SPEND MONEY ON NEW MONEY
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.
WHO IS MAKING MONEY
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.
HOW TO DO IT
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.”
WHO’S SUCCEEDING
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.
THE RISKS
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.”