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Bitcoin Startups

CoinBase and Others Receive Funding

Written by Joseph Carducci
Posted May 9, 2013 at 7:08PM

CoinBase became the latest Bitcoin company to attract the attention of investors when they recently landed $5 million in venture capital investments.

bitcoinThe 11-month old company had also received $600,000 in a seed round of funding back in September 2012. The major player in this latest round of venture capital funding is the San Francisco-based firm Union Square.

CoinBase is just the latest in a series of these virtual currency company startups. Last month, OpenCoin Inc. also received an estimated $2 million investment from several companies that reportedly include the A-list venture capital firm Andresseen Horowitz.

CoinBase is developing a virtual currency and payments system that will accept Bitcoin.

Other Bitcoin-related startups have also raised millions in funding. CoinSetter and CoinLab have both received funding from venture capitalists and angel investors. Estimates are that there are currently 100 or so companies in this niche including exchanges, payment processors, and even Bitcoin ATM machine operators.

What Exactly is Bitcoin?

Bitcoin is essentially a form of alternative currency. It is both open-source and digital, meaning that anyone with the right tools (and possibly technical skills and training) could get hold of some of this ‘new’ money.

Founded in 2009 by either a person or a group using the name Satoshi Nakamoto, the whole idea is to cut transaction costs to the bone and offer users anonymity. The ability to conduct transactions rapidly across the globe is another nice benefit.

People or businesses are able to ‘earn’ Bitcoin by going through a technical process of mining. Currently, the Bitcoin system releases 25 new coins every 10 minutes. Miners can get these by verifying a series of incredibly complicated transactions. In other words, these are the folks who enjoy solving exceptionally difficult math problems.

Eventually, this new currency will stop being mined and there will be a fixed amount in circulation. This number is currently set at 21 million Bitcoin units. However, it will not reach this level until the year 2140. Beginning in 2017, those same 25 Bitcoin units will be released every 20 minutes, and this number will continue to be cut in half every four years.

Volatility in the Bitcoin Market

Despite the fact that there is over $1 billion in Bitcoin currently on the market, there is still a lot of volatility. The currency has reached a high of $266 in April and a low of around $5 in June 2012. It is currently trading around $110.

One reason for this volatility is hacking activity. Hackers wait for the price to rise and then unleash a denial of service attack on the popular exchanges.

This can destabilize the exchange itself and cause a series of holders to panic and sell their Bitcoins, causing the price to drop rapidly. Then, the hackers simply stop the attack and buy as much as they can.

User Base Expands

There are currently a number of popular websites and online outlets that have begun accepting Bitcoin as payment for their goods and services. These sites include Reddit, Mega,, Expensify, NameCheap, and many more.

There are currently around 300 merchants who use Bitcoin and 116,000 real-people members. Statistics show that during the month of April, members converted $15 million of actual cash into Bitcoin (up from only around $1 million in January).

In an interesting move, the online dating site OKCupid has recently announced that it will begin accepting Bitcoin as payment. The site has partnered with CoinBase, using their platform to buy and sell the digital currency. 

It is clear that mainstream companies are beginning to pay attention to this so-called alternative currency. 

Profiting From Bitcoin

One method of profiting from the rise of Bitcoin is to become a ‘miner.’ Then again, there is certainly a fair amount of skill and technical knowledge required in order to work out those complicated transaction and math problems.

Many people considering this will join a mining pool that combines the processing power of a number of machines and supposed experts. Then again, the costs of the equipment can be prohibitive (some of the processors alone are selling for $6,000 on auction sites).

Not to mention the cost of electricity and the fact that it can take months to actually find and unlock any Bitcoins at all.

You could actually become a Bitcoin trader or investor directly through an exchange. Since most of these companies are not yet traded on a traditional stock exchange, this might the best way to profit directly. Of course the risk is that the value continues to fluctuate in wide swings.

The future of Bitcoin seems a bit uncertain. If a major economy like that of the U.S. were to actually make a ruling as to the status of digital currency in general, or Bitcoin in particular, that could lead to either a huge boom or bust in this market. 

This seems to be the event that many people are waiting for in order to make a judgment about whether or not the currency will capture more widespread attention and interest. 


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