Jeremy Allaire doesn’t talk about Bitcoin like he used to. Allaire’s startup, Circle Internet Financial, has pulled in $26 million in venture capital over the past two years with the promise that it would help “make Bitcoin mainstream” by developing simple tools for using it.
Visit Circle’s website today, and references to Bitcoin aren’t prominent. Allaire’s current sales pitch is that his company can move your money—be it in dollars, euros, or yen—quickly, securely, and for free. “We’ve never said we’ve attached ourselves for eternity to Bitcoin,” Allaire says. “Users around the world understand monetary value in their local currency.”
As interest in Bitcoin as a new currency wanes, Allaire’s shift points the way to a potentially different legacy. Conceived as a substitute for conventional currency, without the involvement of established institutions, Bitcoin is poised to evolve into a money transfer system that would do what Western Union or Citigroup does, only more cheaply and efficiently.
In the early days of 2014, partisans of the digital currency looked forward to what they hoped would be the year of Bitcoin. They spoke of it going mainstream as a replacement for “government-issued” currencies or as an inflation-proof store of value. Coinbase in San Francisco—“We make it easy to get started with Bitcoin”—joined with Budweiser to distribute small amounts of Bitcoin at summer concerts (people got drunk). BitPay, an Atlanta-based startup that processes Bitcoin payments, sponsored the Bitcoin St. Petersburg Bowl on Dec. 26 (North Carolina State beat the University of Central Florida, 34 to 27).
Anyone who saw holding the currency as a path to riches has been disappointed. The value of Bitcoin—measured in dollars—fell almost 70 percent last year and has continued to plunge in 2015. The price drop, together with the collapse of a major Bitcoin exchange based in Tokyo, undermined the idea that Bitcoin—beyond the reach of government regulators—is a safe haven.
And despite the marketing efforts, the use of Bitcoin for ordinary purchases has stagnated. Just because customers can use it to pay Dish Network for TV service, Expedia for hotel rooms, and Dell for PCs doesn’t mean they do or that they will, says Jeffrey Robinson, a money-laundering expert who wrote a book titled BitCon. Transactions didn’t rise above 55,000 a day during 2014, according to Blockchain.info, which compiles Bitcoin data. “If you measure Bitcoin as a transactional currency, the buying of goods and services, Bitcoin is a non-event,” Robinson says. “A complete non-event.”
Yet even Robinson praises the technology underlying Bitcoin. Satoshi Nakamoto, the name used by Bitcoin’s anonymous creator, called it “the blockchain.” It’s the public ledger on which every transaction, whether it’s for 1,000 Bitcoins or one-one-thousandth of one, has been recorded since the currency appeared in 2009. Bitcoin “miners” use powerful computer technology to maintain the ledger, confirming that the same Bitcoin isn’t spent twice and recording transactions. They get freshly issued Bitcoins as a reward.
The miners perform the same function as a bank or wire transfer service—acting as a trusted intermediary. The difference is that with Bitcoin, the transfers are generally free. Despite global integration of financial markets, moving cash is expensive and often slow. Merchants pay about $48 billion in fees to banks for debit card usage annually, while immigrants sending money home pay about $37 billion in fees each year to companies such as Western Union. International wire transfers can take four or five days and are costly enough to make small payments pointless.
Circle, Allaire’s company, is using the blockchain technology to build a Bitcoin-based transfer system. It would allow American parents, for example, to deposit dollars in an account where they would be converted to Bitcoins and sent to a daughter studying in South Korea, who would change them into won, all at no charge to the parents or daughter. Costs would be low because Circle avoids the banks and payment processors that services such as Apple Pay and Venmo rely on. Circle won’t say how it plans to profit from the business. Coinbase and BitPay have similar ambitions for Bitcoin-based payment systems.
Banks and payment companies make money by charging a fee for something that “mostly involves moving bits around the Internet,” wrote Chris Dixon, a Silicon Valley venture capitalist, in a December 2013 blog post. “The payment industry should be at least an order of magnitude smaller than it is today.” Dixon, a partner at Andreessen Horowitz, wrote that he sees Bitcoin as “a new software protocol through which you could rebuild the payments industry in ways that are better and cheaper.” (Bloomberg LP, which owns Bloomberg Businessweek, is an investor in Andreessen Horowitz.)
Allaire contends that if sending money were cheaper, it would become much more common. He compares money transfer to text messaging, unknown 20 years ago, now ubiquitous. Develop the infrastructure, he says, and sending cash among friends and family and for businesses small and large will become common. Circle is seeking licenses, hiring experts to ensure compliance with regulations, and talking with regulators.
So the future of Bitcoin may rest with entrepreneurs seeking to build straightforward, regulated companies that do a straightforward thing that is now more expensive than it needs to be: moving money. That might not be up there with creating a global currency, but it would be no small accomplishment.
The bottom line: With transactions staying below 55,000 a day, companies are looking at Bitcoin as a money transfer technology.