PayPal announced last week (March 8, 2021) its intent to acquire Israeli startup Curv for an estimated sum between US$200 and US$300 million. The acquisition should complete mid-2021. Curv has developed a solution for secure digital asset custody (including cryptocurrencies) using secure Multi-Party Computation (MPC). MPC is a subfield of cryptography that distributes the computing of an encryption key (or other secrets) across various parties, so that no one party has access to the whole key. The startup’s main target clients are crypto exchanges, but Curv also targets investors who want to diversify their assets, such as investment funds. A number of existing crypto exchanges (such as Liquid) already make use of MPC, which is an increasingly hot technology.
Full Steam Ahead on Crypto
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For PayPal, the acquisition is key to expanding its capabilities in the digital asset space. In the firm’s latest earnings call (February 2021), it revealed that it was starting a new cryptocurrency business unit to deal with crypto, digital assts, and blockchain. The firm believes the current financial system to be antiquated and is readying itself for the new wave of payment technologies. In light of that, PayPal had already announced support for Bitcoin trading for its U.S. users in late 2020 by partnering with Paxos, which offers the buying and selling of crypto. Going forward, PayPal has stated it will also be integrating crypto with Venmo later in 2021, and so Curv’s solution will help secure those wallets as well.
What is clear is that PayPal is making a strong bid for crypto and digital assets. And this involves looking at how to secure custody of such assets in a decentralized financial system where the traditional custodian role of the banks is out. Consequently, technology, and specifically cryptography, are the most likely candidates to step in and take over. Secure MPC, while having been around for some time, is increasingly finding application in commercial solutions, not least to solve privacy concerns and secure key management challenges plaguing blockchain.
Curv’s technology is one such application of MPC and allows the secure management of cloud-based wallets (also known as hot wallets, as opposed to cold wallets, which are stored on hardware), while minimizing the risk of threats (including insider threats) that may compromise the private keys. This addresses one of the key threat vectors of hot wallets—unscrupulous or badly managed exchanges prone to hot wallet breaches (like the Binance and IOTA hacks). By distributing the computation of the private key needed to sign a transaction using MPC, Curv has been able to provide a much more trusted custodianship service for crypto exchanges. For PayPal, this is a key advantage for how it can securely manage the crypto wallets of its user base.
The Future of Payments Includes Digital Assets
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There aren’t currently a lot of solutions on the market for secure custodian platforms for crypto and digital assets and ones that also leverage MPC. Fireblocks is a notable competitor to Curv, and is already working with BNY Mellon in the United States, but both Curv and Fireblocks are one of the few in that space. One of the advantages of MPC is that it can minimize hardware costs, such as buying a lot of secure hardware (i.e., HSMs) to store the wallets, although MPC and HSMs should ideally be viewed as complementary rather than competing. In any case, the demand for security, whether in blockchain or other distributed applications, is pressing in a market where it has always been state of the art, critical, and prioritized. The resulting fervent and high-value market activity around these new technology applications is therefore unsurprising.
Curv itself had previously been in talks with Facebook’s Novi arm for an acquisition, which eventually fell through. The market for digital asset custody is hot, as neo banks and fintechs, alongside blockchain, are changing the way the payments industry works. Add to that turbulence the fallout from Covid, and it is clear that transformation and innovation are driving a new direction in payments. Whether that is the rise of contactless using wearables, or P2P remittance services using platforms like Venmo, or neo-bank services like Revolut, the future of payments most definitely includes digital assets and cryptocurrencies.
