“A circle user can interact with any of those, because it’s an open protocol. It’s like e-mail,” Allaire said. “We can benefit from the global investment in the merchant-acceptance side of things.”
International money transfers are an obvious possibility for Circle to make money, but the company might have to build more features if it seeks to charge premium fees. Right now, Allaire said, Circle doesn’t have a “last-mile” ability to convert international transfers back from bitcoin into the receiving person’s local currency.
So, if a Circle user in the U.S. wanted to use bitcoin to send $200 back to a relative in Brazil, their cousin on the other end of the transfer would have to take those bitcoins to a Brazilian exchange to trade them in for reals, a step that will likely cost them some money.
But, Allaire notes, the cost and time it takes to convert those bitcoins today might still beat the costs of traditional international transfers. According to figures from the World Bank, a $200 U.S.-to-Brazil transfer would typically cost 4-6 percent if you wanted it done in less than an hour.
Overall, Allaire tends to see international transfers as part of the larger digital-currency trend toward making the act of sending money a trivial technological function, just like moving media or communications over the Internet.
“It’s driving toward zero in the next two or three years, just like making a Skype call is free or sending an e-mail is free,” he said.
Since it runs an exchange where consumers can buy and sell bitcoins, Circle stands to make money on the some of the digital currency’s swings in value. But Allaire says that’s not likely a place where the company will try to make big bucks.
“Our goal in doing that is not really to generate revenue. It’s to provide that seamless customer experience—it’s more important to ensure that customers can seamlessly come in and out,” he said. “Any economic benefit that we see there really just helps to cover costs as opposed to being a source of revenue.”
One intriguing possibility for Circle’s business is tied to the possibility that bitcoin becomes a more sophisticated financial instrument, with blessing from government regulators.
Earlier this month, a New Jersey-based company called TeraExchange revealed that it had won the first approval from federal regulators for a bitcoin derivatives exchange. If a fully approved, robust derivatives market for bitcoin emerges, it could help stablilize the price of the notoriously volatile digital currency—and ensuring that $1 today will be worth $1 tomorrow is a key service if, like Allaire, you hope to get mainstream consumers to use bitcoin.
Let’s say you’re sending that $200 to the cousin in Brazil, and want to make sure it will be worth the same amount for a full day, until your relative can cash out the transfer.
“We would essentially say, `We’re buying price insurance for a rolling 24 hours of value, and it’s going to cost us 1 percent to buy that insurance,’” Allaire said. “We can pass that along as a fee, or we could eat the cost, or any of the above—and effectively, we can lock that value.”
If users are still too put off by the unclear plans for Circle’s business, Allaire and company are at least trying to make the proposition of jumping into digital currency as low-risk as possible right now. Taking another cue from the successful digital products of its era, Circle is making its initial service free and easy to try, with no attempt to lock people into a long commitment.
“The switching costs are very low,” Allaire says. “So if they feel something is at risk, they can switch their assets or their spending behavior to another piece of software, another online service, all of the above. It’s sort of like e-mail.”
