Wondering how to secure your precious cryptocurrency fortune? A number of Bitcoin investors are locking up their loot in underground vaults across the globe to prevent them from being stolen.
That’s roughly 6 percent of BTC’s current market cap being stored by a single entity – making Xapo one of the largest cryptocurrency storage services on the planet.
Xapo is one of the first companies to capitalize on the security concerns associated with storing Bitcoins, which have been rampant pretty much since the virtual currency’s inception. In fact, the first major Bitcoin theft, of 25,000 BTC (worth $231 million at today’s market price), can be traced back to 2011, when Bitcoin was still worth $19.
Xapo’s clientele have the option of locking away their cryptocurrency in one of its vaults located in undisclosed physical locations across three different continents, guarded by biometric locks and armed guards. The private key to a customer’s wallet is stored in these vaults, and access is granted to the user only if their identity has been established beyond doubt.
The shortcomings with the usual wallet services force cryptocurrency holders to turn to such extreme methods to store their valued investments.
Exchange wallet services offer the simplest user experience, especially for frequent trading, but they are the worst when it comes to security. A number of exchanges have lost significant money of their users to hackers including Mt. Gox, Bitfinex, Poloniex, Bitstamp, and Bitfloor.
Online wallets are considered to be a safer choice, but even they are vulnerable to phishing attacks and compromise of private keys.
While hardware wallets are considered even safer, researchers have shown that that these can be hacked too. In March, a 15-year-old programmer managed to hack Ledger Neno S and even disclosed the security flaw to the company.
It is worth noting that while Xapo’s services significantly improve the security concerns associated with Bitcoin storage, they kind of defeat the entire purpose of cryptocurrencies.
Locking up your Bitcoins in remote physical locations doesn’t exactly sound like the ideal way to secure a supposedly revolutionary digital currency.
It takes upward of 48 hours for your Bitcoin to show up in your Xapo wallet from the company’s vaults if you want to withdraw them, that is on business days — your wait can stretch up to 4 days if you happen to catch the weekend in between.
If you intend to further trade your BTC for another cryptocurrency, there is an added wait and cost for transferring your BTC to an exchange wallet.
Xapo’s services are meaningful for HODLing Bitcoin for a long term like you would gold, and might suit major investors. But for people who hold smaller investments, or who like to frequently trade their cryptocurrencies, Xapo’s services are less than ideal. Both the cost incurred in the transactions and the time taken will be too high for it to be viable.
Xapo’s solution to the Bitcoin’s security problem is not efficient for mass adoption, and better solutions need to be figured out.
While it’s interesting that a service like Xapo’s exists, it underscores the need for better solutions that all investors can take advantage of. Hopefully, we’ll see a better security option soon: the Ethereum Foundation is looking to fund projects that are trying solve the security problems faced by existing wallet services.
Published May 10, 2018 — 09:13 UTC