Coinbase Raises $75M from DFJ Growth, USAA, NYSE, and More

http://blog.coinbase.com/post/108642362357/coinbase-raises-75m-from-dfj-growth-usaa-nyse

by arnauddri • 12 years ago

297 190 12 years ago

blog.coinbase.com

comboy• 12 years ago

Things are so unpredictable. That's regarding the whole Bitcoin (r)evolution. I believe what's currently happening and has happened is great. All these random events that pushed its price down are giving enough time for any interested entities to acquire them at reasonable price - if they understand it and think it may be a good value storage. And it may turn out to be a really good value storage indeed.

Regarding Coinbase I would assume they are convincing their investors that the company has a huge value and expertise even assuming total Bitcoin collapse / switch to another digital currency.

onion2k• 12 years ago

There are 8 names on the press release, and probably a few more smaller investors. This doesn't represent a huge amount of money for any given fund - at most probably US$20m or so for the lead. The payoff should BTC prove useful will be in the realms of Facebook/Google/Apple valuations. Even if you think there's only a fraction of a percent probabilty that they'll be successful it'd still be worthwhile putting a few million in (assuming you can afford to lose it).

Personally, I think BTC is going to be OK because there's already a decent ecosystem growing around it. Enough people are keen on it succeeding that it'll do something useful. The real question is whether it'll be a multi-trillion dollar industry that replaces money or a multi-billion dollar industry that's used for secure value transactions or proof of work or something, not than whether or not it'll fail entirely and disappear.

valevk3• 12 years ago

Enough people are keen on it succeeding that it'll do something useful.

Exactly. I am personally convinced it will succeed, but I don't know in which way. It could be anything that benefits of proof of work.

Are there actually libraries, or clients which create a P2P network, that is generic? I mean the client synchronization is the same as in BTC, but the data exchanged is generic.

clarkm• 12 years ago

Interesting to see an investment by USAA. They've really stepped up their tech game lately, partnering with some very cool companies (e.g. TrueCar), so I wonder if some type of Coinbase integration is in the works.

ashergm• 12 years ago

I totally agree, especially considering USAA's reputation as a conservative player in the Banking world

antr3• 12 years ago

Wow... Vikram Pandit is in this round. I can't think of a worst person to bring into a financial services startup. I come from the industry, and this to me, is Coinbase's Condoleezza.

I don't know how much everybody knows about him (I'm pretty sure his Wikipedia profile won't tell the entire story), but this finance executive has a bad reputation. Pre-financial crisis, he was COO Morgan Stanley, and later went off to create a hedge fund 100% based on hyped market bluffs. He sold the fund to Citigroup ($800m) in 2008* as a condition for him joining as interim CEO of Citigroup... and just a few months later, Citigroup wrote-off the entire fund. As per his role at Citigroup, I'll let you do the research and news digging.

I sometimes don't understand the tech's sector hypocrisy: tech wants to become a solution to the problem, and they go on to finance and advice themselves with the problem. I really don't get it.

* edit from 2007 to '08

digisth2• 12 years ago

This might be covered by Putt's "Law of Failure": "Innovative organizations abhor little failures but reward big ones" and its corollary "Failure to fail fully is a fool's folly." His point was that innovative orgs will look at someone who "went big" and failed as someone who now knows a problem inside and out, and has walked through the fire so is now better equipped to deal with than anyone else (and so might succeed this time.)

antr3• 12 years ago

My comment is not about failure, it's about what is wrong with wall st's crony capitalism. this has nothing to do with failure, but about the lack of values, and the damage this has done to the world economy at so many levels.

charlesdm• 12 years ago

His ethical behaviour aside, which is hard to judge if you don't know him personally, given his track record it is likely that he can open many doors to politicians and/or other relevant people in the financial industry.

This is something a company like Coinbase desperately needs, if it wants to have a say in future Bitcoin regulation that will inevitably be introduced at some point in the future.

I can personally see the value of having someone like that on board.

vectorpush6• 12 years ago

I sometimes don't understand the tech's sector hypocrisy: tech wants to become a solution to the problem

Only if it can be assured to make them money in the process. Besides, you can't paint with such broad strokes, the "tech sector" can't be guilty of hypocrisy, only individuals can, and from where I sit, it's all pretty clearly about money.

