China’s fledgling ‘crypto custody’ sector grows despite bans
A Shanghai start-up believes the storage of digital assets needs better security, and that this requires the removal of human oversight
Despite being well-documented, China’s hardline stance towards the crypto-currency industry has done nothing to thwart ambitious blockchain startups eager to bring new offerings to the table.
Founder and CEO of Shanghai-based crypto start-up InVault, Kenneth Xu, has not been put off by Beijing clampdowns. He believes that the crypto industry needs more security around the storage of digital assets, and that achieving this requires the removal of human oversight.
In a local news interview, Xu said the vast majority of global crypto-currency exchanges “still involve their senior management in managing the transfer of digital tokens ordered by clients. Putting the private keys to your crypto-currency assets in the hands of senior management is akin to putting all your money in their control.”
Xu maintains that this effectively negates crypto’s decentralization ethos and turns exchanges into nothing more than digital banks.
Such a dilemma opens the door for a crypto custody service that serves as a system of safekeeping, taking over responsibilities from the trade-focused exchanges. “In conventional stock trading, securities are all held at a central depository and not by exchanges. The same should apply in the digital token arena,” Xu added.
The industry has come under heavy fire this year following hacks on some of the world’s major crypto exchanges including Japan’s CoinCheck and Korea’s Bithumb. The incursions wiped out millions of dollars of customers’ digital assets, losses that often had to be reimbursed by the exchanges out of their own pockets.
This week’s launch of InVault comes amidst a flurry of warnings and clampdowns from Chinese lawmakers who are seemingly hell-bent on quashing crypto in all its forms. Crypto-currency trading and initial coin offerings, or token sales, have been classified as illegal fundraising by the People’s Bank of China.
Despite the clampdown InVault says it has already been backed by venture capital fund Matrix Partners China, netting it $5.85 million in seed funding.
Many Chinese exchanges and crypto companies have moved overseas this year to seek friendlier environments for their operations; InVault also says it has been asked by one exchange to safekeep a million Ether tokens worth an estimated $195 million at today’s prices.
Crypto custody services for the corporate sector are expected to be highly lucrative, according to Xu, since most exchanges currently cater to retail traders. InVault will offer decentralized corporate crypto-currency wallet services, placing clients’ private keys in several physical biometrically secured vaults.
Additionally, the firm has expansion plans for next year involving South Korea, Singapore and Japan, where many of the world’s top crypto exchanges by trade volume – and also offshore crypto assets – are based.