First U.S. Bitcoin Exchange Set to Open

Someone went from millionaire to poor overnight when Mt. Gox failed, so it's a real concern. No one should keep their coins in any wallet except their own, and they need to make sure they have the technical understanding of how to properly manage their wallet. If your personal wallet isn't encrypted and backed up, it's not managed properly.

If you want to store coins on someone's exchange or webwallet, never store more than 25% of what you're comfortable with losing. (It turns out that "what you're comfortable with losing" is way, way more than the reality of waking up one day and realizing you've lost it all.)

This is an interesting move, but I'm worried that these new exchanges will increase the attack surface of Bitcoin's reputation. If the new ones fail, it will shake the public's confidence in Bitcoin yet again. Not that that matters, since Bitcoin seems to go along fine whether or not people are confident in it.

I don't know whether it would even be possible to insure against losing all cold storage reserves, but nobody should trust large sums to any webwallet (including Coinbase's current website, BTC-e, Bitstamp, etc) until protection against that worst-case scenario is in place.

EDIT: From the paywalled article:

The exchange could bring needed legitimacy to the currency, which isn’t backed by a central government and is traded over virtual exchanges, primarily overseas. Coinbase said it has insurance, offering traders some assurance that their money won’t disappear.

Until details about this insurance are released, do not trust large sums to Coinbase or anyone else. And unless the insurance protects against every coin disappearing tomorrow, never trust them at all. Trusting them is equivalent to gambling your savings for no benefit.

So what is this "licensed" thing? "Licensed" by whom? The US SEC? The State of New York? Some other state? FinCen.

There have been many exchanges registered with FinCen, the anti-money-laundering regulator, including Mt. Gox. That provides no investor protection. A few have been licensed as state money transmitters. That may provide some investor protection. Nobody as yet has been licensed as a broker, dealer, or exchange with the Securities and Exchange Commission, something every stockbroker and dealer in the US has to do.

Being licensed as a broker/dealer means SIPC insurance for investors up to $500K per customer, FINRA supervision (they fine a few brokers every month), outside audits, exams for personnel (even the people in a call center have to pass an exam, so they know what they can and can't do) and exams top management (yes, even top management at a brokerage has to pass an exam).

There are significant advantages for being a real broker/dealer. You can plug into the financial system at a higher level, and moving money around becomes much easier.

An existing broker/dealer could set up a market in Bitcoin if they wanted to. So far, no one has bothered.

When a Bitcoin exchange gets licensed by the SEC, let us know. Until then, it's just hype.

Edit: the article says they claim to be licensed in California. Here's the list of money transmitters licensed in California: http://www.dbo.ca.gov/Licensees/money_transmitters/money_tra... Not seeing Coinbase on the list. Silicon Valley names on the list include Google, Square, AirBnb, Xoom, Paypal, Intuit, etc. No Coinbase, or anything in SF that looks like it might be them.

site:http://www.wsj.com/articles/first-u-s-bitcoin-exchange-set-t...