A brick building in Boston’s Waterfront district might not seem like the most obvious place for a high-tech company, but it’s mix of colonial heritage and gentrified chic are oddly fitting for blockchain payments startup Circle.
Founded in 2013, Circle is positioning itself as an early leader in the race to make blockchain work for online payments – an idea that requires it to straddle both old-world regulations and infrastructure and new technologies that are only now on the cusp of being fully understood.
Many know Circle as a “bitcoin company“, even though its product no longer bears a resemblance to many of its peers. For example, it now allows users 13 years old and over to load money to the app in the US and UK via Visa and MasterCard credit and debit cards. Users can convert funds to bitcoin as well, but the emphasis now is on users who may want to keep those funds in fiat.
As for whether this is a careful pivot in the face of bitcoin’s slower-than-expected adoption or the fruition of long-laid plans is less certain, but Circle’s co-founders Jeremy Allaire and Sean Neville assert it’s the latter.
The co-founders are long-time business partners, having worked with each other at online video platform Brightcove, where Neville was a senior software architect and Allaire was chairman. Brightcove went public in February 2012, and by October 2013, Allaire announced Circle had raised $9m in what was, at the time, the budding sector’s biggest funding round.
Back then, Circle hadn’t even released information about its products and services, but the firm’s focus seemed clear. In an early interview with CoinDesk, Allaire said that Circle wanted to make “payments”, as easy as “email [or] Skype” using “digital currency”.
Two years later, Allaire and Neville have raised $76m (rumors of another funding round have been ongoing, with possible participation from Baidu and IDG). But, when Circle’s most recent interview with CoinDesk begins, both co-founders are in a conference room in Boston, looking at a map of the world that adorns the wall and commenting on a series of international clocks.
The two long-time founders are worried if the times are right.
The moment seems oddly informative given that the world has certainly changed around Circle since its launch. For instance, it’s no longer thought that bitcoin will reach critical mass as a digital currency, at least today, and it’s an open secret that the once-large pool of consumer-focused bitcoin companies has all but evaporated.
But, after all the hype around bitcoin turned hype around blockchain, just what is Circle anyway? And has its value proposition changed?
Allaire and Neville maintain Circle is still what it always was, a social payments app à la Venmo that just so happens to be built on a public blockchain.
Neville explained:
“When we started the company, we didn’t have all the regulatory approvals to move US dollars, UK sterling. We did have the ability to move digital currency, and we ended up releasing a product focusing on digital currency. We could have stayed in stealth and acquired the licenses, or we could have released the product that we could release and improve our risk engine, and that’s what we did.”
Change in tone
Still, Allaire and Neville acknowledge that the conversation in the industry has changed, that conventional wisdom now might say that their timing was off, that Circle just simply isn’t relevant now to the “blockchain” conversation.
Such a view proves problematic in retrospect, though.
Long an advocate for regulation and the application of financial industry skill sets to the industry, Allaire was always a somewhat controversial figure, especially with the so-called “bitcoin maximalist” set that eschewed such conventions.
That said, Allaire talks of banks now as “regulated database operators” and describes money transfer as a form of payments “synchronization”, a fact he acknowledges is a bit of a departure. It’s hard to tell if the remarks are evidence of a pivot, or if his thinking on the subject of blockchain and digital currencies has evolved to fit the times.
But, Allaire argues that Circle’s product now is representative of its original vision. It’s just that it’s only in the last six months or so that this has been evident.
“[Circle] was not positioned as a bitcoin thing, it was [about] making money work,” Allaire said. “It was positioned as a way to move value around. We tried to define the product around instant money, and underneath it was bitcoin.”
Allaire added that the product was good for early adopters who wanted a new currency, but that full, desired utility was not yet there. “It was the easiest market to acquire,” Neville said.
As evidence, Allaire and Neville pointed to their marketing strategy.
