Cambridge Blockchain, a startup that bills its technology as a solution for banks to the competing regulatory imperatives of transparency and privacy, has raised $2 million through a convertible note.

The proceeds will be used to speed deployment of the firm's enterprise software to financial institutions, the company said in a press release Wednesday. Convertible notes are a form of short-term debt that is later turned into equity in a startup, usually as part of a later funding round. They are easier to close than other forms of seed financing because they do not require valuation of the company.

"Managing identities across applications and platforms is becoming increasingly challenging and cumbersome, and high profile data hacks have highlighted the vulnerability of these systems," says venture capital investor Barry Silbert. Bloomberg News

The fundraising comes as financial institutions struggle to comply simultaneously with anti-money-laundering and know-your-customer regulations (which require access to sensitive personal data) and privacy rules such as the European Union's General Data Protection Regulation (which limit such access). Consumers, meanwhile, live with the hassle of managing multiple logins and passwords and the fear that their personal data will be stolen or abused as commerce migrates to digital channels.

[Learn how large financial services and health care companies are tackling digital identity — to enhance customer experience, to stake out positions in their business ecosystems, and to manage risk — on our Feb. 23 web seminar. Click here for details.]

Cambridge Blockchain is one of more than a dozen startups that are trying to solve this multifaceted problem using some variant of distributed ledger technology, which was originally developed to record transactions of the digital currency bitcoin.

In Cambridge's model, sensitive information is held in a personal data store under the individual's control; the blockchain contains only one-way cryptographic proofs, signed by trusted parties, attesting that the data is valid. A bank could check a customer's passport scan against the blockchain to verify that it was issued by a government, for example, but the passport could not be forged with the scrambled representation on the blockchain.

"Managing identities across applications and platforms is becoming increasingly challenging and cumbersome, and high profile data hacks have highlighted the vulnerability of these systems," Barry Silbert, founder and CEO of Digital Currency Group, one of the investors in the convertible note, said in a press release.

Cambridge Blockchain's technology, he said, will make it possible "to collect and share identity data across organizations in a safe, secure, and transparent manner that protects users while offering efficiency to institutions.”

Another investor, Romain Lavault, a general partner at Partech Ventures, said in the release that Cambridge Blockchain "has inked their first commercial partnerships.” Neither he nor the company identified the partners.