Xapo is a Hong-Kong based bitcoin wallet known for its extremely safe and sophisticated cold storage custody technology.
Xapo’s mission to provide a global bitcoin wallet stems from the personal experiences of their CEO, serial entrepreneur Wences Casares who became interested in Bitcoin because of the extreme financial instability in his native Argentina. Having witnessed his family’s finances crumbling as Argentina went from inflation to deflation to devaluation, he firmly believes that people anywhere in the world should have access to safe, censorship-resistant digital currencies.
Whilst the Xapo app is available on both mobile (iOS/Android) and on the web, it is primarily intended for mobile use. For instance, when initiating transactions on the web you’ll be prompted to enter a code generated within the mobile app to confirm the transaction. Like all custodial wallet operators, Xapo conducts a know-your-customer (KYC) process when you open a new account. This involves entering personal details, phone number, an ID document and a selfie. Usually these steps are quite annoying but Xapo makes a good impression here, featuring a flow that is quickly completed with nice details and animations along the way.
The first step to buy bitcoin or other currencies inside Xapo is to fund your account. To do that, Xapo offers a remarkable amount of options: bank transfer, credit and debit cards, bitcoin but also e-money transfer services like Skrill or Netteller, which are payment methods focusing on making digital payments accessible to unbanked people. Note that while bank transfers are free, these alternative deposit options come at a higher cost ranging between 3-4%. Once you have money in your account you can instantly buy bitcoin or any existing fiat currency. Xapo’s fees here are really competitive. We calculated a 0.50% fee spread on the bitcoin price and a similar fee on currency conversions (e.g Euros to Brazilian Real). Although it’s possible to purchase any currency, the utility of these currencies are somewhat limited. If you were to transfer funds to a brazilian resident using Xapo for instance, the funds would be converted to US dollar first and then sent via international wire incurring a $10 processing fee.
Luckily, Xapo provides options to circumvent the traditional payment infrastructures. As such, users can send both crypto and fiat currencies for free to other Xapo users, transfer bitcoin to any bitcoin wallet paying just the normal blockchain fee or use the “people nearby” feature which allows you to find Xapo users near you and exchange funds for cash. Sweet! Local bank transfers within Europe or the United States are also free but there’s no compelling reason why people would use Xapo for that use case as they could also do that with their normal bank account.
Then there is the Xapo debit card. It’s available to users in Brazil and the United States and is completely free. Users in Brazil can simply spend their Brazilian Real (BRL) balance with their debit card and users in the United States can spend their US Dollar balance. Effectively, this provides for an additional method to withdraw funds in the two countries and makes international payments with Xapo more attractive for these corridors. A user in Europe could simply exchange Euros for BRL (or bitcoin) for example and send it to a Brazilan Xapo user free of charge. The brazilian user could then instantly spend it anywhere VISA cards are accepted. Without going into the details of similar scenarios for payments to the US, let us finish by saying that the ability to seamlessly convert crypto to cash makes bitcoin increasingly attractive as a vehicle for cross-border payments and Xapo has understood that well.
Lastly, we want to shed light on security. Like every custodial wallet provider Xapo acts as the custodian of your funds and as such you should closely examine how they fare at enforcing security. If your custodian gets hacked there is a risk you lose all your money.
This being said, Xapo has a good reputation when it comes to security. They only store 3% of their bitcoin reserves in hot wallets (connected to the internet) to give users quick access to their funds while the remaining 97% are held in “deep cold storage”. Deep cold storage means that the private keys to move these bitcoins are in servers that have never been connected to the internet and are held in multiple protected bunkers in secret locations around the world. This makes it virtually impossible to steal funds in deep cold storage. For the hot wallet funds, which are at greater risk, Xapo has created an insurance fund that would cover any potential loss incurred in case of a hack.
In conclusion, we think Xapo is a good option for users wanting to store their funds with a custodian. It charges reasonable fees and its platform is well designed and easy to use !