
First U.S. Bitcoin Exchange Set to Open - sjcsjc
http://www.wsj.com/articles/first-u-s-bitcoin-exchange-set-to-open-1422221641
======
Animats
_" As is typical of most bitcoin/fiat intermediaries when promoting their
products, the new exchange is being touted as a first and a means to bring
legitimacy to Bitcoin."_ \- Qntra. We've heard that story many times before.
Kraken makes similar claims. (Kraken uses the same address, 548 Market St, SF,
as Coinbase. It's a mail-forwarding service. Few people know where either
exchange really is.)

So what is this "licensed" thing? "Licensed" by whom? The US SEC? The State of
New York? Some other state? FinCen.

There have been many exchanges registered with FinCen, the anti-money-
laundering regulator, including Mt. Gox. That provides no investor protection.
A few have been licensed as state money transmitters. That may provide some
investor protection. Nobody as yet has been licensed as a broker, dealer, or
exchange with the Securities and Exchange Commission, something every
stockbroker and dealer in the US has to do.

Being licensed as a broker/dealer means SIPC insurance for investors up to
$500K per customer, FINRA supervision (they fine a few brokers every month),
outside audits, exams for personnel (even the people in a call center have to
pass an exam, so they know what they can and can't do) and exams top
management (yes, even top management at a brokerage has to pass an exam).

There are significant advantages for being a real broker/dealer. You can plug
into the financial system at a higher level, and moving money around becomes
much easier.

An existing broker/dealer could set up a market in Bitcoin if they wanted to.
So far, no one has bothered.

When a Bitcoin exchange gets licensed by the SEC, let us know. Until then,
it's just hype.

Edit: the article says they claim to be licensed in California. Here's the
list of money transmitters licensed in California:
[http://www.dbo.ca.gov/Licensees/money_transmitters/money_tra...](http://www.dbo.ca.gov/Licensees/money_transmitters/money_transmitters_directory.asp)
Not seeing Coinbase on the list. Silicon Valley names on the list include
Google, Square, AirBnb, Xoom, Paypal, Intuit, etc. No Coinbase, or anything in
SF that looks like it might be them.

~~~
skue
Is there any significant difference between this exchange and the upcoming
Winklevoss exchange?[1]

Both claim to be "regulated," but it doesn't look like the Winklevoss version
will offer SIPC protections either.[2]

[1] [http://dealbook.nytimes.com/2015/01/22/winklevoss-twins-
aim-...](http://dealbook.nytimes.com/2015/01/22/winklevoss-twins-aim-to-take-
bitcoin-mainstream-with-a-regulated-exchange/)

[2]
[http://www.sec.gov/Archives/edgar/data/1579346/0001193125132...](http://www.sec.gov/Archives/edgar/data/1579346/000119312513279830/d562329ds1.htm)

~~~
bdonlan
The Winklevoss Bitcoin Trust is not an exchange, it's an Exchange Traded Fund.
Basically you can think of it as a shell company that exists solely to possess
(approximately) 0.2 BTC per share; buying into it is _approximately_
equivalent to buying BTC (less the trust's expenses). It's no different in
theory from precious-metal ETFs like GLD or PPLT, although I'd expect expenses
to be lower since no precious metals need to actually be stored.

The operation of a trust like this is simplified by the fact that the Trust
itself never buys bitcoins, and sells bitcoins only as necessary to pay the
Trust's expenses. The day-to-day arbitrage that causes the price to track that
of actual bitcoins is something that third parties do; they can exchange a
certain number of bitcoins for a certain number of shares (and vice versa).

Anyway, it's a lot easier to run a trust like this than an actual exchange;
you don't need to track lots of tiny transactions, allow every random person
on the internet to open accounts, generate 1099-B forms, hold significant US
dollar deposits, etc.

Heck, it doesn't even need a hot wallet; in that prospectus, exchanges of BTC
for shares take three business days for settlement, which is more than enough
time for a quorum of people to get their keys out of their respective bank
safe deposit boxes around the country and sign a multi-signature settlement
transaction offline.

