Storing cryptocurrency can come with considerable headaches, which has led some financial institutions to avoid offering to hold it for customers altogether. In response, a New York start-up called Curv is proposing a new solution: Replace the current storage method, which involves dividing the digital “private key” among multiple trusted individuals, with a system that relies on mathematics and cloud computing.
Curv, which on Tuesday announced it raised $6.5 million from Israeli cybersecurity group Team8 and crypto giant Digital Currency Group, is the latest company to tackle the problem known as custody. The problem arises because digital money has no physical form, and can be stolen by anyone who knows the private key—a long string of alphanumeric characters—that unlocks the wallet where it is stored. This means traditional vaults may not be secure enough for assets like Bitcoin and, when funds are stolen, it can take weeks or months to discover the theft.
Currently, typical custody is reminiscent of the Horcrux puzzle from Harry Potter, where different parts of the key are scattered in different places. Curv, on the other hand, says it has found a way, in the words of Team8’s CEO, to “solve the eternal trade-off between security and availability.”
Specifically, Curv says it has achieved a breakthrough in crypto storage by deploying multi-party computation (MPC). This is a relatively new field of cryptography that allows multiple people to calculate functions like sums or averages without disclosing the inputs that go into them. (A simple example of MPC, described here, involves four individuals discovering their average salary, and which of them has the highest salary, without disclosing how much each of them make).
“Five years ago it would have taken a long time and lots of network traffic to do this. The breakthrough is that the math can be brought down to a sub-second calculation. That means it’s possible to do something through a cloud deployment,” said Curv CEO Itay Malinger in an interview with Fortune.
Malinger, a veteran of web security giant Akamai, added that banks and hedge funds (he did not disclose which) have been testing Curv’s system in recent months. In addition, the stock and crypto purchasing app eToro, which is popular with millennials in Europe, has also been experimenting with Curv’s technology.
Curv’s cloud-based approach to storing cryptocurrency is also a departure from companies like Xapo, which has long touted an elaborate system to safeguard customers’ Bitcoin by placing it on physical devices in vaults under a mountain. Malinger argues such approaches, known as cold storage, fail to harness the best attributes of cryptocurrency.
“Blockchain tech has two things to offer—decentralization and a digital always-online world. Bunker storage is going backwards. You’re taking Bitcoin, one of the biggest innovations of the last decade, and instead of making it accessible, you’re putting it into a 1950s bunker,” he said.
Curv’s new offering comes at a pivotal time. Even as consumer interest in cryptocurrencies has diminished amid a long-term price slump, institutional money has been pouring into digital assets in recent months. This trend could accelerate if more banks and hedge funds perceive that options for crypto custody are viable from both a practical and regulatory standpoint.
Meanwhile, custodian services promise to deliver an important new revenue service for crypto companies, which have seen a fall-off in trading revenue amid the price downturn. Among those are Coinbase, whose CEO Brian Armstrong recently challengedFortune reporter Robert Hackett’s claim that cold storage amounts to an inefficient use of crypto.
According to Malinger, Curv doesn’t aspire to be a rival to existing crypto custodians, but instead sees itself as a vendor to those companies.
Curv’s multi-party computation system for storage is still unproven in the marketplace but the decision of the big brokerage eToro to use it amounts to a big vote of confidence.
Curv’s association with Team 8 may also boost its credibility. The Israeli firm has served as an incubator for a number of successful startups, using a distinct model that—unlike other incubators that mentor a batch of companies—identifies a perceived market need and funds a startup to tackle it. It remains to be seen whether cloud-based crypto storage will attract the demand that Team 8 anticipates.
(This story has been updated to clarify that e-Toro is experimenting with Curv. An earlier version suggested it was using a live version).
