casares wants to expand to more of a retail audience — something he hopes to attract, in part, via a complementary digital wallet product. The wallet is about convenience, while the vault is about security.
“I grew up in Argentina,” Casares says. “My parents were sheep ranchers, and I saw them lose everything at least three times. Once because of inflation, once because of deflation and once because their savings were confiscated. I recognize that those are extremes but, when you grow up in that environment you become much more aware of problems with currency. So when I saw bitcoin it was like a dream.”
Matt Cohler, a Benchmark partner who personally holds “a lot” of bitcoin, believes that people will eventually pick bitcoin service providers much like they currently choose traditional banks or money managers. “You’ll want to understand the company’s credibility, backing, and solvency. In this case, you have a company led by one of the most important people in the bitcoin ecosystem, it’s insured and has investors from both Silicon Valley and Wall Street.”
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