Circle's growth: Bitcoin's early winners launch blockchain challenge

Rage Comment : The exploration of blockchain divides enterprises into two categories, one is enterprises focusing on digital currency, and the other is enterprises based on blockchain technology. When Circle was first established, it did not obtain a complete regulatory license for digital currency services, so the founder of the company chose to develop into the second type of enterprise, committed to building a new global trust system with blockchain. Although there are doubts about Circle's identity and current status in the industry, it has successively obtained government regulatory licenses in the United States and the United Kingdom, laying the foundation for its global strategy. Next, it needs to replicate this series of successful experiences and learn from China's outstanding victories in this field.

Translation: Annie_Xu

A brick building on Boston’s waterfront might not seem like the place for a high-profile tech company, but this elegantly renovated colonial heritage building is a surprisingly fitting location for payments startup Circle.

Founded in 2013, Circle has positioned itself as an early leader in the race to develop blockchain for online payments, balancing traditional regulations, infrastructure and new technologies that are not yet fully understood.

Although Circle's products are no longer related to its peers in the Bitcoin field, people are still happy to call it a "Bitcoin company"; for example, it allows users aged 13 and above in the UK and the US to transfer funds to the APP using Visa and MasterCard debit and credit cards, and can also convert funds into Bitcoin; but the company's current focus is still on users, who may want to store funds in the form of legal currency.

It’s unclear whether the cautious shift is due to slower-than-expected bitcoin adoption or a lack of success with long-term plans; however, Circle co-founders Jeremy Allaire and Sean Neville are betting it’s the latter.

The two founders are long-time business partners who worked together at online video platform Brightcove, where Allaire was president and Neville was senior software architect. Brightcove launched in February 2012, and Allaire said Circle raised $9 million in October 2013, the largest round of funding for an up-and-coming company at the time.

At that time, Cirlce had not even announced its products and services, but the company's focus was clear. Allaire once told the media that Cirlce hoped to make payments as easy as email or Skype through digital currency.

Two years later, Allaire and Neville raised $76 million (there are rumors that Baidu and IDG International Data Group will participate in the next round of financing). But in fact, when they were interviewed by the news, the two were looking at a map in the company conference room and commenting on the world time.

The two founders worried about whether the timing was right.

The timing was surprisingly good, because the launch of Circle had clearly changed the world. For example, people no longer believed that Bitcoin as a digital currency would reach critical mass; it was an open secret that many of the once-large consumer-oriented Bitcoin companies had already closed down.

But as the hype around Bitcoin shifts to blockchain, one has to start thinking about what exactly Circle is and has its value proposition changed?

Allaire and Neville said Circle remains what it has always been, a social payments app similar to France’s Venmo, built on a public blockchain.

Neville explained:

“When we started the company, we didn’t have all the regulatory approvals to operate in USD and GBP. We couldn’t transfer digital currencies, so we decided to launch products around digital currencies. We could have stayed secret and gotten approvals or launched the product and improved the risk mechanism; we chose the latter.”

Change the subject

Allaire and Neville

Still, Allaire and Neville acknowledged that the industry conversation has changed, and common sense might suggest that the company’s time has passed and that Circle is no longer relevant to blockchain research.

In retrospect, however, this view is problematic.

Allaire has been a supporter of the use of financial technology and regulation in the industry, but he is also a controversial figure. In particular, his identity as a so-called "Bitcoinist" has made him avoid talking about these regulations.

Yet Allaire still talked about banks being called “regulated database operators” and described money transfers as a form of payment synchronization, acknowledging that this was a bit off topic. It’s hard to tell whether this speech confirms the above shift, or whether his thinking about blockchain and digital currencies is up to date.

But Allaire argues that Circle’s current product represents an early-stage concept, albeit one that may only be a glimpse of what’s possible in the first six months.

"Circe's positioning is not Bitcoin or something, but to make currency play its role. In the past, it was a way to transfer value. We try to give a new definition around instant currency, and its foundation is Bitcoin."