3pt14159• 12 years ago

Imagine this: Thousands of us have a large portion of our networth in Bitcoins even after selling 80% of them off to non-early adopters.

rubyrescue• 12 years ago

Huge congrats Brian!

rrggrr• 12 years ago

Confirms for me that Bitcoin is on track to disrupt credit card payments, possibly ACH/Wire, and not to be a replacement currency. Credit cards handle about 3.6 trillion/year in transactions. With 3% per transaction fees, chargebacks and equipment costs -- there are plenty of reasons for merchants to increasingly accept BTC provided companies like Coinbase are prepared to take the BTC market risk by sweeping BTC into local currency.

pjc50• 12 years ago

.. and how much does Coinbase charge in fees and order spread? How do they make their money in this environment?

EC1• 12 years ago

Their business model runs exclusively on draining the accounts of people that forgot their wallet keys!

boling11• 12 years ago

Plenty of reasons for merchants to accept BTC, still not a lot of reasons for consumers..

CyberDildonics7• 12 years ago

Have you ever had your credit card stolen? Have you ever had it frozen and not been able to spend your own money? These things happen constantly but never happen when paying with bitcoin. The more you have to deal with banks the more of a breathe of fresh air it is to pay in btc.

Credit card fraud is incredibly rampant and the security measures in place by banks and sites is so over the top it becomes difficult to even use them. Use ghostery? Your transaction won't go through with an unknown error. Use a VPN? Your transaction won't go through with an unknown error. Paying from a different computer? A different IP? Using a different address? All these things are a recipe for being on hold with your bank for 45 minutes when you all you wanted to do was order $50 of stuff from NewEgg.

mnisjk2• 12 years ago

Exactly. I still use plastic even when btc is an option. Credit cards are simply better for the consumer (instantaneous transaction, chargeback/dispute and points)

thejosh• 12 years ago

3% for very low volume maybe. Get a little bit of volume and you'll get less than 0.7%.

aianus8• 12 years ago

How is that possible given that my credit card gives 1% cash back?

runeks2• 12 years ago

That depends on what you're selling. If your store sells "high risk" items (I know electronics are a high risk item, and adult content as well), the fee can exceed 3%, as I understand it.

etchalon6• 12 years ago

Why do people keeping talking about BTC replacing credit card payments? BTC does not offer credit. It might replace debit cards (BIG might), but credit cards exist for a reason.

aianus8• 12 years ago

I think most people use credit cards for convenience/points not because they're so broke they need to borrow money to buy a Big Mac.

brighton36• 12 years ago

I wrote an article on this, scroll on down to "The Solution" http://cointelegraph.com/news/113255/keeping-score-at-the-20...

rhino3692• 12 years ago

Bitcoin just pushes the costs onto the consumer.

In order to replicate the credit card payment process you have:

prebuy bitcoins. Not only is this a bitch to deal with, but it costs money. Transaction fees, hidden or not. Sure you can buy on an exchange but that has a small fee plus the risk they'll steal or lose your coins. Buying from an ATM or broker has a fee. Even if it isn't explicit they'll get you on exchange rate spread.

Some sort of escrow service. If Amazon doesn't ship me my TV, I can cancel the charge on Visa. Either you forgo this or you pay for it. This will have a fee.

There is volatility risk.

Then the merchant still has some fees. They have to pay Coinbase their fee.

When accounting for all the risk I doubt it's cheaper.

That isn't even considering that confirmation time is like what? 10-30 minutes?

Bitcoin will be the silk road currency but not much else.

IkmoIkmo6• 12 years ago

You can buy bitcoins at Circle for free. And sell, too, at the same price. No spread obviously (as that would mean you can arbitrage, as their buy and sell price are exactly the same).

Volatility risk is inherent to every single currency. The swiss franc just had a 30% change in value. Bitcoin's volatility is going down every year, look at the charts, and it makes sense, too. Deeper markets are harder to move. There's nothing particularly unique about bitcoin that makes it volatile except its youth and nascent ecosystem. Over time its predictable supply curve makes it less volatile than most of the world's currencies for most of the world's population that don't live in stable OECD economies with decent currencies. There are numerous countries with 10-20% inflation and wild swings.

