The Federal Government gave a strict mandate to the two-man startup, Coinbase, which deals in the transactions of Bitcoins, clearly stating that excha
The Federal Government gave a strict mandate to the two-man startup, Coinbase, which deals in the transactions of Bitcoins, clearly stating that exchanging or transacting virtual currencies, is as good as money transmitters. As per U.S. Financial Crimes Enforcement Network (FinCEN), such money transmitting businesses, attract federal registration, state licensing and applicability of Bank Secrecy Act. These steps were followed to uncover mega tax frauds, money laundering activities, and other such unscrupulous financial deals. The government took this step on March 18, 2013, when the Bitcoin exchanging cloud-based wallet service from Coinbase, had attracted over 30,000 users to use its services.
With no idea of what just happened, Coinbase President, Fred Ehrsam, called upon the lawyer. The lawyer had taken a disinterest in taking up the case, stating that Coinbase was a newbie, and undergoing legal formalities and procedures, might be too hard to handle.
Coinbase CEO Brian Armstrong, along with Ehrsam, had a tough call to make. They wanted to make Coinbase, a legal Bitcoin money transmitter, with a wider interest to give the users, a safe and legitimate way of using cryptocurrency. Coinbase took a hit with multiple Ponzi schemes, hacks, being abused over the dark-net. So they had to take a call whether to go ahead or not.
It was a go ahead from both the owners. They had a capital of $600,000 which was raised from angel investors and went for raising further Series A funding. Their decision to register took a serious hit on their capital, but on the other hand, millions of users would start using Coinbase. They approached their venture capitalist, Union Square Ventures. The partner of USV, Fred Wilson, was pretty thorough before going for funding. Fred was very eager in this whole Bitcoin business, and the firm standing of both the owners of Coinbase, struck a deal.
Following this deal, USV put in a Series A funding of $6.1 million, for Coinbase in May 2013. Furthermore, Coinbase was insured, brokered by Aon, in November, with protection clauses covering risks resulting from thefts and hacks. Again, Andreessen Horowitz chipped in a cool $25 million Series B round for Coinbase, the largest Venture Capital investment by December, in a Bitcoin firm till that date.
Coinbase today, has about 117 employees under Armstrong, 33, and Ehrsam, 28, and have become the pillars of managing cryptocurrency and safeguarding it over the web. Coinbase’s digital wallet is being used by more than 4.8 million customers, from 33 countries across the globe. A new cryptocurrency, Ether, was introduced, following the success of Bitcoin. Coinbase enables its wallets to be directly linked with the user’s bank accounts and any transactions, be it, payment or receipts, Coinbase will stand to earn 1.49% as a commission for U.S. account holders. This stream-less conversion of legal tender to digital money, became an instant hit.
Coinbase has ventured out into newer regimes, with the introduction of the Global Digital Asset Exchange (GDAX), which has the capacity to trade currencies directly, with a few clicks here and there. Users can also create bots for trading trough algorithms. The service is available to residents of 47 U.S. states, the U.K., Canada, Singapore, The Euro Zone and Australia.
Today, Coinbase stores almost 6% of the World’s Bitcoins, approximately $700 million in currency, on its computers. Coinbase uses specialised protection of digital wallet through encryption keys, which only the customers have the access to. If the key to the wallet is lost, then Coinbase Protection can chip in and help to resolve the same. This safety measure from Coinbase hasn’t been well accepted by the libertarians.
Till date, Coinbase has been valued at $ 500 million. Such valuation has helped Coinbase to raise a further $75 million fund raised by Draper Fisher Jurvetson. The pool of investors included USAA, Spanish Bank major BBVA, New York Stock Exchange, amongst others. Right before the company was planning to expand into Japan, the largest bank of Japan, Bank of Tokyo-Mitsubishi UFJ, invested $10.5 million in July 2015. This was a welcome fundraising for Coinbase and elevated its chances of becoming an industry leader in the Japanese Market. Such heavy investments, to the tune of $117 million, helped Coinbase build a robust infrastructure.
Now Coinbase follows all kinds of rules that apply to a money transmitter and is a strict enforcer of Banking Secrecy Act. If any kind of suspicious transactions takes place in a user’s account, Coinbase has the authority to suspend the account. Most of the Reddit users have taken such stalking activity of Coinbase and related to an act of spying. Some say that Coinbase works for the U.S. Federal Government and are extremely unhappy with such stalking activities.