Depending on whom you talk to, cryptocurrencies could be the biggest bubble in history or the backbone of the future global economy—or both.
The reality is it’s too early to say. The industry must still navigate a host of issues, including wild price swings, global regulatory uncertainty, cyber threats, and technological limitations of blockchain systems, the online distributed ledgers that underpin cryptocurrencies.
Nevertheless, real businesses are being built on these virtual currencies. One of the companies picking up momentum is Circle Internet Financial, a Boston-based startup that says it has raised a total of $140 million in venture capital from the likes of Wall Street titan Goldman Sachs and Chinese tech giant Baidu.
Circle is essentially trying to create a new kind of banking and financial services firm, although its CEO eschews traditional labels for the company. Circle’s products and services include a mobile payments app, a cryptocurrency trading desk for large “institutional” buyers and sellers, a new app that lets individuals invest in cryptocurrencies, and a cryptocurrency exchange. Circle added that last service when it acquired Poloniex in February for a rumored price of $400 million, according to a Fortune report based on anonymous sources.
Bringing Poloniex into the fold put Circle on track to generate more than $1 billion in annual revenue, Fortune reported. In an interview with Xconomy, Circle co-founder and CEO Jeremy Allaire declined to disclose the company’s revenues. But five-year-old Circle has been profitable since last year, he says.
“The revenue is growing very fast,” says Allaire (pictured above), who previously founded online video firm Brightcove (NASDAQ: [[ticker:BCOV]]) and was chief technology officer of Macromedia, the Flash developer acquired by Adobe.
Circle’s team is expanding quickly, too. The company aims to double its staff this year, with a plan to grow to around 400 employees worldwide, a spokesman says.
Now that Circle seems to have hit an inflection point—much like the cryptocurrency and blockchain sector—it’s a good time to take a step back and look at the bigger picture. During our recent discussion at Circle’s downtown Boston headquarters, Allaire and I talked about the company’s journey and how it contends with skeptics, wary business partners, hackers, and other roadblocks. We got a little wonky analyzing the “philosophy versus reality” of money. He also shared his thoughts on the impact blockchain technologies might have on Amazon, Facebook, and other tech leaders of today—and how these systems could eventually transform the Internet and the economy.
Without further ado, here are the highlights of our conversation:
Xconomy: How did you first discover Bitcoin?
Jeremy Allaire: It was just through a blog that I was reading. My academic background was in political science [and] economics, and I was very interested in comparative economic systems, international macro and monetary policy—sort of armchair academic interest in those things. And that was a heightened interest post-2008, so I found myself in the years following 2008 reading about central banks and monetary policy and the financial system more than I had in a while.
When I became interested in Bitcoin in late 2012, it was fascinating to me because, first, just as a technologist, I wanted to understand how was this even possible that there was this decentralized currency that was censorship-resistant and there was no central clearing house and that it had a monetary policy. And it’s just fascinating technically and academically. But the more time I spent looking at it, the more excited I got.
And then I really started having conversations with Sean Neville, who’s co-founder of Circle, and we run the business together. I think we really saw that Bitcoin, as an example, was a new infrastructure layer for the Internet. It was a new set of open-source technology that could make the storage and transmission … and the exchange of value a commodity-free service on the Internet in the same way that HTTP and SMTP and other protocols from the Internet had made information sharing and communications commodity-free services.
That was very exciting, and the implications were really profound. And it really struck us that a combination of technologies—crypto assets, and the associated blockchain technology, applied A.I., the ability to run things very cost-efficiently with cloud-based software, and then the capabilities of mobile devices—you sort of put all these together and you could really re-conceptualize how the entire global financial system would work. And you could rebuild it.
While the technology was very raw and underdeveloped and there were no legal and regulatory frameworks around it—it was a very “Wild West” in early 2013—you could see how all those things would get solved.
X: You could argue that we’re still in that Wild West period. What’s your sense of where we are in the evolution of this emerging market?
JA: I think we’re still really in the early stages of this. I think we’re just seeing the promise of the technology being realized, meaning a production infrastructure that can scale, that can run real applications, that can handle the kind of volumes that would make it possible for mainstream applications. We’re just seeing the legal and regulatory frameworks get more clear in more places. We’re just now seeing the emergence of the institutional market participating in this.
What’s likely to happen is virtually every form of value that we currently use in legacy record-keeping systems, … all of those will move to crypto tokens and blockchain infrastructure, and tens and then eventually hundreds of trillions of dollars of value will run on this infrastructure.
And so, when you realize that, and you look at where we are today, yeah, we’re in the very early stages of a real digitization of the entire global economy. That’s going to take 10 or 20 years.
X: Were there any moments where you felt hesitation or had doubts, in terms of any setbacks or challenges along the way so far?
JA: Never had any doubts. Definitely had setbacks. When we started the company, even before we had raised capital and started hiring people, [we were] telling people what we’re doing—“We’re building a global Internet bank built on Bitcoin”—generally, the reaction was, “You’re out of your mind. You’re completely nuts. I have no idea what you’re talking about. I’m really afraid for you. Do you have a lawyer?”
That was the basic reaction. And so, you have to have pretty thick skin as an entrepreneur, when anyone that you talk to, whether it’s family or friends or co-workers or whatnot, are like, “Ooh, you’re like some weird, dark criminal person,” or whatever. That’s to some degree a setback.
But really what that translated to was Circle took a really different approach to the market at that time, completely different than almost every other startup that was in this area, which was to
