With Winklevoss Bitcoin Exchange, Digital Currency Grows Up, WIRED

With Winklevoss Bitcoin Exchange, Digital Currency Grows Up

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Slide: one / of one . Caption: Caption: Cameron and Tyler Winklevoss. Alli Harvey/Getty Pictures

With Winklevoss Bitcoin Exchange, Digital Currency Grows Up

Cameron and Tyler Winklevoss were among a group of investors who put $1.Five million into BitInstant, a bitcoin exchange founded by a boy named Charlie Shrem. Shrem was also a founding member of The Bitcoin Foundation, the not-for-profit created to oversee the bitcoin digital currency. He’s now in federal prison.

Shrem was sentenced to two years for aiding and abetting the operation of an unlicensed money transmitting business used to launder Silk Road drug money. BitInstant is no more.

But like many people, the Winklevoss twins still believe in bitcoin—strongly. This morning, they unveiled their own bitcoin exchange, dubbed Gemini, after Fresh York’s financial regulator approved the service for use in the state. The exchange will officially open its doors on Thursday morning.

‘You have to get regulation right. You have to have a dialogue.’ Tyler Winklevoss

The Fresh York State Department of Financial Services granted Gemini what’s called a limited liability trust charter under Fresh York banking law. In the past, this kind of charter was used to regulate “trust banks” such as State Street and Rockefeller Trust. But the state says it also permits for the operation of a virtual currency exchange, where people can exchange dollars and other fiat currencies for bitcoin and vice versa. The state granted a similar charter to another bitcoin exchange, ItBit, this past May.

The arrival of Gemini underscores how the bitcoin landscape has switched over the past year and a half. In early 2014, the feds arrested Shrem. That same year, Mt Gox, the world’s largest bitcoin exchange, went bankrupt after telling that hackers had stolen $460 million in bitcoin from the company’s online systems. But a fresh wave of companies is working to create bitcoin infrastructure that’s more reliable—that plays nicely with local laws, rather than attempting to work around them. The San Francisco-based Coinbase and the Massachusetts-based Circle are two other companies that have taken this route—however they have gone about things slightly differently from ItBit and Gemini.

“You have to get regulation right,” says Tyler Winklevoss. “You have to have a dialogue with them on what you’re doing and you have to be compliant, which means getting the adequate licenses on a state-by-state level, on a federal level.”

Moving Past Cut and Paste

According to the Winklevoss twins—well known for winning $65 million in a lawsuit claiming that Mark Zuckerberg stole their idea in creating the Facebook social network—Gemini is meant for “institutional investors,” meaning big banks and the like. “We think it’s crucial for bitcoin infrastructure to get the larger financial institutions involved,” Tyler Winklevoss says. “We’re treating this much more like a bank than as a money transmitter.”

That said, the exchange can also be used by individuals. And it’s open to users beyond Fresh York. The kind of Fresh York trust charter granted to Gemini is recognized by other state regulators. The company says that the service is now available in twenty seven states, including California, and the Winklevoss twins say they’re working to receive explicit approval from each state. “Some states are honoring reciprocity with the Fresh York Department of Finance,” says Cameron Winkelvoss. “Other states want more clarification.”

‘We think it’s crucial for bitcoin infrastructure to get the larger financial institutions involved.’ Tyler Winklevoss

This differs from itBit, which instantly launched in all fifty states after receiving its Fresh York trust charter, claiming that the charter permitted it to do so. Meantime, Coinbase, which offers an exchange as well as online “wallet” services for storing and sending bitcoin, has not gone the trust charter route. Instead, it’s choosing to wait for a Fresh York BitLicense, a fresh kind of certification specifically for virtual currency operations. Earlier this month, the state granted the very first BitLicense to Circle, which also offers wallet services.

More explicit regulations are clearly needed, as once again the tempo of technological switch has outstripped government’s capability to keep up. In January, before the arrival of the BitLicense, Coinbase announced that its exchange was “supported” in twenty four states, including Fresh York and California, thanks to existing regulations. Fresh York regulators later said that the service did not have approval to operate in state. The previous March, Fresh York invited bitcoin exchanges to apply for a trust charter, telling that these exchanges would ultimately have to meet the requirements of the BitLicense.

Tyler Winkelvoss says that Gemini applied for a trust charter rather than a BitLicense, because this would permit it to serve institutional investors. In brief, bitcoin’s regulatory situation is far from straightforward. “Prior regulation,” Coinbase founder Fred Ehrsam told us earlier this year, “is being applied in a cut-paste manner.” But things are at least moving forward.

Bitcoin promises to provide an lighter way of sending and receiving money free of the usual limitations of national currencies and boundaries. Tho’ it has achieved some of that promise, its progress into the mainstream has slowed after the implosion of Mt. Gox in particular. At the same time, the technology itself is moving forward. In addition to providing a way of moving money across the `net, it can provide a way of moving, well, just about anything of value. Numerous garments, including the company behind the NASDAQ stock exchange, are using the blockchain, the online ledger that underpins bitcoin, to create online systems for more efficiently and transparently trading stock.

Meantime, the Winklevosses are also among those looking to creating bitcoin ETFs, or exchange traded funds, which would permit people to invest in bitcoin without actually possessing any. The SEC has not yet approved their ETF. But instead of taking the “stir rapid and break things” treatment of their one-time rival, the twins are taking their time. Call it bitcoin for grown-ups.

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