Is bitcoin any better? Well again, its volatility is going down every year. But already you can go to Bitreserve and lock in the price to a dollar or euro or gold or yen or whatever value. So if you're in Kenya, instead of 10% inflation, you just keep your money according to the dollar rate if you want, enabled by bitcoin.

Merchant fee? Bitpay offers 0% processing for all. Their most recent merchant taking bitcoin through Bitpay (at 0% fees) was Microsoft.

Transactions are instant, confirmation time can be mitigated as it's a function of risk. Cup of coffee needs no confirmation time. Amazon needs no confirmation time. (if the customer double spends it, you simply cancel 15 minutes later and the item supposed to ship the next day won't arrive.) Xbox Live needs no confirmation time. (account gets shut down after 10 minutes of trying to set up a multiplayer game of Halo, xbox gets fingerprinted and it and the ip gets blacklisted for fraud. Remember only the owner of bitcoin can double spend through careful effort, meaning you can be near certain fraud was intentional.) In short, virtually all of online retail has no real confirmation issues long term. And software solutions are in progress, there was one posted just last week, can't find it atm.

Escrow: it's just an insurance service, no reason there won't be a company offering it. In fact escrow with timelocks and multi-sig already exist. It's a bit of a long discussion but look into Mike Hearn's presentations and articles on this, the short story is that with bitcoin you can get much better and fairer and more specific expert escrow services to fit your particular niche. Paypal and Amazon's systems aren't adequate and allow too much fraud and require too many costs.

Whether the customer or the merchant pays isn't relevant, the customer ALWAYS pays, it's not like the merchant will pay extra fees from his money-tree in his backyard. The customer pays. So if you have an expensive escrow system that screws over merchants and lets criminals chargeback lots of transactions stealing products essentially without paying and the merchant has to pay for expensive processes to get their product/money back, or let it slide, then the company will raise prices to make up for the losses or go out of business. Customers pay.

Same with creditcard theft. Oh you don't have to pay if your CC gets stolen and someone spends $1k of your money? You still pay. Mastercard isn't giving you $1k. They're either taking it from the merchant (see above), or they're paying you money out of revenues. Surprise, in both cases, you're the source of revenue. Banking isn't cheap, there are enough articles on this online just check 'm out. A checking account averages about $200 a year? Credit is hugely overpriced? Paying 15-20% a year on credit when if I put money in a savings account I can barely get 0.5%? That's obviously because there's no peer-to-peer lending, if there was you'd both pay/get 10% and be better off by 10%. But people accept crazy rates on creditcards, why? Because the regular use is free or insured or promoted. All of those things you think are 'free' or 'cheap' are only such because you're getting screwed in other areas of your financial services.

In short, creditcards are a 1950s invention that are hugely unsecure: people walk around with plastic cards with their freaking entire password (doubles as an account number) printed on it. And everytime you want to pay, you show your password. It's insane. And then if something goes wrong, you charge it back. All of this costs money, there's a ton of theft and fraud with this system and the customer ends up paying for it. You're deluding yourself if you think that's cheap, it's like getting a free razor and being oblivious to the fact you're paying a shit ton on the blades.

Cthulhu_• 12 years ago

Funny how apparently the biggest Bitcoin company is a bank for centralized storage and management of Bitcoins, which was the exact opposite goal (according to the idealists) of bitcoins. Next up they'll probably offer interest and loans/mortgages.

WillNotDownvote2• 12 years ago

Possible it's just the easiest model for establishment investors to understand.

Doesn't necessarily imply anything about future bitcoin business models, or even current ones that still fly beneath the mainstream investor radars.

valevk3• 12 years ago

Well, people are familiar with banks, and they know how to use them. I think that's the only way to get widespread adoption at this stage. Sure, everybody on this site would prefer to see a more decentralized solution, but to get the attention of more people that's the only way. Copy the big guys.

jasonisalive• 12 years ago

Even if you just rebuilt banks as they exist today on top of Bitcoin, you'd still get some pretty huge advantages, potentially massively increased security, speed, reduced costs, among others. Another big one is that these banks can service the entire global market, massively increasing competition among and hence quality of banking services.

CyberDildonics7• 12 years ago

This is totally true I'm not sure where the down votes come from. HN seems to really hate bitcoin.

