Can the Biggest U.S. Bitcoin Exchange Win Over Wall Street?

The six­year­old company runs the largest U.S. digital­currency exchange by volume and offers a popular app for storing and transferring bitcoin. Coinbase doesn’t directly bet on the price of bitcoin, but instead makes money by collecting fees when customers buy or sell the cryptocurrency.
Coinbase enjoyed eye­popping growth in late 2017 as small investors piled into bitcoin. It now boasts of more than 20 million customers ­­ more than Charles Schwab Corp., which has 10.8 million active brokerage accounts.
“In U.S. markets, Coinbase is just way ahead of everyone,” said Ari Lewis, co­founder of crypto hedge fund Grasshopper Capital. “And they’re not standing still with the retail stuff.”
But the end of bitcoin mania raises questions about whether Coinbase’s success has peaked. Its exchange handled about $8 billion worth of digital­currency trades in April, down 78% from its record volume in December, according to CryptoCompare.
Regulators could also trip up Coinbase’s quest to broaden bitcoin’s appeal. The Securities and Exchange Commission warned in March that many crypto trading platforms were potentially unlawful. Coinbase has approached the SEC and U.S. bank regulators about obtaining various federal licenses, The Wall Street Journal has reported.
Coinbase was founded in 2012 by Chief Executive Brian Armstrong, a former Airbnb Inc. software engineer, and Fred Ehrsam, a former Goldman Sachs Group Inc. foreign­exchange trader. Mr. Ehrsam left in 2017 but remains on the firm’s board.
When Coinbase launched, bitcoin was little known outside a small circle of enthusiasts, many of them libertarians inspired by the idea of a currency outside government control.
Coinbase always aimed to take bitcoin mainstream, say current and former employees. A major goal was to make it easy to exchange so­called “fiat” currencies ­­ dollars, euros and so on ­­ for bitcoin. That wasn’t always straightforward: Early on, one popular way was for bitcoin aficionados to arrange meetings at Starbucks and swap the digital currency for cash.
At a time when bitcoin was widely associated with crime, Coinbase cooperated with U.S. authorities. It registered as a money­services business with the U.S. Treasury’s Financial Crimes Enforcement Network in 2013 and has since amassed 41 state licenses.
That helped Coinbase avoid the fate of rivals such as BitInstant, whose founder, Charlie Shrem, was arrested in 2014 in a case linked to the Silk Road underground narcotics bazaar. Mr. Shrem pleaded guilty to operating an unlicensed money­ transmitter business and spent about a year and a half in prison. “The early days of crypto were very much like the Wild West, with very little legal clarity,” Mr. Shrem said in an email.
Other bitcoin exchanges failed after hackers stole investors’ funds. But Coinbase says it has never been hacked. “Not being compromised is one of the big reasons that Coinbase is what it is today,” said Olaf Carlson­Wee, an early employee who now leads crypto hedge fund Polychain Capital.
Coinbase has had its share of growing pains. The company says its user base doubled from August to December. That led to overloaded systems and customers unable to reach tech support.
About 1,530 complaints have been filed about Coinbase with the Consumer Financial Protection Bureau so far this year, more than American Express Co. and PayPal Holdings Inc. combined, according to CFPB data.
Nikhil Thomas, an IT analyst in Maryland, was unable to access his Coinbase account for four months because of a problem verifying his identity. Calls and emails to customer service yielded few results, and he missed out on thousands of dollars in profits as bitcoin tumbled, he said. “The ordeal was painful,” Mr. Thomas said in an interview.
Coinbase declined to comment on Mr. Thomas’s experience, but says it was overwhelmed as its user base mushroomed. “As a result of this unprecedented demand, some customers had a poor experience,” Dan Romero, general manager of Coinbase’s retail business, said in an email.
Over the past three months, Coinbase has expanded its customer­support team by more than 150% and resolved 95% of its outstanding requests for help, Mr. Romero added.
Coinbase has faced other controversies. In December, it vowed to probe allegations of insider trading after suspicious market moves accompanied the introduction of Bitcoin Cash, a bitcoin offshoot, on Coinbase’s exchange. The price of Bitcoin Cash climbed 28% in the 24 hours before Coinbase announced the launch, fueling rumors that some traders had been tipped off in advance.
A spokeswoman declined to discuss the insider­trading allegations, citing pending lawsuits. Coinbase has previously said it prohibits employees from trading on nonpublic information or sharing it with people outside the company.
There is no guarantee that Coinbase will maintain its lead over rivals. Robinhood, the free stock­trading app with more than four million users, added cryptocurrency trading in February. That could erode Coinbase’s hold over retail crypto investors.
Mr. Thomas is considering Robinhood after his frustrating experience. “Coinbase works beautifully,” he said, “until you have a problem.”

