Bitcoin startup Coinbase announced today that it raised $25 million in a series B funding from Andreessen Horowitz, with previous investors kicking in some more cash.

Coinbase does a little bit of everything with bitcoin. It's a bitcoin wallet for consumers, it allows merchants to take bitcoins as payments, and its working on a way for developers to integrate bitcoin into applications.

This brings Coinbase's total money raised to $31 million. It says it has 600,000 bitcoin wallets, up from 300,000 in mid-October, and it's averaging 10,000 sign ups per day. It says it will use the latest round "to expand our team, continue to educate the market, and promote the mainstream adoption of Bitcoin."

Andreessen Horowitz partner Chris Dixon is joining Coinbase's board. So is Fred Wilson, who is a partner at USV, which participated in the series A, and is participating in this round. Ribbit Capital is also participating in the round.

These two are some of the smartest, most respected people in venture capital.

Wilson invested early in Twitter, Zynga, Tumblr, and many other companies that went on to be big hits.

Dixon is new as a VC, but as an angel investor he had great taste, and he's sold multiple companies. His firm, Andreessen Horowitz, is the most influential firm in the Valley right now.

The price of bitcoin has been all over the place provoking a lot of debate about its merits as a legitimate currency for the masses.

We're not going to get into that here. Instead, we have Dixon's explanation of his investment. For him, bitcoin is more than just a new currency, it's a new platform for the Internet.

Here's his full explanation from his blog:

One of the interesting things about Bitcoin is the contrast between how it is portrayed in the press and how it is understood by technologists. The press tends to portray Bitcoin as either a speculative bubble or a scheme for supporting criminal activity. In Silicon Valley, by contrast, Bitcoin is generally viewed as a profound technological breakthrough.

The Internet is based on a set of core protocols that specify how information such as text, photos, and code should be transmitted. The designers of the Web built placeholders for a system that moved money, but never successfully completed it. Bitcoin is the first plausible proposal for an economic protocol for the Internet.

This matters for two reasons:

1) It fixes serious problems with existing payment systems that depend on centralized services to verify the validity of transactions. These services are both expensive (roughly a 2.5% tax on all transactions) and prone to failure (Internet payment fraud is rampant).

2) More importantly, Bitcoin is a platform upon which new technologies can be developed. Developers have created some early applications, and speculated about future applications. Some potential applications include: a) micropayments as a replacement for banner ads or subscription fees, b) machine-to-machine payments to reduce spam and denial-of-service attacks, c) a way to offer low-cost financial services to people who, because of financial or political constraints, don’t have them today.

But to proliferate widely, Bitcoin needs a killer app the same way HTTP had web browsers and SMTP had email clients. That’s why today I’m excited to announce that Andreessen Horowitz is leading a $25M financing of Coinbase, a service that provides an accessible interface to the Bitcoin protocol. Consumers can use Coinbase to convert to and from other currencies and to pay for goods and services. Merchants can use Coinbase to accept payments and convert currencies. Developers can build new services using Coinbase’s API.

Coinbase has grown extremely fast and is now the most widely used Bitcoin service in the US. The founders of Coinbase, Brian Armstrong and Fred Ehrsam, have worked closely with banks and regulators to ensure that the service is safe and compliant. We think Coinbase can significantly accelerate Bitcoin’s proliferation, and as that happens the Internet will enter a new phase of invention and opportunity.