The big advantage of this trust, though, is that once it is listed on a big
stock exchange, you'll be able to go to any stock broker and buy an interest
in bitcoin. Your accountant will be able to deal with the tax implications
easily, since it's just a stock, and you'll even be able to do margin
transactions through properly licensed and insured brokers. It'll take a lot
of the infrastructure risk out of a bitcoin investment (although volatility
risk will of course remain in full force).

~~~
Aqueous
He was not talking about the ETF he was talking about Gemini, the actual
exchange that the Winklevii recently announced.

~~~
bdonlan
Ah, the prospectus linked was for the ETF, and the other link was paywalled,
so I assumed that was what he meant to refer to.

------
pmorici
Why is this being billed as the "first U.S. Bitcoin exchange"? No doubt
Coinbase will do a good job but it isn't the first or even the first regulated
exchange based in the US. CampBX, Kraken, and Coinsetter are all based in the
US and follow regulations.

If there actually is some distinction between what Coinbase is doing here and
what the existing exchanges have been doing for some time I'd be interested to
know what that is.

~~~
fehrsam
Co-founder of Coinbase here

You're right in that it's not the "first US Bitcoin exchange". However, it is
the first US bitcoin exchange with some amount of money transmitter licenses
(none of the companies you listed have them to my knowledge). If you're not
familiar with money transmitter licenses, it's what you need from most state
regulators to move or hold money for customers in that state. That's why we
can't support all states at launch. You can see a list of the states we
support here:
[https://support.coinbase.com/customer/portal/articles/178054...](https://support.coinbase.com/customer/portal/articles/1780543-what-
is-the-usd-wallet-)

There hasn't been a US based exchange which has had meaningful volume in
comparison to the larger international exchanges, so our hope is this gives
people a US option that is both stable (both on regulation and security) and
has reasonable liquidity.

~~~
sidko
>However, it is the first US bitcoin exchange with some amount of money
transmitter licenses

Not true. There are definitely exchanges out there that have state MSB
licenses. Perhaps you're unaware of their existence. I know companies can
sometimes be secretive about this stuff, but exchanges like CoinX have MSB
state licenses. Check out [http://coinx.com/money-transmitter-
licenses](http://coinx.com/money-transmitter-licenses) for instance.

~~~
beaner
CoinX doesn't have a real product though do they? Does it count if you have
the licenses but no exchange to use them with?

~~~
faisalkhan
VP CoinX here: We do have an exchange, www.coinxtrader.com (it is mentioned on
our main website, coinx.com). We were the very first exchange to obtain MTLs,
that is the route we took when we established our company.

With respect to the second point, "real-product" We have a working exchange in
addition to money-transfer services in the shape of coinhub.com (which goes
live in a few weeks time).

~~~
beaner
I tried signing up and I keep getting this:

"Password must be at least 8 characters and must include at least one upper
case letter, one lower case letter, and one numeric digit"

even though my password meets the requirements.

Also, something seems off. There has to be a reason that you guys aren't used
that isn't being acknowledged. I have never heard of anyone using your
platform, ever, and when I search for images of the trading interface all I
can find are stock photos of lame graphics. Seriously, what's up? There has to
be a reason, right?

~~~
CoinXSupport
Could you please email support with your issue so we can take care of it?

------
aarondu
Coinbase and Winklevoss ETF are acting more like new commodity exchanges than
currency exchanges. A commodity (like Gold) has value attached but it is not a
currency, and its value invariably fluctuates (like Bitcoin).

To date, crypto currency remains a technology topic. If you want to change
finance, first understand it. Take your corporate finance, capital market,
macro economics classes, and understand government's role in currency and
economy. Learn about the history of how commercial banking, investment
banking, currency and payment worlds have evolved over the last 100 years.

In short, figure out how bank and capital flows work before prescribing any
solutions like Bitcoin, otherwise it will just prove the rightful criticism -
that crypto may point to the right problem, but it in itself is just a
technology looking for a problem to solve, and that even if it eventually
finds its purpose, the chance that the problem will be small or a better,
simpler solution comes by remains high.

Financial system as it's built today is an equally sophisticated system vis-a-
vis the digital world. Most of those system designers (from say Banking Act of
1933) have left this world. Tech-hackers are many, finance-hackers are fewer.
Even fewer understands both. This is why if you ask the view on crypto, you
will have very conflicting views between the tech and the finance worlds. And
rest to be sured, we are dealing with a problem that's more finance (including
financial regulatory) than tech.

