The Inner Circle
On Coinbase’s Fast Follower
A future Bitcoin titan and one of today’s hottest pre-launch companies (in any sector), Circle is still a relative unknown. Aside from an eyebrow-raising $9 million seed investment from Accel and General Catalyst that was announced in late October, publicly available information related to Circle has been limited to a five-part blog post that coincided with the launch of the company’s website, a panel discussion at the Dublin Web Summit, and the CEO’s testimony before the Senate in late November.
In the weeks since, I have pieced together additional information about Circle from various public sources and conversations with company outsiders, and put together a synopsis of what the company seems to be up to and where it’s heading. Out of both professional courtesy and self interest (I’ll be in this industry for a while and don’t want a bad relationship with the Circle team), I have omitted any nuggets of non-public information that I have learned.
What is Circle up to?
It’s no secret that Circle plans to create a two-sided platform that serves as a virtual clone to Coinbase, and it seems almost certain that the company’s first product will be a new and improved consumer wallet. Since Bitcoin’s utility as a consumer commodity (speculative investment / store of value) significantly outpaces its utility as a merchant payment method today, Circle’s early efforts should be on new killer consumer apps that drive demand for Bitcoin, especially from mainstream users. The commercial tools will come in time, but we probably don’t need more “instant conversion” products for merchants at this point.
Moreover, Circle’s founder and CEO, Jeremy Allaire, has commented that the “centerpiece” of the company will be intuitive consumer tools that make Bitcoin more accessible to the masses. This makes sense given that today’s consumer wallet options are painfully limited. There aren’t many wallet services in general, but if you are a non-techie, Coinbase is really the only game in town. While the Coinbase user interface is excellent, the service leaves quite a bit to be desired. I’d expect Circle’s wallet to exploit some of those weaknesses through a combination of the following:
1) Reducing the lead time to set up an account and verify your identity
2) Speeding up the settlement time of ACH transfers to and from your bank accounts
3) Properly staffing customer service from day 1
4) Creating safeguards that promote consumer protection (e.g. no buying 33 bitcoins with one click, when you meant to buy 3)
5) Undercutting Coinbase on buy/sell fees
6) Making it incredibly simple for bitcoin holders to transfer their existing wallets to Circle (i.e. drink Coinbase’s milkshake)
Give credit to Coinbase for effectively putting out fires amidst its rapid growth, and prioritizing security over convenience. As the first mover, they were the ones figuratively building the airplane in mid-air. But that first-mover status also allows Circle to sit back and take notes on early product mistakes and weaknesses. Only time will tell how “sticky” Coinbase customers will be, but I would bet that Circle steals a portion of Coinbase users upon launch.
And when exactly should we expect that 1.0 launch? Circle hasn’t disclosed that information, but its development team has been cranking out code since earlier this fall and it may already be larger than Coinbase’s, based on what Brian Armstrong said in his recent TechCrunch interview and reports from Boston Business Journal that Circle currently had 14 employees in its Boston offices. Clearly, Allaire and his team are playing for keeps and building fast.
They may even be building the first true “Bitcoin Bank.”
Circle: The First Bitcoin Bank
The size of the seed round was just one indication that Jeremy Allaire was attempting to create a fully-licensed, well-capitalized financial services business. One thing that struck me about Circle from Day 1, when it announced its Gold Membership with the Bitcoin Foundation (the industry’s leading advocacy group), was its willingness to actively embrace regulators and play within the confines of the existing financial system. Almost as if it were striving to build the first regulated Bitcoin bank.
Just look at the company’s first announced hires. Circle employee number one was a Chief Compliance Officer and General Counsel, John Beccia. In addition to being a specialist on private banking and SVP from Boston Private Financial Holdings, Beccia had served as the Chief Regulatory Counsel and Research Director for the Financial Services Roundtable where he worked on the Treasury’s Bank Secrecy Act Advisory Group. Circle’s first non-investor board member was Raj Date, a public policy expert and first-ever Deputy of the U.S. Consumer Financial Protection Bureau, where he was a special advisor to Treasury Secretary Tim Geithner. Then Fortune broke news last week that Michele Burns, director at Goldman Sachs (and audit committee chair), Cisco Systems and Walmart (her term ended in 2013), was also joining the Circle board.
These early additions may demonstrate a foundational commitment from Circle to become more than simply the next payment processor. They evoke the traditional banking image that Allaire brought to mind when he told the NY Times that Circle would use armed guards to protect the servers on which it “cold-stored” its digital reserves.
The kicker, which I learned several weeks ago, was that Circle’s original name and brand was not actually supposed to be Circle, but Bancor. The name was derived from the Keynesian supranational currency that was proposed during World War II as a potential international unit of account whose explicit purpose was to become the world’s reserve currency. Of course, the US dollar ultimately took on that role. And while Allaire and his team later opted for “Circle,” you can see the brand value in a name that represents the transition from the US dollar to a global reserve currency like Bitcoin. It also happens to sound a helluva lot like a bank, and an international one at that.
Indeed, Circle’s ambitions have extended beyond U.S. soil from day one. The corporate headquarters may be in Boston, but it also maintains an international headquarters in Dublin, Ireland, a sign that it may expand internationally in the near-future. This shows that Circle is serious about aggressively staking its claim in the international Bitcoin ecosystem, and is making smart tactical moves. Bitcoin is not going away, regardless of how aggressively it is regulated in the U.S., and Allaire must genuinely believe that the Bitcoin technology will spawn innovations for not only years, but decades to come. Whether that innovation occurs domestically or overseas doesn’t seem to matter to him or the Circle team. Either way they plan to be major innovators for a long time.
You can bank on it.
@twobitidiot. Subscribe to the “Daily Bit” with a +1 to 2bitidiot@gmail.com
About me and my pseudonym: I’m a non-hacker founder of two bitcoin ventures and more opinionated than my IQ warrants.
