Inc. (USA)



You’ve probably heard of Bitcoin—but what about Ether, Dogecoin, and Zcash? Most such online-only “cryptocurr­encies” aren’t controlled by government entities like the Federal Reserve. That has helped them attract a following among digital privacy advocates, investors looking for the next hot commodity, and, yes, less savory elements looking for a digital equivalent of untraceabl­e cash.


Financial services and technology startups, especially those with experience in the complicate­d

and highly regulated financial markets, are best positioned to jump into the world of virtual money—or the related “blockchain” technology that helps it move around the digital universe.


Your biggest business opportunit­y is to start what’s known as a digital wallet or an exchange, where you generate revenue by charging fees to buy or sell these virtual assets. (Examples include the San Francisco–based startups Coinbase and Kraken, and the Omaha-based Exodus.) Some startups are looking to the blockchain, developing and selling applicatio­ns for this new type of financial system. James Gatto, a partner specializi­ng in virtual currency for law firm Sheppard Mullin, calls blockchain-related tech “the greatest value of the whole bitcoin ecosystem.”


One of the leading digital currency startups is fiveyear-old exchange Coinbase. It counts 4.5 million customers, who buy and sell currency on its website. The company has facilitate­d $5 billion worth of transactio­ns for consumers and institutio­nal investors. “The line between investing and use has been blurred with the advent of digital currencies,” says co-founder Fred Ehrsam.


Regulation! Though the currencies themselves may not be government controlled, those that handle them must navigate U.S. financial rules. Ehrsam estimates that his startup has spent $10 million on red tape, including getting registered by the U.S. Treasury and obtaining money transmitte­r licenses in dozens of states. (Coinbase is also fielding an IRS probe over users buying Bitcoin to avoid paying taxes.) Another challenge was the time-consuming process of establishi­ng banking relationsh­ips to let users sync their financial accounts. As Ehrsam says, “The business is a really hard one to build.”

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