Chinese Blockchain Startup Offers Custody Service Amid Regulatory Tightening

Shanghai-based startup InVault is offering a cryptocurrency custodial service to provide better security.

Despite further regulatory tightening in China on blockchain and cryptocurrencies, a Shanghai-based startup announced plans to unveil a digital currency asset custody platform aimed at Asian crypto exchanges that eliminates human oversight, a South China Morning Post (SCMP) report said.

The product comes as Chinese regulators launched a fresh wave of strict rules on blockchain and cryptocurrencies, with the imposition of harsh regulation, advisory messages, and laws to stop the growth of the industry on the mainland.

“Today, the vast majority of cryptocurrency exchanges globally still involve their senior management in managing the transfer of digital tokens ordered by clients. Putting the private keys to your cryptocurrency assets in the hands of senior management is akin to putting all your money in their control,” InVault CEO and founder Kenneth Xu said.

Xu was referring to the risk involved in allocating an investor’s cryptocurrency holdings to a centralized digital exchange-owned wallet, which are targeted by hackers and criminal elements. This is what happened with Bithumb and CoinCheck which were breached by cybercriminals.

He expects crypto exchanges to appreciate the value of the service he offers, saying these platforms should primarily focus on accelerating the sale and purchase of digital assets, instead of spending resources on the tedious processes involved to store cryptocurrencies safely.

"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 too," Xu  added.

Already, InVault claims that its unique custody model has attracted the interest of a wealthy client by submitting an order for the storage of $200 million worth of Ether (one million Ether), Xu said.

He said his company would make money by charging service fees based on assets under management. InVault would provide a decentralized corporate digital currency wallet service and will keep its customers’ private keys in different physical vaults.  The vaults will be controlled by a biometric recognition technology to allow a user enter them, meaning only authorized employees will be allowed to enter the facility, he added.

Despite an existing ban on cryptocurrency trading and initial coin offerings (ICOs) by the Chinese government, investors in the region still find ways to buy and sell digital assets and circumvent the moratorium.

A separate report by SCMP said Chinese cryptocurrency investors are using Tether (USDT) and virtual private networks (VPNs) to go around government rules.