PayPal Holdings (NASDAQ: PYPL) has officially announced in a press release on 8 March, 2021, that it has agreed to acquire Curv, an Israeli provider of cloud-based infrastructure for digital asset security such as multi-party computation (MPC). Confirming early reports that surfaced last week, the PayPal buy is rumored to be worth $200 million and will help speed up and scale its cryptocurrency and digital asset projects and initiatives and provide the necessary support.
The acquisition follows the online payments giant’s 2020 foray into the cryptocurrency custody space, when it announced that it had partnered with Paxos to allow U.S. residents to buy and sell a basket of cryptocurrencies directly from their PayPal accounts.
PayPal has in recent months assembled a new business unit to concentrate on blockchain crypto and digital currencies and facilitate sustained growth and innovation in these new digital finance realms.
The ecommerce pioneer revealed in its announcement that it expects to wrap up its acquisition before the end of June 2021, and did not disclose the financial terms of the agreement, however sources quoted a price tag of between $200 to $300 million.
Digital asset security and wallet providers like Curv are currently in short supply and high demand, and the move has been viewed as smart by the crypto industry.
Why did PayPal buy Curv?
The Curv acquisition fits well within PayPal’s new group, with the Israel-based company’s experienced and highly capable technology team expected to provide further specialist technical knowledge and support to PayPal management in the field of cryptocurrencies.
The Curv acquisition follows PayPal’s October 2020 commitment to incorporate digital currencies in their service offering for retail users.
The digital payments pioneer did a U-turn on its previous aversion to cryptocurrency services thanks to growing institutional adoption and favorable new regulatory clarifications by the U.S. federal banking regulator the Office of the Comptroller (OCC), guided by then-acting Comptroller and cryptocurrency proponent Brian Brooks, who has since left office. The OCC announced in July 2020 that American banks were indeed allowed to offer virtual currency custodial services to U.S. residents. In January 2021, the OCC doubled down on their 2020 reforms by giving banks the all-clear to use blockchain and crypto technology.
Due to this regulatory clarity and the dramatic institutional adoption of virtual assets by leading companies such as Tesla, PayPal now believes that digital currencies will play an important role in the future of financial services and ecommerce, according to their press release.
What is Curv?
Curv was founded in 2018 by CEO Itay Malinger and CTO Dan Yadlin in Tel Aviv, Israel as a digital asset security services and infrastructure provider. Recognised as an innovative trusted partner to many financial institutions around the world, PayPal’s new focus on digital asset adoption has made it a perfect vehicle for Curv to help bring its solutions to a much larger global audience, which includes PayPal’s 360 million users and network 7 million merchants worldwide located in over 200 countries.
Jose Fernandez da Ponte, vice president and general manager, blockchain, crypto and digital currencies, PayPal, said the following:
“The acquisition of Curv is part of our effort to invest in the talent and technology to realize our vision for a more inclusive financial system. During our conversations with Curv’s team, we’ve been impressed by their technical talent, entrepreneurial spirit, and the thinking behind the technology they’ve built in the last few years.”
How will Curv add value to PayPal’s crypto services?
Curv’s suite of technology solutions helps its users, mainly enterprises, to keep their crypto assets safe and secure through a cloud-based service. This enables corporate users to access their crypto wallets, without the need for any hardware device and create and manage sophisticated security procedures and chain of command when accessing crypto assets.
The purchase suggests that PayPal is looking to incorporate peer-to-peer cryptocurrency transactions into its platform as Curv uses multi-party computation (MPC) to manage private keys as a service for enterprises to provide security for crypto transactions.
PayPal intends to roll its crypto custody service out to other countries, and has most recently started offering their crypto asset services in the United Kingdom. The online payments giant intends to further integrate crypto into its service offering by allowing its customers to buy and sell items using digital assets like Bitcoin and Ethereum. During its most recent earnings release, PayPal also acknowledged plans to roll out its crypto services and products in many other countries as well as within its retail FinTech app Venmo.
Curv is expected to perform a critical part in securing the custodial assets of PayPal as the company scales its services. The handful of reputable security companies like Curv are currently in short supply and high demand from financial institutions seeking a secure solution to safeguard their digital assets which are acquired in order to better diversify their balance sheets.
How does Curv and other digital asset security services work?
Curv’s technology for example ensures that unauthorized users such as junior staff members are not able withdraw up to assets without specific approval from senior management
Curv also allows authorized users to set parameters that will allow normal high volume transactions to be approved and finalized with greater ease, making it ideal for bigger crypto exchanges dealing with high volumes of crypto transactions.
Curv also uses multi-party computation (MPC) technology to manage the private keys of user wallets. It creates cryptographic “secrets” on users’ devices and their servers, ensuring that multiple secrets are required to generate full public and private keys needed to execute a transaction.
These secrets are changed frequently and cannot be used in isolation, thus ensuring that if a hacker, or an authorized user breaches a company’s system or steals a non-secured computer, they can only access the information on the device, and not any crypto funds.
Digital asset security for VASPs
Curv’s crypto wallet solution is not intended for retail users, but instead caters for virtual asset service providers (VASPs), such as crypto exchangers brokers custodial wallets, and over the counter (OTC) desks. These VASPs are becoming increasingly obligated by new regulations, guidance and legislation to implement adequate security measures and systems to effectively protect customers’ assets within their custody.
How much did PayPal pay for Curv?
While PayPal declined to release any detailed pricing information about the transaction
due to legal and financial reasons, it is estimated that the company paid between $200 and $300 million dollars for the new acquisition. An anonymous company sources later suggested a figure of under $200 million. The official figures will eventually be revealed in Apple’s next earnings report.
Acquisition follows failed PayPal-BitGo and Curv-Novi mergers
The Curv acquisition comes after PayPal was rumored to be in talks to buy BitGo, the market-leading digital asset custody platform for almost $750 million,when the deal reportedly fell through at the last minute. Meanwhile, Curv allegedly rejected the advances of Facebook’s Novi crypto division.
Curv and other MPC platforms like CYBAVO and Fireblocks offer a variety of similar highly sophisticated crypto security solutions and services for both hot and cold storage, which are currently in short supply and high demand due to the increasing threat that hackers pose.
Fireblocks are reportedly working with BNY Mellon on crypto custody, while CYBAVO, a team of elite cybersecurity experts based in Taiwan, previously partnered with Sepior to provide the key management company with the highest MPC standards, and have recently begun offering cryptocurrency staking services to clients.
The move could also be a precursor to PayPal’s global rollout of its crypto services. Curv is already well-established in Europe and works with large crypto-dealing firms such as eToro, which would suggest that PayPal is indeed serious about spreading its growing crypto custody empire beyond the United States.
PayPal’s acquisition of Curv to help improve its crypto security is welcome news for the crypto industry and can be seen as a harbinger of more mergers and acquisitions between big financial institutions and digital asset security platforms.
The purchase underscores the huge importance and value of these crypto asset guardians to financial institutions looking to become involved and invest in the booming crypto sector, who despite their deep pockets often do not have the technical know-how to protect their systems against elite, often state-sponsored crypto hackers like North Korea’s Lazarus Group,which has stolen an estimated $2 billion in digital asset up to now.
With Curv off the market and in the PayPal stable, innovative upstarts like CYBAVO that offer a full stack of digital asset security services will become increasingly attractive to financial institutions looking to make a safe and calculated entry into the crypto space. CYBAVO, a founding member of the MPC Alliance, partners with the Danish company Sepior to provide a full-stack MPC enterprise wallet for exchanges and digital institutions.