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First Licensed U.S. Bitcoin Exchange Will Have Approval From 25 States

The startup Coinbase hopes it can bring stability to the cryptocurrency market.

First Licensed U.S. Bitcoin Exchange Will Have Approval From 25 States
[Photo: Flickr user Zach Copley]

Bitcoin is steadily gaining legitimacy in the eyes of the general public, but the volatility of the cryptocurrency is still a major repellant. Today marks a potential turning point in that regard, as the startup Coinbase is primed to launch the first ever licensed U.S. bitcoin exchange–complete with insurance to protect traders.

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“Our goal is to become the world’s largest exchange,” chief executive Brian Armstrong told the Wall Street Journal.

Speaking with Fast Company last year, cofounder Fred Ehrsam put the startup’s aims in easy-to-understand terms: “My litmus test is, ‘if I give Coinbase to my mom, can she feasibly use it?’ That’s what we strive for.”

Coinbase streamlines the way bitcoin is currently exchanged. “Normally bitcoin has these long public addresses, kind of the equivalent of your bank account number,” Ehrsam told us. “If I were to send you money over the normal bitcoin network, I would have sent it to this 30-character address. [With Coinbase] I can send it to your email. That’s just one of the layers we’ve built to make bitcoin easier to use.”

Coinbase is backed by $106 million from the New York Stock Exchange, along with banks and VC firms. Its founders note that they have worked for the past five months to obtain licenses from state financial regulators. Regulatory approval has now been achieved in half of U.S. states, including New York and California.

Coinbase’s business model will work by taking a 0.25% cut of most transactions, although it will take no fees for the first two months. For now, the exchange will be limited to U.S. customers only, although Coinbase hopes to expand elsewhere.

The concept of a virtual currency backed by no central government is one reason why bitcoin values can fluctuate so wildly. Currently, individual bitcoin are valued at $240, down from a late 2013 peak of more than $1,200. Coinbase’s price-tracking service may help stabilize the market. Combined with the support of major companies like PayPal–which began accepting the virtual currency last September–cryptocurrency true believers could soon be vindicated.

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