Coinbase is a San Francisco, USA based company that provides bitcoin wallet and merchant services. They currently support 180,000 customers and have raised over $6M in funding from large name investors including Y Combinator, SV Angel, Start Fund, Union Square Ventures, and Ribbit Capital, among several others. Today Coinbase announced the ability to instantly purchase bitcoins from connected bank account for a 1% fee.
Coinbase has been gradually increasing the purchasing abilities of its users over the last year. To many’s chagrin, they had originally capped the total pool of available BTC for all customers to limit bitcoin purchases. Many early users remember the frustration of having to wait until Coinbase had bitcoin in stock, then another 3-4 days for their bank transactions to clear before bitcoin was available. It appears those days are over, as Coinbase’s available bitcoins have increased dramatically, and all level 2 accounts will receive purchased bitcoins instantly.
There are 3 levels of account verification; in order to take advantage of the instant account transfers users must be at Level 2 (the highest). When signing up for an account, users will start at Level 0, since they don’t have any associated account information. To become Level 1, users must confirm their email address, link a bank account, and enable 2-factor authentication through a mobile phone. Linking a bank account requires entering account information and then confirming the value of two small payments – a process which will take several days.
Level 2 accounts have two additional requirements over level 1: users must wait 30 days after their initial transaction and they are required to verify their identity. Know your customer (KYC) regulation is presumably the reason for the additional step, however Coinbase’s process is much easier than many other sites which require photo verification. Coinbase asks basic information including full name, current address, last 4 digits of the social security number, and birth date to pull a credit report. Users are then required to verify 5 multiple-choice questions ranging from past addresses to details of large purchases.
Account Limits and Competition
Coinbase’s goal is to provide a resource for merchants and consumers to easily convert bitcoins to US dollars rather than to provide liquidity for active traders or large investors. Their daily buy/sell account limit of 50 bitcoins (approximately $5,000 at current exchange rates) should be sufficient for most users, but deeper pockets will likely find the limits low when compared to virtually unlimited bank wires to exchanges – as long as your bank allows the transaction.
This will likely add significant pressure on BitInstant, the most popular US-based company that provides instant bitcoin purchases with US dollars. BitInstant charges 3.99% to make cash deposits at thousands of locations including major banks, CVS, 7-11, and Walmart. They have a direct deposit option as well, however this still requires 3-4 days for the transfer to clear.
Detractors will complain about the privacy that is given up with linked banked accounts and identity verification. Those users concerned with maintaining privacy will be best served using localbitcoins.com to purchase bitcoins face-to-face with other members of the community. Unfortunately, in the current US regulatory environment it seems there are no legal online alternatives due to anti-money laundering (AML) and KYC regulation.
Integration with legacy payment systems has always been the most difficult challenge for new bitcoin adopters, and Coinbase has made a significant step forward in ease of use. The ability to buy and sell bitcoins instantly from any bank account for a 1% fee has significantly raised the bar for the competition.