“We didn’t spend any money on marketing. The only money we invested was on key relationships and educating the marketplace, communicating with industry, media, government,” he continued, adding:
“We can invest in market expansion now.”
On Betamax blockchains
If Circle is building a global, blockchain-based payments app, though, why is it confident in its choice of blockchain to do so? Bitcoin after all is still “unregulated“, according to most financial incumbents, a high-tech plaything that simply won’t work for enterprise needs.
Somewhat lost in this “permissioned” versus “permissionless” blockchain debate is that access on the web is arguably both. While anyone can launch a website, like e-Trade, for example, users have to be permissioned to access it.
Neville adheres to this “blockchain is the new Internet” adage and sees public blockchains, in particular bitcoin, as being valuable and necessary.
“When we talk about public blockchain, we’re talking about how there is great value in an ecosystem of services that does not put barriers on access to gateways or have expensive, human-based trust,” Neville said.
Allaire further asserted that such use cases for public blockchains will become more apparent, especially as the ecosystem moves into use cases like voting, in which users would likely not want to trust a single entity to record votes for fear of manipulation.
Allaire said:
“There’s been an over-focus on the currency unit over the global trust network, which has many other kinds of applications. Having a global network that isn’t controlled by consortia or a corporation, just like the web, is powerful.”
Growing adoption
As for the road ahead, Allaire and Neville are again focused on this map of the world, as evidenced by their successes with global regulators.
Last year, Circle became the first private company working on blockchain-based money services to receive a BitLicense in the state of New York. Some six months after this, Circle is still the only company to receive a license.
Further, Circle recently received an e-money license in the UK, which allowed the startup to enter into a partnership with Barclays. Allaire’s response to why this partnership benefits Barclays? Working with Circle is an “opportunity to be at forefront” of experimentation.
Allaire contends that as Circle expands, such partnerships, as well as their benefits for banks, will be necessary to reiterate. The “real regulators” are compliance officers at banks, he says, who must manage and bear the risk of compliance violations and that may view firms like Circle as an outsized risk.
However, in Allaire’s view, the challenge is not whether online social payments can take off, but whether they can gain the same adoption in the West as they have in Asia.
“You have 800m people in the US and Europe, and the number of people who use these apps is tiny. We’re learning from what’s happened in China. I think everyone is learning from that,” Allaire explains, noting the evolution of Tencent’s popular WeChat service into a money transfer platform.
In this way, Allaire sees Asia not as a potential market, but as a successful test case Circle can use to shape its strategy. “I can send a text to anyone in China. I can do all those things. It’s not possible to move value that way,” he said.
Hybrid structure
The question of mass adoption, though, ultimately comes back to regulation, which means Circle will need to repeat its successes in the US and the UK in other markets should it want to succeed in its goal of effortless value transfer.
There’s a balancing act here, too. While Circle needs to gain the trust of global regulators, it also needs users to begin to trust, or at least understand and experience, a distributed network many have termed “trustless”.
It’s the global nature of bitcoin as a protocol that Allaire believes will be key to differentiating Circle from other past high-tech payment ventures that have turned into a veritable graveyard. This long list includes even well-funded efforts such as Google Wallet, Square Cash and Facebook Credits.
“One of the things that’s important in what we’re trying to do is build an ecosystem of finance. We don’t want to create another walled garden system. We want to participate in a larger ecosystem where everyone can plug into the protocol,” Neville said.
Still, there are societal hurdles. During my interview I mention my own aversion to payments. Rather than pay each other back, I argue, millennials have grown up with an I’ll-get-you-back-later attitude that might not lend itself well to value transfer.
Allaire acknowledges there will be hurdles, that security around money is different than photo security. “It’s a higher bar,” he said.
However, he believes Asia is proving it can be done, and that the increasing globalization of homes and offices will add further pressures.
Allaire concluded:
“When’s the last time you sent a cross-border email? We want money to work the same way.”
Disclaimer: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Circle.
Images via Circle; Shutterstock