Xapo, the startup that stores bitcoin purchases for millionaires and billionaires in underground vaults, is housing around $10 billion worth of the digital token.
Bloomberg reported that the startup holds about 7 percent of the global supply of bitcoin, giving it more so-called deposits than 98 percent of the 5,670 banks in the U.S. Xapo vaults, which store the keys for the bitcoins, are located in five continents, with one in a decommissioned Swiss military bunker.
Xapo was created by Wences Casares, the Argentine entrepreneur who has convinced the wealthy that they need to own bitcoins. The huge holding of bitcoin at Xapo, noted Bloomberg, underscores the faith people have in Casares. “Everyone who isn’t keeping keys themselves is keeping them with Xapo,” said Ryan Radloff of CoinShares, which has more than $500 million in bitcoin stored at Xapo. “You couldn’t pay me to keep it with a bank.”
Some of the backers of Xapo include Reid Hoffman, the co-founder of LinkedIn, and Mike Novogratz, an ex-Wall Street trader who is creating his own cryptocurrency bank. They expect bitcoin to be around for the long haul, despite the wide price swings. “They’re the first folks who recognized custodial and security functions would be key,” said Hoffman in an interview with Bloomberg. His venture capital firm Greylock Partners led a $20 million investment in Xapo four years ago. “He made the pitch in the morning, and in the afternoon I called him with an offer.”
The vaults are necessary to protect the investors’ private keys — the codes that enable customers to spend their cryptocurrency. If a bad guy gets his or her hands on the key, the digital tokens could be stolen — with no recourse to get them back. Hackers have been adept at hacking keys stored on the Internet, thus the Xapo service. Another option, keeping the key offline in what is called cold storage, has also been perilous — some hackers have waited for these cold storage devices to be connected to the Internet, while others have engaged in home invasions and kidnappings to get the codes. That has prompted some bitcoin tycoons to hide their identities and better secure their homes, reported Bloomberg.