Trustology, a startup that secures cryptocurrency investors’ holdings, has raised $8 million in a seed round led by Two Sigma Ventures and ConsenSys, the blockchain company founded by Ethereum co-founder Joseph Lubin. Both investors will be joining Trustology’s board of directors.
Besides the marquee investors, two things are notable about this fund-raise.
One is that Trustology’s founder and team are former bankers. Founder Alex Batlin led blockchain innovation work at UBS and BNY Mellon and was an early member of the Enterprise Ethereum Alliance, Trusted IoT Alliance, Utility Settlement Coin and R3 consortium. Other team members include former executives from ADIA, Bank of America Merrill Lynch, Barclays, BNY Mellon, Curve, Deutsche Bank, Goldman Sachs, RBS, Starling Bank and UBS.
The biggest difference between working for a large bank and working at a startup is the ability to move quickly, Batlin said in a phone interview at midnight London time.
“That’s the nature of a very large institution,” he noted. “When I worked for UBS and BNY Mellon, those are hugely responsible organizations with so much fiduciary pressure on them. You absolutely want to make sure they take their time in providing solutions, whatever they do. The cost and systemic risk of failure is scary to comprehend.”
Startups can take risk without systemic impact and therefore can move quicker.
“I loved working for large banks; I learned huge amounts,” Batlin said. “In a startup there’s no support. You have to think on your feet, but there’s an ability to move.”
Trustology is also the latest entrant to the growing industry of crypto custody. Banks, the basic business of which is storing customers' money and providing services, have been slow to offer those same services for digital currency. So a bevy of new entrants including Coinbase have been filling that void (though Fidelity and Citi both recently announced crypto custody initiatives).
Trustology safeguards the private keys to investors’ digital currency the way a valet holds on to car keys. The company uses the secure enclave in the user’s iPhone, a dedicated hardware chip that is hard to break, to store the private key.
“When we install a mobile app on a phone, we go through an onboarding procedure where we capture your face, your ID and we create a private key inside the secure element,” Batlin explained. These pieces are linked together so that if a consumer lost his phone, Trustology could go through a recovery procedure using the customer’s biometrics and government ID.
When a customer creates an account, Trustology sends a digitally signed account creation instruction to the company’s hardware security modules in its data centers. Trustology licenses its technology to banks as well as individuals.
“When you move tokens or assets onto the address managed by the private key inside hardware security module, the only way you can move those assets out of that is by sending an instruction signed by the key inside your phone,” Batlin said. “The code that verifies the instruction, proprietary code in a programmable HSM, is extremely hard to hack. There are no known use cases of anyone being able to hack it.”
