When Satoshi Nakamoto published the Bitcoin whitepaper, the world was at the tip of a quantum leap in humanity’s relationship with money. “A Peer-to-Peer Electronic Cash System” states the mysterious author in the title. Bitcoin’s embedded scarcity and decentralised nature have proven to be a genuine value and wealth creation opportunity. A whole new industry has evolved ever since.
Bitcoin has increased its purchasing power since its creation, while the majority of fiat currencies around the world, have and continue to lose it, with extreme cases like the hyperinflation in Zimbabwe or Venezuela where many have been forced to opt for more stable currencies like the US dollar to safeguard their wealth from the appalling monetary policy of their jurisdiction. Bitcoin adoption in these nations has been a must for some to receive remittances from family members outside the country as well.
In Argentina where quantitative easing measures have and continue to devalue the local currency, having your earnings offshore has been a strategic move for local investors. The US dollar as the world's reserve currency strikes as a no-brainer alternative against the Argentinian Peso.
Not only currency devaluation but the confiscation of hard-earned savings by the government are documented events that have made the Argentinian public weary of their financial decisions. Growing up in such a context allowed Xapo Bank’s founder Wences Casares to see Bitcoin’s potential when not many did. Today, Xapo Bank holds one of the largest known Bitcoin reserves in the world.
Back to the question - is there a right way to store your Bitcoins? That depends on your personal preference and the level of responsibility you are willing to take on.
“Not your keys, not your funds”
Some argue that crypto custody with third parties is a risky endeavour and contrary to the Bitcoin ethos. Thus, for this group, the way to go is self custody of Bitcoins. Those arguments are valid to a large extent, especially with recurring incidents where crypto exchanges suddenly collapse and customers lose their funds.
However, the reality is that cryptocurrencies have not reached the level of everyday commerce that fiat currencies enjoy, and Satoshi’s vision for digital cash still has vast territories to conquer. Individuals need to convert their Bitcoin to fiat in many cases, and need secure and reliable services to achieve it.
The risk of losing the private keys of a self-hosted wallet and losing your funds forever is real. Opting for this choice of storage entails a certain degree of responsibility one must be comfortable with when storing Bitcoin.
Besides these points, the transparency of the Bitcoin Blockchain created a window for anti money laundering (AML) guidelines to develop financial controls that extend into the cryptocurrency world.
As the regulatory space surrounding Bitcoin and cryptocurrencies evolves and matures, correspondingly with Gibraltar being a key player in the space, some crypto firms are now required to comply with the travel rule. The implications with this new set of rules is that when they apply, individuals, both originator and receiver, and certain transactional details are to be collected and disclosed to a third party i.e. a receiver wallet provider.
This could push services and users to instead make use of self-hosted coinjoin wallets that use Bitcoin address mixing to anonymize Bitcoin transactions online. Without it being their intention, this self-hosted approach could inevitably lead to individuals who are good actors to unknowingly participate with bad actors.
Xapo Bank holds a talented team of analysts with the sole responsibility of protecting you from involving you in any unlawful act that may compromise yourself and your funds without your awareness.
Virtual Assets Services Providers
There are service providers looking to provide access to virtual assets, with many laying claims to being regulated. However, as the recent FTX collapse and unravelling saga show us - not all regulated VASPs are born equal.
It is now more critical than ever that anyone looking to store their Bitcoins with a VASP should seek to understand what “regulation” means, as well as what measures are in place to protect them. At the minimum, this should include the implementation of basic principles of risk management, internal controls, capital adequacy, insurance and customer care.
Xapo Bank is, perhaps, one of the best examples, upholding such high standards. We have a mission afterall, and we are encouraged to achieve it from as many angles are necessary.
We hold both a VASP (Virtual Assets Service Provider) and a Banking licence. This allows us to bridge between crypto and fiat seamlessly and securely. As a regulated financial institution in Gibraltar, one of the safest jurisdictions in the world, our members' funds are protected up to the US Dollar equivalent of EUR 100,000 by the Gibraltar Deposit Guarantee Scheme.
We pride ourselves on serving as worthy, responsible custodians of our members' Bitcoin addresses private keys. Our members’ Bitcoins are kept securely segregated from Xapo Bank’s own reserves and in no way shape or form used for lending, leverage or trading activity on any other platform.
Unlike self-hosted wallets, the ability to exchange Bitcoin for US dollars and viceversa within one secure mobile app, the ability to earn interest on both currencies and the ability to spend these funds in your everyday life with a debit card or wire transfer or Bitcoin transfer have a say on its own. Not having to send your Bitcoin to a platform for the selling of the asset, specially in volatile times when Blockchain volume and transaction times increases is a factor that may reduce your ability to profit adequately.
In setting up Xapo, Wences was inspired to create the infrastructure necessary for millions of individuals to safely buy, sell and hold Bitcoin, and better protect themselves against their native jurisdiction's fiat currencies value depreciation. The commitment at Xapo Bank is to help you grow and protect your wealth in a secure and responsible manner, not to speculate for profit while leveraging on someone else’s funds.
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