Almost anyone on hacker news understands how a full stack software system
works. But do you understand how a financial "full stack" works? If you're
interested in tackling the problem in a new way, we are hiring and welcome
your input.

HN sn = Gmail sn

~~~
utunga
FWIW aarondu appears to have posted an identical comment on three different
bitcoin related hn threads.. and is associated with
[http://boomerangwallet.com](http://boomerangwallet.com). Not sure why this
info not on his/her profile page.

------
blfr
And Google now tracks Bitcoin as any other currency.

[https://www.google.com/finance?q=CURRENCY:BTC](https://www.google.com/finance?q=CURRENCY:BTC)

[https://www.google.com/search?q=50btc+in+usd](https://www.google.com/search?q=50btc+in+usd)

~~~
hellbanner
How new is this?

~~~
oska
Implemented in June 2014 [1], [2].

[1]
[http://cointelegraph.com/news/111786/both_yahoo_and_google_f...](http://cointelegraph.com/news/111786/both_yahoo_and_google_finance_now_include_bitcoin_pricing)

[2] [http://blog.coinbase.com/post/88679063982/coinbases-api-
brin...](http://blog.coinbase.com/post/88679063982/coinbases-api-brings-
bitcoin-ticker-to-google)

------
sjcsjc
I assume it's related to this:
[https://www.coinbase.com/lunar](https://www.coinbase.com/lunar)

Wonder if wsj breached an embargo releasing this early?

------
sillysaurus3
Does this exchange offer insurance against catastrophic insolvency?

Someone went from millionaire to poor overnight when Mt. Gox failed, so it's a
real concern. No one should keep their coins in any wallet except their own,
and they need to make sure they have the technical understanding of how to
properly manage their wallet. If your personal wallet isn't encrypted and
backed up, it's not managed properly.

If you want to store coins on someone's exchange or webwallet, never store
more than 25% of what you're comfortable with losing. (It turns out that "what
you're comfortable with losing" is way, way more than the reality of waking up
one day and realizing you've lost it all.)

This is an interesting move, but I'm worried that these new exchanges will
increase the attack surface of Bitcoin's reputation. If the new ones fail, it
will shake the public's confidence in Bitcoin yet again. Not that that
matters, since Bitcoin seems to go along fine whether or not people are
confident in it.

I don't know whether it would even be possible to insure against losing all
cold storage reserves, but nobody should trust large sums to any webwallet
(including Coinbase's current website, BTC-e, Bitstamp, etc) until protection
against that worst-case scenario is in place.

EDIT: From the paywalled article:

 _The exchange could bring needed legitimacy to the currency, which isn’t
backed by a central government and is traded over virtual exchanges, primarily
overseas. Coinbase said it has insurance, offering traders some assurance that
their money won’t disappear._

Until details about this insurance are released, do not trust large sums to
Coinbase or anyone else. And unless the insurance protects against every coin
disappearing tomorrow, never trust them at all. Trusting them is equivalent to
gambling your savings for no benefit.

~~~
bobbygoodlatte
"No one should keep their coins in any wallet except their own"

That's just not going to fly if Bitcoin becomes mainstream. There's too much
dogmatism around this in the Bitcoin community. Sometimes a hosted wallet is
the right solution for a particular user.

~~~
sillysaurus3
It's not about whether it's going to fly. It's certifiably insane to trust
your coins to any third party unless you either have multisig control to
prevent those coins from leaving, or they have insurance to replace your
coins. Do not ever trust anyone, or you'll lose your money like I did. They
won't replace it unless they're legally obligated to replace it (insurance) or
they're technically incapable of losing it (multisig).

Anything else is magical thinking at its most dangerous, since it can ruin
lives.

