Veteran ASX-listed investment company First Growth Funds (ASX: FGF) is venturing into the latest asset class in its 32-year history – cryptocurrencies.
First Growth said it has reached an agreement with Heuresy LLC for a US$2.25 million investment in CryptoData Vault, a company developing a unique hardware wallet called Excalibur.
The multimillion dollar deal intends to establish a commercial diversifier for the investment company and establish an early stake in providing cryptocurrency owners with reliable security for their holdings.
According to Blockchain.info there are over 24 million “digital currency wallets” worldwide and growing. These wallets are prone to cyber-attack and remain highly risky due to the early-stage nature of blockchain and how the various chunks of value are accounted for.
Currently, a code passed from one user to another means a cryptocurrency can be exchanged with no possible redress or tracking of the transaction.
If the same code is lost by a user, the value stored in that wallet is lost forever and can never be re-established.
Cryptocurrency designers contend that this is exactly the same with actual dollar notes – if a note is lost or destroyed, its value cannot be recovered by the user.
To help solve this potential issue, several companies are looking to create physical hardware-supported wallets and coins that can add a further layer of security to existing codes and digital encryption being used.
There are currently only three major hardware wallet providers worldwide “but they fall short in providing some of the governance, compliance and security that is needed in the digital currency market,” says First Growth.
First Growth stake in CryptoData Vault
First Growth is in line for a 50% membership interest in CryptoData Vault.
Under the agreement signed last year, First Growth will receive 10% of all tokens and an additional 5.56% of all tokens in consideration for an additional contribution of US$250,000. The deal effectively provides First Growth with a stake of 15.56% in exchange for US$2.25 million.
Under the terms of the agreement, Sam Lee, co-founder of Blockchain Global and existing DigitalX (ASX: DCC) director will take up a central position in the multifaceted deal involving multiple entities.
Blockchain Global operates in the “digital currency sector” with its activities including bitcoin mining, investments in digital currency exchanges, a start-up incubator called BlockEngine, several direct investments in both emerging blockchain-enabled companies, and ASX-listed companies including DigitalX and First Growth.
According to First Growth, Mr Lee will be responsible as the marketer of Sovereign Cash tokens and will list them in a number of digital currency exchanges including those within his network. The deal stipulates that the marketer will receive 44.4% of the total token pool.
“It is our intention to realise value from this investment in part by the sale its 15.56% share of the total token pool, with the tokens intended to be sold on multiple global cryptocurrency exchanges,” according to First Growth.
Aside from buying into a new cryptocurrency with potential payoffs down the track, the deal is centred around First Growth’s investment in CryptoData Vault, which provides the company with a stake in an “exclusive license for sale and distribution of Excalibur, a hardware wallet with traceable features including policy controls by geolocation and geo-fencing”.
These features are designed to offer “strong advantages for issuing governments and institutions” and therefore create a commercially viable alternative to the current cryptocurrency landscape that has frightened regulators around the globe.
Risks and rewards
In Australia, the main financial regulator (ASIC) has set forth several guidelines and has mandated that all companies operating in the blockchain space publish explicit risk warnings.
In the deal with Heuresy, First Growth will receive the proceeds from the sale of its share of the total token pool as those tokens are sold on exchanges.
However, First Growth warns investors that “it is important to acknowledge the risk inherent in such a business model”, going to say that “the risks in relation to digital currency exchanges apply equally to the sale of tokens and include the volatility of the token sale price, the need to establish a market for the tokens which have not previously been listed on an exchange, an absence of liquidity to enable token sales, or if development of the Excalibur hardware wallet is not completed, any of which would reduce or eliminate any value that could be obtained from sale of the tokens.”
The company also said that it “can provide no guarantee as to the value it may obtain from the sale on market of its 15.56% share of the total token pool nor the time frame over which any value may be realised”.