CyberDildonics7• 12 years ago

Coinbase is about buying bitcoins and taking them as payment. Its primary purpose is not to hold other people's bitcoins. It is an exchange and payment processor. So it's funny that your description is the exact opposite of what Coinbase actually does.

gnaritas2• 12 years ago

Coinbase is as much about Bitcoin storage as it those other things, lets not pretend otherwise. They didn't just roll out the offline vault with double email confirmations and a two day delay because storage isn't their thing. They are not an exchange, you don't trade on Coinbase. They're a broker, you get coins from them with a markup and delay.

presty3• 12 years ago

Its primary purpose is not to hold other people's bitcoins

Wrong. There's a reason they call one of their services a "wallet" - because they hold other people's bitcoins. And guess what, they now have a USD wallet too, for storing other people's USD (http://avc.com/2015/01/feature-friday-us-dollar-wallet/)

And as gnaritas said, they are not an exchange, they have a broker service.

grubles• 12 years ago

Then what is Coinbase Vault?

https://www.coinbase.com/vault

blfr• 12 years ago

Wasn't Bitcoin always meant to be cash for computers? Bulk of cash belongs in the banks.

Mere possibility of running a node on your own and sending money directly alters the dynamic. You can use a third party service if you like. You have to use a third party to transfer dollars over the Internet.

nmeofthestate• 12 years ago

"Wasn't Bitcoin always meant to be cash for computers? Bulk of cash belongs in the banks."

I'd say most money lives in banks. Most cash is out in the world.

A downside of having someone else hold onto your BTC on a website is that you can't spend it in the ways that are supposed to make BTC powerful.

On the other hand, you do still reap the benefits of the rock-solid wealth-storage device that is BTC. And where could be a safer place for your BTC than a website on the Internet? Those things never get hacked.

Mahn2• 12 years ago

Coinbase is just another company in the Bitcoin ecosystem, them being successful does not mean Bitcoin cannot have other faces or uses. Nobody condemns email for being too centralized because Gmail is popular, people who care for decentralization can and do set up their own email server.

vectorpush6• 12 years ago

Well said, though, I think there is reason to be concerned about the continued centralization of bitcoin payment processors. In a world where bitpay and coinbase are processing the vast majority of bitcoin payments, it's easy to imagine how a coordinated denial of service attack could temporarily cripple the bitcoin economy from the consumer's perspective.

matthewowen2• 12 years ago

I actually think that this comment highlights that centralization can come in quite sneakily.

Email's a great example. You could set up your own email server, but doing so in such a way that you don't harm your ability to get emails into people's inboxes is problematic in all sorts of ways: you've got a good chance of being classified as spam. So even though the system is decentralized, the fact that most users are centralized within a few big players means that those parties can unilaterally impose rules that cut off users who don't participate in the centralized ecosystem.

In short: if Coinbase becomes sufficiently large, they could have the de facto power to disadvantage people who choose to use bitcoin outside of major centralized services.

This isn't to say that a system can't tend more or less to centralization: sure, it can, and Bitcoin could have a strong tendency to make unilaterally enforced centralization hard. But even good technical solutions are vulnerable to social forces, and social forces can be very powerful.

tuananh• 12 years ago

if you communicate with people using gmail, it would be pointless though.

gregcrv• 12 years ago

I believe cash is also decentralized until you have to much to store and it becomes complicated and risky to keep it under your bed. Keeping your bitcoins inside your computer comes to a cost of security and maintenance with the risk of losing them or getting robbed... Giving them to a bank you trust is the solution if you can't do that on your own.

Torgo• 12 years ago

Different definition of centralization. Coinbase may hold and control a lot of bitcoins, but they don't control the network and can't make fiat declarations if they want to ban/block someone from using bitcoin.

GrinningFool• 12 years ago

Unless they become a large enough payment provider.

If a sufficient number of businesses integrate coinbase into their sales, it's not just a matter of the paying customer going elsewhere to process the payment: the entity selling the goods also has to move away from coinbase.