~~~
beaner
This is a religious view speaking. More bitcoin has probably been lost due to
people thinking they should handle it themselves, and doing it wrong, than has
been lost to all the big hacks including Mt. Gox. A survey from a while ago
reflects this likeliness:
[http://www.reddit.com/r/Bitcoin/comments/2bjefu/results_of_a...](http://www.reddit.com/r/Bitcoin/comments/2bjefu/results_of_a_3000_person_bitcoin_survey/)

~~~
sillysaurus3
I didn't say everyone should manage their own bitcoin. I said people should
manage it themselves _if_ they have the technical ability to do so. For
everyone else, stick with banks. If you're borderline unsure whether you can
store your coins in an encrypted wallet and make regular backups and not lose
those backups, then keep your money in an FDIC-insured bank.

But sticking your coins into a webwallet like Coinbase without multisig
control is a recipe for unmitigated personal disaster. A mental exercise is
useful: "I've lost all my money." How would that affect your life?

I strongly disagree with anyone who would push the view that it's okay to
sweep the issues under the rug in the name of making Bitcoin more popular.
Putting people's fortunes at risk is almost equivalent to putting their lives
at risk, because your quality of life is directly proportional to your
fortune.

If Bitcoin sounds risky, that's because it is. No amount of regulated
exchanges will change that. What will change it is giving consumers multisig
control over their coins, or insuring against a total loss of all coins
including cold storage.

There's literally no other option. One of those two things must happen, or you
must not use the services. Or if you do use them, don't put in more than a
quarter of what you're comfortable with losing. If that's $100, then never
deposit more than $25 in BTC.

Remember, Bitstamp just lost $5 million USD to hackers, or half their most
recent investment round. It's unknown whether they're currently insolvent.
Everyone thinks they might have enough money to cover the losses, but nobody
knows for sure. They could currently be a fractional reserve.

So Mt. Gox wasn't a one-off. Nobody is safe from hackers, technical issues, or
even rogue employees that want to become millionaires. Due to the untraceable
nature of Bitcoin, all exchanges and webwallets are extremely attractive
targets.

~~~
beaner
The problem is that people who think they have the technical ability to do it
right is astronomically higher than reality, not because people overestimate
themselves, but because they underestimate the difficulty of "rolling your own
bitcoin storage." I mean, you can make these arguments, but the history proves
that so far centralized storage has been safer than self storage, on average.

Further, Coinbase _does_ give users access to their private keys with the
multisig vault, so one of your two criteria has already been met.

~~~
sillysaurus3
Are most Coinbase users using multisig? Since it's not the default, I'm pretty
sure the answer is no. So unless multisig is the default at their new
exchange, all of those people are at risk. Few are helped by multisig if few
people use it.

Since Coinbase has a large cold storage reserve, and since multisig-protected
coins can't be put into cold storage, the answer is pretty clear: Coinbase
protects few people.

It's a false dichotomy that coins must be stored in a personal wallet that
users mess up, or a webwallet that exchanges mess up. There's a third option:
Convert those coins back into USD and stick it in a bank. As long as you're
storing less than $500,000, you're guaranteed to have it.

Anything else is pure greed. As someone who has been burned by greed, my
misfortune stands as a warning to others: please don't make my mistakes.

The reason I lost coins is because I was tempted by Mt. Gox. Their 2FA auth
made it seem very unlikely that my coins could go anywhere, just like
Coinbase. If I'd researched Mt. Gox, I would have discovered a history of
technical problems. Yet if you research Coinbase right now, you'll discover
they've had a history of those too. There have been at least two or three
high-profile Coinbase incidents over the years which were featured on HN. And
if you research Bitstamp, you'll see they just lost $5 million.

The common denominator is that exchanges and webwallets aren't trustworthy.

------
gojomo
Buttercoin, based in Palo Alto and open to US residents only, has been
operating for a while. See the 'Legal' section of their FAQ:

[https://buttercoin.com/#/faq](https://buttercoin.com/#/faq)

------
jhildings
What about kraken.com, wasn't that the first one ?

~~~
jarsin
[https://poloniex.com/](https://poloniex.com/) is a US based exchange

------
BallinBige
"!st ever"... cmon

------
abjr
campbx.com is also US based and has been around for a while

------
sarciszewski
Does anyone have a non-paywalled version of the story handy?

~~~
jamestanderson
An easy way to get around the paywall is to search for this headline on Google
and click a link from the results.

~~~
istvanp
or take the URL and prepend it with the search operator "site:"

site:[http://www.wsj.com/articles/first-u-s-bitcoin-exchange-
set-t...](http://www.wsj.com/articles/first-u-s-bitcoin-exchange-set-to-
open-1422221641)

------
wmf
Previous discussion:
[https://news.ycombinator.com/item?id=8933218](https://news.ycombinator.com/item?id=8933218)

~~~
presty
Your link is about the Wilkevi's exchange. This article is about Coinbase.

