Bitcoin exchange and digital wallet provider Coinbase has received a virtual currency and money transmitter license — commonly known as a BitLicense — from the New York State Department of Financial Services.

The grant comes amid an expensive legal battle between Coinbase and the Internal Revenue Service that has highlighted tensions felt by financial institutions that strive to remain compliant and protect customer privacy.

“At Coinbase, our first priority is to ensure that we operate the most secure and compliant digital currency exchange in the world," Brian Armstrong, Coinbase chief executive and cofounder, said in a Tuesday news release.

In late November the IRS received approval from a California federal court to obtain records of potentially millions of Coinbase users who had made digital currency transactions between 2013 and 2015, stating there was reasonable basis to believe some in its customer base "may have failed to comply with any provision of any internal revenue laws," the judge said at the time.

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Coinbase will "likely incur a legal cost of between $100,000 and $1 million in the process of defending our customers from this overly broad subpoena," Armstrong said in a blog post over the weekend.

The San Francisco-based Coinbase was one of the earliest bitcoin exchange and wallet startups to emerge in the space which now counts BBVA, USAA and former Citigroup CEO Vikram Pandit as financial backers. It has raised $117 million in venture capital funding to date and is the third company to receive a BitLicense.

"Through the creation and promotion of strong state-based regulation, DFS continues New York’s long record of being responsive to technological innovation,” said Maria Vullo, financial services superintendent, in a Tuesday news release. “New York is committed to fostering and encouraging the long-term growth of new industries throughout the state while enforcing all necessary safeguards to protect our markets and consumers.”

The DFS granted a BitLicense to Ripple in June to sell XRP, the native asset that powers its Ripple consensus ledger, and to Circle Internet Financial in September 2015.

The BitLicense was designed initially to provide some regulatory framework under which bitcoin startups wanting to hold and transmit virtual currency could operate. A portion of the BitLicense application requiring applicants to acknowledge their current or prior virtual currency business operations in other states has put bitcoin companies in compromising situations in which they risk outing themselves as unlicensed money transmitters as a consequence of their efforts to be compliant. Most of the states require money transmission licenses, but it's not always clear when those licenses are required, and each state has different rules on it.

The cost, a $5,000 non-refundable application fee, also proved to be a deterrent for many startups.

Incidentally, the DFS penned a letter to the the Office of the Comptroller of the Currency in opposition of its proposal to create a new national bank charter for fintech companies, during the comment period.

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