Write to Alexander Osipovich at alexander.osipovich@dowjones.com

How Blockchain Could Help Lower Health Costs

Blockchain, by contrast, puts patients, insurers and providers all on the same page. With a low­cost and decentralized­ ledger approach to managing information, blockchain technology gives all of the parties in the provision of health care simultaneous access to a single body of strongly encrypted data, and it creates an audit trail each time data is changed, helping to ensure the integrity and authenticity of the information.
Eventually, blockchain could be used to provide a secure and accurate medical history for every individual patient. MedRec, a blockchain system in development at the Massachusetts Institute of Technology, is designed for patients to be able to manage their own records and give permission to different doctors or providers to access and update the records. With MedRec, if a baby has been given vaccinations by different doctors, for example, all of that information can be accessed from the blockchain, says Andrew Lippman, senior research scientist at MIT and associate director of the MIT Media Lab. MedRec is testing the system using anonymized data from Beth Israel Deaconess Medical Center.
Success of the system ­­ or any similar system ­­ will depend on large numbers of providers and doctors opting in to the program. Other companies in this space are focusing on technical formatting and overcoming compatibility problems between different systems. What is lacking from those efforts, Dr. Lippman says, is a way for consumers to easily and securely access their records and have control of their own records ­­ something that MedRec, by using blockchain, promises to do.
Processing claims
While MedRec aims to include all patient health data held by medical providers, other projects are already using blockchain on different pieces of the health­care system ­­ for instance, to improve the insurance­claims process, the accuracy of health­care­provider directories, or the ability to verify doctors’ licensing.
In January, Change Healthcare, a Nashville­based health network of 800,000 physicians, 117,000 dentists and 60,000 pharmacies, introduced a blockchain system for processing insurance claims. While not all providers in the system are using it, the shared ledger of encrypted data represents a “single source of truth” for those providers who are, says Emily Vaughn, blockchain product development director at Change Healthcare.
All involved parties can see the same accurate information about a claim in real time, rather than having to send data back and forth, says Ms. Vaughn. This relieves a patient from having to call multiple parties to verify information. And each time data is changed, Ms. Vaughn says, a record of it is shown on the digital ledger, identifying the responsible party. Any changes also require verification by each party involved, again enforcing the record’s accuracy.
“You know at what stage in the life cycle the claim is in,” says Ms. Vaughn. With all parties working from the same data, “there’s a shared understanding of what the next steps are.”
Change Healthcare declines to say how much money it is saving with its blockchain system, which can process roughly 50 million events daily. But according to Ms. Vaughn, the savings will come from eliminating previous efforts required in the reconciling and verifying of data among companies.
The company also is exploring building other applications that could run on the system, such as automated processing of claims and new ways to improve the digital verification of patient and provider identities without endangering patient information.
Ms. Vaughn says the blockchain system and its decentralized design represent a step up in security. “Because the [data] log is replicated across many computers instead of managed by one central computer, it’s more resistant to attack and manipulation,” she says. Hence it is more difficult for hackers to take over the network. If any one computer is hacked, other separate computers using the blockchain would still have accurate information.
Provider directories
Another area where blockchain could be a big help is in maintaining the accuracy of online directories of doctors and other health­care providers.
Doctors groups, hospitals, insurers and diagnostic companies all tend to maintain their own online listings of contact, practice and biographical details. But it is expensive and time­consuming for each company to continually check, verify and update the records in its directory. Many insurers, for example, try to verify this data quarterly.
A group of companies in April announced a pilot project using blockchain to reduce these costs. The companies are Humana Inc., MultiPlan Inc., Quest Diagnostics Inc., and UnitedHealth Group Inc.’s Optum and UnitedHealthcare businesses.

“Each insurance company has their own islands of information with no bridges,” says Mike Jacobs, senior distinguished engineer at Optum, which works on digital and data­based innovations for a range of health­care services. “What this alliance is trying to do is create bridges to allow sharing of that information,” says Mr. Jacobs.
One report estimated that it collectively costs $2.1 billion a year to maintain provider directories using current methods. But Busy Burr, vice president and head of health­care trend and innovation at Humana, estimates that 75% of that cost could potentially be saved using blockchain.
The goal of the pilot program is for providers to update their information themselves into the blockchain, where it can be viewed by all parties in the network. Every company participating benefits, and there is no proprietary information shared that the firms have to fear their competitors will use. Companies could potentially be fined if information is inaccurate, Mr. Jacobs says.
Currently the alliance is focusing on data such as doctors’ address, specialties, phone numbers, and whether they accept new patients. Eventually the group wants to add other critical data, such as doctors’ credentials or state licenses.
“These kinds of collaborations are some of the things we most need in health care to help solve some of the problems that are most pressing in our industry,” Ms. Burr says. “We think if we could create a single source of proof for that data, a huge amount of cost could be taken out of the system.”
Along the same lines, the state of Illinois is looking at a way for hospitals, including in other states, to use blockchain to quickly check the licensing status of a provider, a typically cumbersome process. Nashville­based startup Hashed Health developed a proof of concept of this system for the state, but the project needs more funding to be built, says Bryan Schneider, secretary of the Illinois Department of Financial and Professional Regulation.