Sure, you can still send coins over the network - but given a large enough foothold that doesn't mean you'll be able to pay for the goods you want, at the merchant you want.

oco1014• 12 years ago

5 pools control the network ...witch is scary

hypersoar• 12 years ago

Well, what do you mean by "Bitcoin company"? Are there no retailers larger than Coinbase now accepting Bitcoin? Such companies may not base their entire business around it, but the goal of Bitcoin is meant to be a widely-used medium of exchange. It's not necessarily bring about large companies on its own. And what would a "US Dollar company" be, if not a bank, anyway?

jhildings• 12 years ago

No, it's like saying that it's bad or strange that for example godaddy.com is a large DNS provider. They are just a popular provider of a decentralized service

baddox• 12 years ago

That's the exact opposite goal of, I would guess, an extremely small number of people, and even a small number of people who would be described as big fans of Bitcoin. I don't even think it's worth mentioning. I'm extremely optimistic about Bitcoin, and I see no reason why offering traditional financial services (including exchange with government currencies) on top of Bitcoin is undesirable.

stinkytaco• 12 years ago

Really? I always assumed that bitcoin would follow pretty much the same path as currency on its way to mainstream adoption (mainstream adoption being more or less a prerequisite of any currency). Banks, loans and mortgages don't exist because of some massive conspiracy, they exist because they are necessary. And they are just as necessary in bitcoins as in any other form of exchange.

blackobelisk• 12 years ago

yeah i mean the point of Bitcoin is that it's decentralized…on a technical level that's not going to change. also another huge point is that it's natively digital which enables tons of shit. whatever, coinbase is awesome

IkmoIkmo6• 12 years ago

Haha yeah it is ironic. For people who want a bit of nuance (it's certainly true what he said, just not the whole truth) here's some additional thoughts.

One is that the paradox of bitcoin adoption is that it can't take off without a normal banking system. And if you had a decent banking system, you wouldn't need bitcoin in the first place.

That is, fraud is a big issue in online retail. You buy product X online and then you 'charge back' your transaction and end up with a free product. Merchants then have to solve this by starting legal cases and provide evidence that a product was supplied blablabla. Sometimes this costs more than it's worth. Bitcoin faces a lot of these problems, too. How do you acquire bitcoin? You can't through Paypal because of this fraud, everyone charges it back and Paypal mostly ignores evidence that bitcoin was indeed supplied. As a seller you can't really make a case and win.

So you end up with these big companies that act a bit like banks. They require you to verify your identity, your residence, bank account etc. All to prevent fraud. And of course all of that has costs, so they charge you 1%. And then you pay them not through a credit card, that's 2.5% in fees which doesn't work if you pay $100 to get $100 of bitcoin. So you pay through ACH, which takes a few days but is cheap.

So you end up with a service that sells you bitcoin for 1% that takes a few days. Why? Because there's no way to safely send money cheaply and instantly without fraud, which is what bitcoin allows you to do and solves.

So the paradox is, if everyone had bitcoin, it wouldn't be a problem. But they don't, so we need banks. But if banks worked well, we wouldn't need bitcoin.

Over time this becomes less of an issue of course. This is what made Coinbase big, not its storage, but its exchange function for US customers. As a wallet, it's not the biggest, Blockchain.info which does not see your private keys (it's a software layer) has almost a million more wallets. So it's big for its exchange function which has little to do with centralized or decentralized storage of money.

The second part is centralized storage. This is a function of culture and software sophistication. In the early days most bitcoin software wasn't user friendly and not very well written. Today we're seeing changes. In fact, Coinbase has a multi-sig product, which is a software solution allowing you full autonomy over your money, and Coinbase none. That's not centralized storage, users retain full control over their private keys and Coinbase offers the software to facilitate it, much like how an Excel sheet facilitates your personal data analysis but doesn't award Microsoft ownership of your data. Over time we'll see products like this emerge more and more and people will have a choice to move away from centralized storage, and culture may shift towards that, too.

In short though, bitcoin wasn't about 'never use a centralized company'. It's about a protocol layer that's not proprietary, with a currency that can't be forged or printed to fuel political agendas (like militaristic foreign policy). The fact that centralized and decentralized solutions become available on top of that layer is both fine. Much like how a decentralized internet would be awesome despite the fact it would still see centralized repositories of data like Facebook, it's not about which services become most popular as long as the underlying network remains free and open.

gnopgnip• 12 years ago

You are ignoring the cost of the bitcoin network. Someone has to pay for all of those hashes. Currently it is being paid for by block rewards mainly to the miners, and the transaction fees are very low. Taking into account the bitcoins created to pay the miners, the cost per transaction is much higher with bitcoin than with traditional banking.

tonyhb3• 12 years ago

This is one of the reasons I co-founded https://www.incoin.io, so you can choose to get paid partly in bitcoin (or not, if you don't want to) without a 1% fee.

