This morning, Armory, an open source bitcoin wallet that claims industry-leading security, closed a $600K seed funding round – some of which was in bitcoin – from highly-credentialed legal, technical and financial investors. Armory was one of the first platforms to embrace ‘cold storage’ of bitcoin, a process in which private keys used to sign transactions are stored solely on a computer not connected to the internet.
Bitcoin Foundation Chief Scientist Gavin Andresen stressed the importance of increased wallet security earlier this year, citing compromised computers as a primary source of vulnerability, despite the strength of the bitcoin protocol itself. These problems have led to bitcoin thefts in the past, prompting Armory’s initial creation two years ago.
Armory is currently built as a layer on top of the traditional bitcoin client, bitcoind, and is considered a “thick client,” requiring the entire block chain to be downloaded to verify transactions. “Thin clients” use servers to verify transactions, reducing requirements on local computers at the cost of some security. Matt Hensley, a team member on Armory, stated that their future releases will have a spectrum of options allowing users to tailor their wallets to personal needs on the spectrum of security vs. ease of use.
The seed funding will enable Armory founder Alan Reiner to add two additional developers to his team and increase the software’s feature set. Their highest priority is optimizing the usability of their current software and the next release is expected to have significant resource improvements. Later versions will have support for hardware wallets and multi-signature transactions, as well as the eventual implementation of mobile wallets.
The round was led by Trace Mayer, who serves on the editorial board of Bitcoin Magazine and was also an investor in Bitpay, a leading bitcoin merchant processing company. Mayer was joined by investments from Kevin Bombino, an entrepreneur and investor with a degree in Computer Science from Harvard, as well as James Smith, a fund manager for Bedrock Capital with prior experience as a CPA. According to a message from the founder on the bitcointalk forums, Mayer is committed to seeing “Armory get easier to use, multi-sig implemented, Android app, HW wallets, and a server version that can replace bitcoind” over short term returns.
Raising funds in both bitcoins and US dollars adds complexity to the financial decisions of young startups.
“A portion of the investment was made in BTC giving the company an opportunity to grow if Bitcoin does well before we have a chance to monetize. We also have some agreements in place with the investors to limit our downside risk so that can guarantee our ability to pay salaries and expenses,” said Reiner.
The two additional employees will have the option to be paid in either BTC or USD. As companies continue to raise funding in bitcoins more and more employees will likely accept portions of their paycheck in BTC to increase the ease of spending bitcoins for daily transactions.
While there are no immediate plans to monetize the Armory bitcoin wallet service, other companies have had financial success with open source technology in the past. Enterprise Linux operating system Red Hat, for example, offers professional services including subscription customer support and training. While the code remains open and development communities are able to build around the original source, income opportunities may arise from of the expertise of the core development team. According to Reiner, integrated services with vendors and API functionality may also present monetization options further down the road.