Coinbase Launches First Licensed U.S. Bitcoin Exchange
There are not many truly reliable options for online poker in the United States. There are, of course, the few sites that are regulated in Nevada, Delaware, and New Jersey, but obviously most of us do not have access to them on a daily basis. There are some sites and networks based offshore that continue to not care at all what the Department of Justice says* and offer online poker to U.S. residents, but it is hard to feel 100 percent comfortable that you will be able to deposit and withdraw funds smoothly at all times.
The other alternative for U.S. players is to play on a site that accepts Bitcoin, the decentralized cyber-currency that allows players to get around funds movement restrictions put on U.S. financial institutions when it comes to internet gambling. Bitcoin has its own problems, though. It is not regulated, nor backed by any government, and it is subject to wild swings in value. Whereas the U.S. dollar is stable, Bitcoin is not. If someone hacks a bank’s systems or a supervillain breaks into a vault, I will be made whole (or mostly whole), thanks to my accounts being FDIC insured. There is nothing like that for Bitcoin; while there are certainly ways to protect my investment, if someone is able to nab my Bitcoin, there is usually nothing I can do about it.**
Today, Coinbase launched the first-ever licensed U.S. Bitcoin exchange, giving Bitcoin perhaps the greatest boost to its legitimacy in its brief existence. The site has $106 million in backing from the New York Stock Exchange and financial institutions and has been granted licenses in the following 24 states:
Alabama
Arkansas
California
Delaware
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Massachusetts
Mississippi
Missouri
Montana
New Hampshire
New Jersey
New Mexico
New York
North Dakota
Puerto Rico
South Carolina
Washington
West Virginia
Wisconsin
Coinbase promises to add more states soon.
As mentioned, Coinbase is an exchange which facilitates the movement of Bitcoin between buyers and sellers. Though, by the looks of it, it is designed with a more experienced, Bitcoin-literate user in mind (so not me), trading Bitcoin appears to be a fairly simple process. Someone who would like to buy Bitcoin must first create a Coinbase account and go through the verification process. After that, the user links a bank account and deposits U.S. dollars into a Coinbase USD wallet, similar to how things work at an online poker room or, say, a stock brokerage site like TD Ameritrade. Then, in order to actually make trades, it looks like users must move their dollars from the USD wallet into a trading account.
When ready to buy, a user simply place an order, indicating how many Bitcoin they would like to purchase and for what price (I do not have an account, but I assume the option also exists to just buy at whatever the market price is at that moment). If a seller has Bitcoin for sale at the desired price, the trade is made. There will be no trading fees through March 30th. After that, fees are based on the “maker-take” model, in which “takers” are charges a fee of 0.25 percent, while “makers” are charged nothing. Coinbase provides the following example to explain how this works:
There is an existing SELL order for 5 BTC at 100 USD on the order book. You enter a BUY order for 7 BTC at 100 USD. 5 BTC of your BUY order are immediately matched and you are charged the taker fee because you are taking liquidity from the order book. The remaining 2 BTC of your order are now sitting on the BID side of the order book. A SELL order for 2 BTC at 100 USD arrives and matches against your 2 BTC BUY order. In this case you provided liquidity and are not charged any fees.
While we said that Coinbase is a Bitcoin exchange (after all, it is called Coinbase Exchange), in the FAQ section of the site, it actually says it is not an exchange, but more like a brokerage service (hey, my comparison earlier might have been correct!). Thus, while buyers and sellers must be paired up, they are not buying and selling directly with each other, but rather through Coinbase. Users deposit their USD (for buyers) or Bitcoin (for sellers) which Coinbase, which makes the transactions for the traders.
This naturally leads to the question about funds safety. As mentioned, if a Bitcoin exchange were to get hacked and the Bitcoin are stolen, that’s it. They are gone. Coinbase claims that it is insured against shenanigans by being insured against theft or hacking “in an amount that exceeds the average value of online bitcoin it holds at any given time.” Bitcoin losses that are the result of a user problem such not keeping their login information safe, are not covered.
SealsWithClubs is probably the best-known Bitcoin-only online poker room. It is reliable, yet small, with a seven-day average of just 90 cash game players, according to PokerScout.com. Other sites have popped up over the last year or so, but have yet to gain much traction. The Winning Poker Network made minor waves this month, announcing that it now accepts Bitcoin as both a deposit and withdrawal currency. With 475 cash game players, it is the largest online poker network to use Bitcoin.
*Well, they kind of do, or else their executives would happily set foot on U.S. soil.
**I am nowhere close to a Bitcoin expert, so if I’m way off on something, feel free to yell at me. I can take it.
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