Bitstamp Exchange Granted European License
Bitstamp has become the first bitcoin exchange to be granted a national license allowing it to operate as a fully regulated payment institution. Above, bitcoins appear in a photograph taken in 2014. Karen Bleier/AFP/Getty Images

Bitstamp has become the first bitcoin exchange to be granted a national license after Luxembourg classified the company as a fully regulated payment institution. The move lets Bitstamp operate across all 28 countries in the European Union.

Bitstamp, which has been operating since 2011, is the world's third-largest bitcoin exchange by volume of currency traded. The move by Luxembourg to grant the license will allow Bitstamp to operate in all EU member states due to the EU passport program, which lets financial institutions licensed in one country do business in the others. The move puts the bitcoin exchange on the same footing as traditional financial institutions for the first time in terms of security and consumer protection.

Bitstamp has also announced it will begin offering customers the ability to exchange bitcoins for euros and vice versa, a service that's available on only a handful of other exchanges. The process to obtain the license, which goes into effect July 1, took more than two years and involved the small country's financial regulator, the Luxembourg Financial Industry Supervisory Commission, and included security reviews in addition to an audit by Ernst & Young.

Bitstamp is setting up its new headquarters in Luxembourg because the country "recognizes the economic potential of bitcoin and blockchain technology," said Pantera Capital CEO and Bitstamp Chairman Dan Morehead. Luxembourg is already home to international e-commerce giants like PayPal and Amazon, with both companies accused in the past of locating there to take advantage of Luxembourg's tax system.

Europe is attempting to codify laws surrounding bitcoin, and following a meeting of the European Council in February, the continent's regulators are seeking to draw up new rules by June. The European Commission had earlier announced plans for stricter reporting standards for digital currency exchanges, part of a wider move to restrict terrorist financing channels.

The commission said it would require exchanges and wallet services — used to store bitcoin — to identify their customers. One of the major benefits proponents of bitcoin see in the cryptocurrency is its anonymous nature, allowing users to pay for goods online without having to divulge any personal information.

This has made bitcoin the currency of choice on dark web marketplaces where everything from illicit drugs to guns are for sale. Some also say bitcoin has been used by terrorist organizations to fund their actions, though there is no conclusive proof that this is the case.

“We have put a lot of time and resources into the regulatory process, with the goal of ensuring customers feel more confident in using Bitstamp’s exchange and products across the European Union,” Nejc Kodric, co-founder and CEO of Bitstamp, said in a statement.