Bitcoin's Blue Chip

Four years ago the cryptocurrency startup Coinbase turned its back on the movement’s antiestablishment mojo. The result: a $500 million valuation and a warm embrace from multinational banks and VCs.

- Laura Shin

On March 18, 2013, the government dropped a bombshell on Coinbase, a two-man San Francisco startup that had attracted 30,000 users to its cloud-based “wallet” service for buying, storing and spending bitcoins.

That day the U.S. Financial Crimes Enforcement Network (FinCEN) released “interpretive guidance” stating that those administering or exchanging virtual currencies such as bitcoin should be considered “money transmitters,” subject to state licensing, federal registration and Bank Secrecy Act rules designed to help the feds uncover money laundering, tax fraud and other crimes.

Coinbase president Fred Ehrsam immediately called the company’s lawyer. “He said, ‘It’s [only] guidance, and you guys are small, and it’s going to be a pain in the butt to comply. It’s going to take a lot of your time and money to do it,’ ” Ehrsam recalls. “So his advice to me was to try to make a good argument as to why it [registration] didn’t apply to us and avoid it for the time being.”

But that night Ehrsam and Coinbase CEO Brian Armstrong had a come-to-Jesus discussion. They agreed that skirting registration was wrong for their brand. While beloved by tech-savvy libertarians, bitcoin had taken a hit to its reputation after being sullied by hacks, Ponzi schemes and its use on the Silk Road darknet drug market. Coinbase wanted to be seen as the easy, safe and legitimate way for a wider population to use crypto currency.