Boston-based bitcoin startup Circle Internet Financial is moving closer to its goal of a world where sending money costs the same as sending e-mail — nothing.
Circle just landed $50 million in venture funding from investors that include Goldman Sachs and IDG Capital Partners of China. In addition, Circle will now allow users to deposit US dollars in their accounts as well as bitcoins, the volatile computer-generated “cryptocurrency.” Circle subscribers can now transmit both dollars and bitcoins to each other anywhere in the world at no charge.
“We fundamentally believe that sending and receiving money should be free,” said Circle co-founder and president Sean Neville. “There should not be a business model that fundamentally charges a tax for sending money across the Internet.”
After an early burst of excitement that sent the value of bitcoin soaring above $1,000, the digital currency has fallen into a slump. As of Thursday afternoon, a single bitcoin was worth about $234. But to Circle, bitcoin is mainly valuable as a way of transmitting money instantly to any point on earth at virtually no cost.
People with Circle accounts can already buy and transmit bitcoins, but few individuals or businesses want them. But thanks to a deal with Silicon Valley Bank, Circle users can now deposit US dollars in their account. When a user makes a money transfer, the dollars are instantly converted to the equivalent value in bitcoins. These are sent to the recipient’s account, where they’re instantly reconverted to dollars. The new features will be rolled out gradually to users over the next few weeks.
PayPal and similar services can automatically obtain dollars from a user’s credit card, or from an account at a traditional bank. Circle can’t do this; users must deposit dollars in a Circle account. If the account runs low, the Circle user gets a notification urging him to top it up.
For now, each party to the transaction must have a free Circle account. But other financial services companies will be able to interact with the Circle network. And the service will eventually expand to other currencies, such as euros or Japanese yen. For instance, a Circle user will be able to send dollars to a friend in Japan who would use his own bank’s Internet application to receive the money in his local currency.
Circle co-founder Jeremy Allaire wouldn’t spell out his company’s plan for turning a profit. “We’re not making money right now, and we’re not focused on making money right now,” he said. For now, Circle hopes to build up a critical mass of users, and worry later about how to profit from them.
Mike Jude, who tracks the bitcoin industry for research firm Frost & Sullivan, said that if enough people park US dollar accounts at Circle, the company could generate revenue by investing the cash.
Jude also said that Circle’s business model could disrupt the market for international money transfers. Companies like PayPal, and Google, and Venmo already make it possible for Americans to swap cash free of charge. But nobody now offers a cheap way to send money abroad. If Circle can form partnerships with foreign banks, it could mean big problems for companies like Western Union, which charge substantial fees for global money transfers.
“The horizon is about five years out before this kind of thing becomes generally available,” said Jude. “We do think it’s going to happen, though.”