This week’s IRS decision to tax bitcoin was unwelcome news to some fans of the digital currency. But prominent entrepreneur Jeremy Allaire, founder of bitcoin services startup Circle, is OK with that.

Boston-based Circle announced $17 million in funding on Wednesday, one day after the IRS said it will tax bitcoin as property, instead of treating it as currency.

Many bitcoin holders have gravitated toward it precisely because it had nothing to do with governments. However, Allaire said he’s actually been pushing the IRS to treat the crypto-currency as property as a way to make bitcoin a legitimate tool in the mainstream economy.

“I’m not so concerned about the vocal, early-adopter community of anarcho-libertarians, who may be frustrated or disappointed about that,” Allaire said. “We’re moving into a different phase which is much more focused on the utility value of this technology.”

Allaire is among those who argue bitcoin offers greater protection against fraud and is faster and cheaper to use than other forms of payment. For instance, it does not have the transaction fees typical of credit and debit cards.

Circle ramping up

Circle raised the new funding in early February just before the collapse of one of the largest bitcoin exchanges, Mt. Gox, according to Jeremy Allaire. The sudden crash led to the loss of nearly $400 million worth of bitcoin, at current prices.

Unlike paper currencies that are backed by national governments, bitcoin exists solely within a network of computers around the world. The currency is bought and sold on specialized exchanges that set its value based on supply and demand. A small but growing number of businesses accept bitcoin as payment, including several Boston-area restaurants and retailers.

Founded by Allaire a year ago, Circle is developing a way for consumers to more easily use bitcoin. Specifically, Circle plans to offer an online account that will convert dollars into bitcoin and let users send and receive bitcoin payments. The company debuted its services for a limited number of users Wednesday and plans to make them fully available to consumers later this year.

“We want to make this as easy to use as Gmail, Skype, and other consumer services on the Internet today,” said Allaire, who previously founded two successful companies, Allaire Corp. and Brightcove Inc.

Bitcoin going mainstream?

Allaire said incidents such as the Mt. Gox collapse have exposed what can happen when crypto-currency businesses aren’t held to consumer protection requirements by governments. In November, Circle sought to build bridges with the government by adding Raj Date, former deputy director of the US Consumer Financial Protection Bureau, to its board of directors.

And Circle has been asked to become the first virtual-currency company to join the Treasury Department’s Bank Secrecy Act Advisory Group, which helps steer antilaundering policy.

The new funding will allow the company to double its staff to 46 employees by the end of the year. The round was led by Oak Investment Partners and also included Breyer Capital, Accel Partners, and General Catalyst Partners. Circle has now raised $26 million in funding to date, with the initial $9 million raised last summer.

Allaire acknowledged it will be challenging to get mainstream adoption for bitcoin until the currency is more stable. Bitcoin has dramatically fluctuated in value, from $87 a year ago to $1,100 in November, and back down again in recent months. Bitcoin has been trading in the $520 range today.

Allaire said bitcoin needs to be embraced by more financial institutions in order for its value to stabilize, and more government oversight should help with that.

Ultimately though, he said, it could be two or three years before the price stabilizes to the point where mainstream adoption is possible.