Hidden deep within a network of steel and concrete, there exists the ultimate in Bitcoin cold storage. If some figures are to be believed, about $10 billion in Bitcoin – 7 percent of the world’s supply – is locked up within the multicontinental storage grid of Xapo. This huge store of digital value is the key to widespread institutional investment, according to the project’s backers. If a reliable method can be found to store giant sums of Bitcoin safely, banks, governments, and other institutions will be less hesitant about throwing their hats in the ring alongside home miners, wannabe hackers, and small-time digital investors. The Wild West, so to speak, will be somewhat tamed by the presence of a large, ultra-secure Bitcoin banking platform divorced from traditional banking interests.
What Is Xapo?
Xapo is a startup spearheaded by Argentinian entrepreneur Wences Caseres. For the past four years, Caseres has served as a kind of private Bitcoin bank for wealthy Silicon Valley clients. Three of those clients have confirmed to Bloomberg that Xapo holds around $10 billion in Bitcoin stored in vaults on five continents. The Swiss wing of Xapo is overseen by the Financial Services Standards Association, while the U.S. wing is administered by the U.S. Treasury Department.
If Xapo is holding as much Bitcoin as these clients suggest, that means the company collectively holds more than 98 percent of the banks in the U.S.
Who Is Wences Casares?
Besides being the CEO of Xapo, Casares is on the board of directors of internet payment titan PayPal.
Casares has been described by Forbes and other media outlets as the “patient zero” for Bitcoin interest in Silicon Valley. He serves as both an evangelizer and a popularizer, singing the praises of Bitcoin while he works to make Bitcoin’s peer-to-peer protocol palatable for an institutional investment audience.
Wences Casares, Image from Forbes
Bitcoin, Casares believes, is the future of blockchain technology. That’s a critical reversal of the usual paradigm. The normal tech trend has been to promote alternative uses for blockchain above and beyond Bitcoin, from the Internet of Things to novel peer-to-peer sharing applications.
It all begins and ends with Bitcoin, Casares told PayPal CEO Dan Schulman in an interview covered by Forbes.
“That shows quite a lot of ignorance about how the system works because that would be the equivalent of saying, ‘I like the web, but I don’t like the internet,’” Caseres said. “Well, the web doesn’t work without the internet. The blockchain doesn’t exist without Bitcoin.”
Underpinning Casares’ logic is the huge amount of money tied up in Bitcoin – and in his Xapo vaults.
“A blockchain of four banks – it’s a database of four banks,” he said. “It’s nothing new. That’s not really a blockchain. A blockchain is something where you don’t have to trust any counterparty.”
The trust inherent in the Bitcoin blockchain is intimately tied to the value stored within it and the financial incentive for miners to create more Bitcoin, he explained. Eventually, Bitcoin could provide the foundation for a project as big as the current internet.
“Even though it made some engineering sense, it didn’t really make sense as a whole,” Caseres said, describing the early evolution of the internet when different protocols were in use for different use cases. “There were huge incentives. Today, the internet won, and TCP/IP transports everything . . . Even things you never imagined – at some point, [everything started] being transported via TCP/IP.”
Allegedly, it was Casares who gifted Bill Gates his first Bitcoin – despite the fellow tech giant’s widespread dislike for the cryptocurrency.
Who Are Xapo’s Backers?
Xapo’s client list is necessarily secret. However, public backers include LinkedIn co-founder Reid Hoffman and Wall Street banking legend Mike Novogratz, according to Bloomberg. The company’s advisory board contains former U.S. Treasury Secretary Larry Summers, former CitiGroup CEO John Reed, and Visa International founder Dee Hock.
The company is targeting the institutional market in addition to the private mega-rich. By providing a cold storage option for billions of dollars in digital value, the company hopes to give Bitcoin a long-term future in the traditional financial market.
What Purpose Does Xapo Serve?
Xapo bills itself as the ultimate storage security solution for Bitcoin. That might seem a little strange to Bitcoin purists. Via the administration of a private key, each Bitcoin owner has the potential to act as his or her own bank. As long as the private key is maintained in a safe location, the users’ funds are generally safe from attack. The prime dangers come in storing Bitcoin on an exchange, which can be targeted by hackers, financial failure, or natural disasters, or falling prey to phishing attempts.
Cold storage adds a layer of security to the private key option by physically removing Bitcoin from an internet connection. This air gap makes it incredibly difficult to steal Bitcoins without physical access to the device in question.
In Xapo’s case, that physical device is made up of offline servers in underground fallout shelters and vaults, as secure as any bank or casino vault.
What Does a Xapo Vault Look Like?
A few journalists have been granted tours of Xapo vaults, a privilege usually reserved for clients who plan to stash millions away with the company.
Xapo’s website offers a short preview of the experience.
“We’ve built a fortress,” Xapo proclaims. “Secure Bitcoin storage is what we do best. We’ve developed a new standard in Bitcoin security that protects your assets by using man, machine and even a mountain to keep your money safe.”
A journalist with Quartz Media who visited Xapo’s Swiss vault outlined some of the details of this so-called fortress.
The Swiss Xapo vault is actually located inside of a decommissioned Swiss military bunker.
The entrance to the vault is located at the end of a single-lane road at the foot of a mountain, blocked by a 10-foot steel fence. The bunker’s concrete door leads into a lobby where prospective visitors are fingerprinted and photographed before entering a bulletproof glass case, which is opened on the other side by a security professional.
Entrance to the Bunker, Image from QZ
An ID card check later, and a visitor must then pass through a set of steel revolving doors into the bowels of the mountain. At the end of a 300-foot passageway are a pair of nuclear-grade blast doors. A second glass cage awaits, followed by a white door that leads to a cooling unit and a second door that even visitors are not allowed to access.
Entrance to the Datacentre, Image from QZ
Past that door is the vault’s operations room and the cold room where storage of client’s private keys actually takes place. The cold room is surrounding by a steel plate Faraday cage to guard against electromagnetic attacks.
Passageway through the mountain, Image from QZ
The cold room can’t actually be entered; it’s sealed with tape to prevent tampering. Operators interact with the offline servers beyond via cables running into the cold room. Those operators have their actions checked by independent operators at two other Xapo vaults, which much be located on two separate continents.
An Empty Private Suite, Image from QZ
All told, it takes about two days to withdraw a client’s Bitcoin from storage.