Your identity is already verified for tax purposes. It's a straight up facilitator.

As a shameless plug, the other reason is savings. We've implemented splitting your paycheck up into multiple accounts to incentivise savings, and it's working really well.

dylanz• 12 years ago

Congrats Brian, Fred, and team! Quite an interesting funding round, and, quite a blooming market. Keep up the good work! I have to say, this sector is one of the most interesting to watch.

antidaily• 12 years ago

As Regina says in Mean Girls, "Stop trying to make (Bitcoin) happen. It's not going to happen."

nawariata• 12 years ago

Bitcoin has already happened for a lot of people.

oafitupa5• 12 years ago

"...because I hate it for no reason"

Aqueous3• 12 years ago

It certainly seems like Bitcoin is dead.

Aqueous3• 12 years ago

To the sarcasm-impaired: http://bitcoinobituaries.com

jypepin• 12 years ago

I would be really interested to have more info about Coinbase vision and plans to make bitcoin more mainstream, etc.

Some of those institutions are obviously signs of opening BTC to stock exchange or more hedge founds, and traditional investments assets.

Would have been nice to hear more of where they see/want to put bitcoin in the future.

stevewepay• 12 years ago

That's a pretty impressive lineup of investors. With that kind of funding, I imagine that Coinbase isn't just setting themselves up as a Bitcoin company, but they should be able to create infrastructure that processes/handles any sort of cryptocurrency. So even if BTC loses favor, they'll be one of the few companies that have the infrastructure to support whatever the up-and-coming cryptocurrency is. Regardless of which specific cryptocurrency is in vogue at the time, I do believe that cryptocurrencies are here to stay, and Coinbase is aiming themselves up to be the market leader. This is an investment that even I'd be willing to buy into as well, if there were ever an opportunity.

jnks• 12 years ago

More likely: a push to become the next PayPal, but using the Bitcoin network rather than the standard ACH banking network. Here's one step towards that: http://avc.com/2015/01/feature-friday-us-dollar-wallet/

mathattack• 12 years ago

Is this a sign of how little PayPal has innovated lately?

sgt101• 12 years ago

There's one (or 10) born every minute. If I were a scammer I'd want these folks email addresses.

Animats2• 12 years ago

Maybe with this capital infusion, Coinbase will get an actual business address. Right now, their mailing address is a PO box in San Francisco's homeless district, their SSL cert is a cheap "domain control only" SSL cert, and their SEC filing gives the address of an apartment on Bluxome St.

That's a violation of California B&P code section 17538. (http://www.leginfo.ca.gov/cgi-bin/displaycode?section=bpc&gr...)

(d) A vendor conducting business through the Internet or any other electronic means of communication shall do all of the following when the transaction involves a buyer located in this state:

(1) Before accepting any payment or processing any debit or credit charge or funds transfer, the vendor shall disclose to the buyer in writing or by electronic means of communication, such as e-mail or an on-screen notice, the vendor's return and refund policy, the legal name under which the business is conducted and, except as provided in paragraph (3), the complete street address from which the business is actually conducted.

pilgrim689• 12 years ago

... (3) The complete street address need not be disclosed as required by paragraph (1) if the vendor utilizes a private mailbox receiving service and all of the following conditions are met: (A) the vendor satisfies the conditions described in paragraph (2) of subdivision (b) of Section 17538.5, (B) the vendor discloses the actual street address of the private mailbox receiving service in the manner prescribed by this subdivision for the disclosure of the vendor's actual street address, and (C) the vendor and the private mailbox receiving service comply with all of the requirements of subdivisions (c) to (f), inclusive, of Section 17538.5.

claypoolb• 11 years ago

Ben Horowitz predicted on 11/19/14 that Bitcoin is going to be one (of two) of the next massive disruptors in technology. He compares Bitcoin with the revolutionary impact of the internet.

It is gaining momentum.

http://ecorner.stanford.edu/authorMaterialInfo.html?mid=3369

Coinbase Raises $75M from DFJ Growth, USAA, NYSE, and More

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