An FDIC for Bitcoin, some are calling it. Bitcoin security service Xapo recently raised a $20 million round lead by Benchmark Capital and Fortress Investment Group, LLC. The premise of Xapo is to provide both a Bitcoin wallet and what they describe as a “vault” for your bitcoins. Yes, it is a physical vault, where servers that are offline and never have been online store the bitcoins, and the users’ private keys, used to access their bitcoins are guarded by layers of security, including armed guards, in multiple locations around the world. The wallet acts similarly to a checking account for one to use to readily make transactions, while the vault acts as a secure savings account. With the excessive fear regarding hackers stealing all your magic internet money, Xapo is a refreshing layer of security. The %.12 annual fee for the vault service is certainly more than you’d expect from your standard savings account, but as the first movers, they can really charge whatever fee they want right now, and the security paranoia surrounding Bitcoin currently could probably drive the price up even higher, if Xapo chooses to do so.
However, I find it odd that the security method chosen here that is making people breathe so easily all of a sudden is offline, physical security. Bitcoin is designed to take advantage of the open source, decentralized nature of the Internet. I’m certainly not making any arguments for or against Xapo with this line of thought. I just find it ironic that instead of furthering efforts to make the Bitcoin network, Bitcoin exchanges, and Bitcoin wallets more secure, a process that would likely lead to stronger Internet security in general, we are choosing to take a step back into our comfort zone. We’re basically burying our bitcoins underground and guarding it – a practice as old as time itself. Maybe that’s just a testament to “if it ain’t broke, don’t fix it,” but it just seems weird to me that a concept so old is having $20 million thrown at it. Then again, almost anyone that develops a phone app can get $20 million these days, it seems, so should I really be surprised?
All this being said, I’m glad Xapo has arrived. A service to make new adopters safe using Bitcoin is, well, necessary. Users that don’t have a technical background are more likely to look at Mt. Gox and other negative incidents and feel like their investment isn’t a safe one, instead of taking solace in the air-tightness of the code behind the more commonly used Bitcoin wallets, and the Bitcoin network itself. Until Java is taught in grade school, almost everyone will feel safer burying their bitcoins underground than they will relying on code and advanced mathematical algorithms. I personally have no plans to use Xapo at the moment – in the Blockchain I trust, if you will. However, it’s clear Xapo will make Bitcoin feel safer for the non-technical majority, and frankly, that’s what matters right now.