Allaire said the product is good for early adopters who want a new currency, but it has not yet fully realized its intended purpose. Neville said: "It is the easiest market to adopt."

To illustrate this point, Allaire and Neville use their marketing strategy as an example.

"We did not spend any marketing costs. All our capital was invested in key relationship building and market education, industry exchanges, media publicity and government communication. Now we can invest the capital in market expansion."

Betamax Blockchain

If Circle is building a global blockchain-based payment application, why is it so determined to use blockchain to achieve it? After all, Bitcoin has not yet been included in the regulation, and most financial enterprise participants believe that this high-tech toy cannot meet the needs of enterprises.

The conclusion of the debate on permissioned and permissionless blockchains may be that the two are compatible, meaning that anyone can publish e-commerce websites, and users need permission to access them.

Neville adheres to the mantra that “blockchain is the new internet,” arguing that public blockchains, and Bitcoin in particular, are valuable and necessary.

“When we talk about public blockchain, we all talk about its great value in the service industry ecosystem. It has no barriers to access gateways, it is not expensive, and it does not require trust between people.”

Allaire further asserted that the use cases of public blockchains will be more transparent, especially as the entire ecosystem enters areas such as voting, where users do not want to rely entirely on trust in a single institution and fear that voting results may be manipulated.

“There is a lot of focus on monetary units and their many applications in a global trusted system. Building a global network that is as powerful as the Internet and not controlled by a single consortium or company will be beneficial to the industry.”

Increased application rate

As for the way forward, Allaire and Neville are once again looking to the world map, as their success with government regulation suggests.

Last year, Circle became the first private bitcoin-based money services business to receive a New York BitLicense, and about six months later, Circle remains the only licensed business.

Recently, Circle has obtained the UK's electronic money license again and started a cooperation with Barclays Bank. Regarding the benefits of this cooperation to Barclays, Allaire said that the cooperation with Circle is an opportunity to be at the forefront of blockchain experiments.

Allaire argued that as Circle grows, the partnership and its benefits to the bank are bound to grow.

“The real regulators are the compliance officers at the banks, who have to manage and bear the risk of noncompliance, and therefore may view companies like Circle as a significant risk.”

However, Allaire believes that the biggest challenge is not whether online social payment companies will succeed, but whether they can achieve the same adoption rates in the West as in Asia.

Referring to the transformation of Tencent’s WeChat service into a money transfer platform, Allaire said:

"There are 800 million people in the United States and Europe, and only a very small number of them use this app. We are learning from China's experience. I think everyone is learning from China."

Allaire therefore sees Asia not as a potential market, but as a successful case test for Circle to shape the company's strategy. "I can send a text to anyone in China, I can do all that stuff, but value transfer can't be done that way."

Hybrid Architecture

The question of widespread adoption ultimately comes down to government regulation, which means that if Circle wants to succeed in facilitating the transfer of value, it needs to replicate its success in the US and UK in other markets.

Of course, there is still a balance; Circle cannot ignore the trust of users while gaining the trust of global regulators, at least allowing them to understand and experience a trustless distributed network.

Allaire believes that the global nature of the Bitcoin protocol is what sets Circle apart from traditional high-tech payment companies; the solutions of these traditional companies have obviously become obsolete, such as Google Wallet, Facebook Credits, and Square Cash.

Neville said:

“It’s important to build a financial ecosystem. We don’t want to build another closed garden system. We want to join a larger ecosystem where everyone can participate in the protocol.”

However, there are still social barriers in reality. I have mentioned my aversion to payment development in interviews. I think millennials will not choose to give back to everyone, but instead hold an attitude of "taking it back later, which may not be suitable for value transfer."

Allaire acknowledged that there are obstacles and that currency security is different from photo security and requires a higher standard.

Yet Asia is demonstrating that this is possible, and the increasing globalization of home and office environments will add further pressure.

Allaire concluded:

“When was the last time you sent mail across borders? I want money to be transferred the same way.”