Winkelvoss Twins Plan to Tame Bitcoins

Cameron and Tyler Winkelvoss have gone from bitcoin enthusiasts to founders of a U.S. bitcoin exchange, which will be operational as soon as New York state regulators approve it. Those who want a more secure and stable bitcoin operation are cheering the brothers' efforts. Those who are more interested in keeping bitcoin anonymous and unfettered are likely perturbed.

Cameron and Tyler Winkelvoss on Friday announced Gemini, a regulated bitcoin exchange to be based in the United States.

The Winkelvoss twins, who shot to fame when they sued Facebook and won US$65 million, have assembled a team of security experts, technologists and financial engineers to build a world-class exchange from the ground up, based on security.

They have entered a banking relationship with a bank chartered in New York State, which means that U.S. dollars held on Gemini will be eligible for FDIC insurance.

Bitcoin is gaining in acceptance as an alternative currency, despite several exchanges having been rocked by security breaches. Mt. Gox, which at one time handled 70 percent of all bitcoin transactions, declared bankruptcy last year.

The notion of a secure, regulated exchange may help legitimize bitcoin.

The Winkelvoss Project

Gemini has a team of 14, including the Winkelvoss brothers.

Gemini’s chief compliance officer, Michael Breu, previously was head of information security in the research department at hedge fund Bridgewater Associates, The New York Times reported. Also, a programmer hired from hedge fund Two Sigma is building a system both small investors and institutional firms can use.

The exchange will open once it gets regulatory approval from New York State’s Department of Financial Services.

The department last year proposed codes, rules and regulations to govern virtual currencies.

The Angst of Bitcoin

However, bitcoin holders — many of whom are opposed to government regulation — may not be quite so pleased.

“There is a balance between maintaining the anti-establishment ethos of bitcoin and making it more palatable for ordinary savers or investors,” said Charles Sizemore, founder of Sizemore Capital.

“Having a fully established and regulated exchange will probably also water down the anonymity that a lot of bitcoin enthusiasts value,” Sizemore told the E-Commerce Times. “If you make bitcoin too pedestrianized, it loses its appeal to its strongest backers, but it becomes acceptable to a wider audience.”

One of the advantages of bitcoin is “there’s a significant amount of anonymity built into the process, which makes managing and tracking transactions hard,” noted Mike Jude, Stratecast program manager at Frost & Sullivan.

That anonymity attracted many users. However, it also made it more difficult to prevent money laundering, so “from the standpoint of nations or regulators, bitcoins are in many ways anathema,” Jude told the E-Commerce Times.

“So, if you have a bitcoin exchange you have to allow a certain level of anonymity,” he continued. “It’ll be interesting to see how that works out,” as there “has to be a legitimate exchange for bitcoins at some point — one that allows exchange for bitcoins in a regulated environment for conventional currency.”

Ironing Out the Fluctuations

Various scandals around bitcoin have sent its price plummeting from a peak of about US$1,500 to around the $200-$300 range. It stood at $279.96 on Friday, according to Cryptocoins News.

Such fluctuations are hard on companies like Newegg, which accepts payments in bitcoins through Bitpay, an electronic payments processing system for bitcoins.

“As a general rule, currency regulation is helpful to minimize fluctuation and reinforce customer confidence,” said Soren Mills, chief marketing officer for Newegg North America.

“Having Gemini will give [BitPay] additional liquidity options, which will help their business,” Mills told the E-Commerce Times. “In turn, that will be beneficial to Newegg, albeit indirectly.”

BitPay is for the idea of exchanges in the states — most of the major ones are located abroad.

“We welcome more U.S. exchanges,” BitPay Executive Chairman Tony Gallippi told the E-Commerce Times. “We hope the U.S. could be the world leader in bitcoin liquidity.”

Richard Adhikari

Richard Adhikari has written about high-tech for leading industry publications since the 1990s and wonders where it's all leading to. Will implanted RFID chips in humans be the Mark of the Beast? Will nanotech solve our coming food crisis? Does Sturgeon's Law still hold true? You can connect with Richard on Google+.

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