The bitcoin service provider Coinbase is set to make history later today: it's going to launch the first licensed US exchange for the currency, approved in 24 jurisdictions around the country.
Until now, Coinbase has acted as a brokerage for bitcoin users. Now, just like any currency exchange, it will provide a place for both individuals and institutions to trade bitcoin and monitor its real-time pricing — only with greater security than in the past.
That Coinbase has managed to gain approval in 24 jurisdictions, including California and New York shows ho seriously the venture is being taken by the traditional-market big wigs. Indeed, Coinbase is backed by $106 million from the New York Stock Exchange and various financial service institutions. This is serious. Still, it did take the young team five months to win licences from state financial regulators. Chief Executive Brian Armstrong, is 32 and Fred Ehrsam, a co-founder, just 26.
Now it has, the plan is for Coinbase to take a 0.25 per cent slice of most transactions that happen through the exchange (though it won't take any fees for the first two months of operation). It will only trade with account holders in states where it has approval, but over time the organisation plans to expand across the US and into other countries, too.
The main benefit of the exchange is one of legitimacy. Bitcoin isn't backed by a central government and is traded over virtual exchanges, usually overseas. The new US exchange will be seen by many as a kind of comforting assurance that their money won't disappear, like with in another Mt. Gox.. Campbell R. Harvey, a Duke University finance professor, explained why to the Wall Street Journal:
"To have an organized exchange that has the backing of thoughtful venture capitalists and investors addresses one of the main problems with bitcoin: its extreme volatility. Bitcoin has been sorely in need of something like this."
Whether the currency's volatility will change remains to be seen. But at least there will be a sense of security in transactions now that Coinbase is working as a licensed exchange. [WSJ]