Fireblocks executives, led by CEO MIchael Shaulov (middle), hope to fill a security void in the ... [+]
Fireblocks came out of stealth Tuesday morning, announcing it has raised $16 million in Series A funding from firms including Fidelity-backed Eight Roads and MState. The cryptocurrency security startup helps institutions safely transfer coins between different wallets and exchanges and already has two high-profile customers: Genesis Global Trading, owned by Barry Silbert’s Digital Currency Group, and Michael Novogratz's Galaxy Digital.
If Fireblocks CEO Michael Shaulov succeeds, he’ll help blaze the trail that enterprises and institutional investors need to make transactions quickly and carefully. Fireblocks is launching as a platform that serves specialized firms trading digital assets, but its technology could also provide the foundation of security and transparency that makes America’s biggest banks more comfortable with cryptocurrencies in the future.
“It basically provides institutional investors a simple and secure way to transfer assets from their account to any account that they have on other exchanges,” Shaulov said. “You can think about it like we created the Swift for crypto. You can transfer from your Bank of America account to your Citibank account to your JPMorgan account, but no one can go to the ATM, withdraw your funds and run away with them.”
Shaulov, who sold his first cybersecurity startup called Lagoon Mobile Security to Check Point Software Technologies in 2015, was inspired to start the company after he helped investigate North Korean hacks that stole more than $500 million worth of cryptocurrencies in 2017 and 2018 as a leader on Check Point’s cloud security team.
Shaulov took a multilayered approach to securing crypto transactions, wanting to keep assets stored in users’ wallets safe while also protecting assets in transit by eliminating the need for cumbersome login credentials and deposit addresses. These are often targeted by middlemen who can swap out a legitimate address with one that belongs to a hacker instead. The difference between two random strings of letters and numbers can be hard to detect, leading users to copy and paste a compromised address while making transactions.
“Instead of wiring funds to Coinbase, you’re basically wiring the tokens to the hackers, and there is no recourse. There is no one that you can call and say, ‘Hey, I made a mistake, I want my money back,’” Shaulov said. “No one is focusing on this problem as we define it. Most of the people are focusing on storage. Storage is an important problem and we cover that as well, but it’s only one-third of the issues.”
The platform is built on a two-component system that includes a desktop interface and a mobile app. Investors can initiate a transaction on the desktop before they or another colleague or supervisor approves the transaction using face recognition technology or a passcode on the app. This multi-party computation (MPC) system has appealed to new customers.
“We used a number of proprietary cutting-edge and leading tools on the market, but none of them provided MPC,” said Uri Stav, chief security and development officer at Genesis. “This is an incomparable difference from anything we’ve used before.”
Fireblocks has not yet reached $1 million in revenue but is in a “good area of the six figures,” Shaulov said, and it has a team of about 16 employees, with its engineering based in Tel Aviv and sales and marketing based in New York. The company will invest much of the $16 million it raised in its initial round of venture capital funding into engineering more ambitious features.
MState invests exclusively in enterprise blockchain startups, and co-founder and CEO Rob Bailey has only decided to invest in seven out of 1,500 companies his firm has looked at since the beginning of 2018. Fireblocks made the cut because Bailey was impressed by Shaulov’s experience and is hopeful that better security will persuade mainstream banks to offer customers crypto portfolios.
“I would love to be able to hold somewhere between 5 and 10 percent of my net worth in crypto, and I can’t right now, and it’s insane. It’s my money, and I should be able to do what I want with it,” Bailey said. “For that to happen, I think that institutions need to get comfortable with the security around crypto assets, their stability and their regulatory uncertainty, and pretty much all of those are being taken care of if you kind of solve backwards to Fireblocks.”
Many long-established institutions have already adapted blockchain technology to suit their needs. Forbes published its inaugural Blockchain 50 in April, profiling 50 companies that are using decentralized ledgers for some operations, and reported last week that Anheuser-Busch InBev expanded its investment in BanQu, a startup that uses a blockchain to make distributing products easier for farmers. Fidelity’s investment in Fireblocks extends that growing trend.
“Sitting as part of the broader Fidelity group, we realize that cybersecurity is crucial in the adoption of blockchain and digital assets,” Davor Hebel, head of Eight Roads Ventures Europe, said in a statement. “We are excited to support the Fireblocks team as it develops a cutting edge technology that will help propel digital assets trading to the next level of evolution, enabling huge improvements in operational efficiencies, security and trust.”
