Circle cuts the option to buy and sell bitcoins. Instead of Bitcoin as a means of payment, the company now wants to use Blockhain as the settlement layer. After CEO Jeremy Allaire had talked his frustration with the slow evolution of Bitcoin off his body at the Wall Street Journal, he reaped a digital shit storm that culminated in a somewhat weird thank-you procession in front of the core developers.
Sometimes the business model just doesn’t fit. It could be that this has now occurred at Circle.
Circle is the startup that has long been hyped for fantastic investments without anyone knowing what it was doing. It went live in October 2014 – and was an online wallet with the option to buy and sell bitcoins. The only difference to Coinbase, which was already in existence at the time, was that you could buy Bitcoins at Circle with credit card free of charge. Quite recently, crypto toys began to appear, with which you can play and earn crypto coins, writes more about them bitcoin profit
That was madness from the first moment. There is a reason why very few Bitcoin sellers accept credit cards. The cards are stolen, the numbers are sold online, the transactions can be reversed. If anything, brokers charge high fees to cushion the risks associated with credit card payments for Bitcoins.
Circle does not. The plan was probably to get enough users through the one-time offer in order to achieve a critical mass.Until then, you burn the coal of the investors and try to keep the damage as low as possible through an AI. A post on the company blog in October shows the importance of fraud prevention for Circle. It is basically the heart of the company:
We use state-of-the-art machine learning algorithms that connect millions of data points every hour to calculate probabilities with which decisions are made in real time whether an account is opened, a transaction goes through, or other activities are continued. These models are designed to identify the special cases – the fraudsters, money launderers and other actors with bad intentions, and separate them from the perfectly legal customers.
Circle’s risk models must be sophisticated enough to understand that a person has stolen a credit card, even if they are doing everything humanly possible to appear like a normal customer. Circle’s compliance risk models need to recognize that a certain type of transaction or behavior pattern, which looks normal on the surface, is very likely to be a financial crime.
The risk that Circle is taking on the sale of Bitcoins for credit card transactions is enormous – as is the effort that is being put into reducing the risk. On the other hand, there is a business model that only works if Circle reaches a critical mass after years of burning the ashes of investors.Perhaps then income from the spread can cover the costs, perhaps Circle can sell data, connect identities and Bitcoin addresses, and advertise. What ever. Once you have millions of users, you will be able to make money.
But this did not happen. Circle has reached many customers, but not the critical mass required. The still unsolved blocksize problem will probably make it completely impossible that Circle will ever be able to reach enough Bitcoin-using customers – while the emerging EU regulation will probably increase Circle’s operating costs even further.
In other words, Bitcoin is unsuitable for fulfilling Circle’s business plan, but suitable for increasing costs.
Euros and dollars instead of the blockchain!
In a blog post from December 6th, Circle announced bundles of news that amount to a fundamental change in strategy.
In addition to a new messenger and higher Deposit limits are particularly noticeable to Spark, “a new blockchain-based protocol to establish trust” and the elimination of the option to buy and sell bitcoins. According to the blog post, both fit perfectly into Circle’s business strategy, which has pearled itself out over the past few months.
Circle writes:
When we founded Circle , we had the vision and belief that it would finally be possible for money to work the way the internet works. A big part of that was the long-term bet on blockchain and digital currencies, which we thought had the potential to provide the missing protocol necessary for an open exchange of values.
We were never focused on persuading customers to swap their familiar currencies for Bitcoin, instead we wanted to bring the benefits of public blockchains and digital assets to customers without requiring them to understand the technical details. We have made great strides in the past few years by launching our payment app in the US, UK and parts of Europe to enable direct payments between countries as well as the option for people to submit their local currency using the Bitcoin blockchain send other digital wallets.This model of ‘hybrid digital money’ has been our focus for some time.
In other words, Circle is not about Bitcoin, the alternative currency that sucks up values and attacks the power of central banks . Circle is about the technology of sending values through the Internet via blockchain. Circle’s new innovation, “Spark”, fits perfectly into this concept:
Spark, a set of protocol extensions that provide a method for digital wallets to exchange values by using blockchains, Bitcoin, too, can be used as settlement layers. There are many use cases for this technology, but the initial focus is on connecting digital wallets around the world while ensuring full KYC / AML and regulatory requirements are met and a smooth experience is ensured …
Circle no longer wants to use Bitcoin, but rather the blockchain to process payments in traditional currencies around the world. In doing so, Circle does not want to offer customers the freedom from banks, regulation and permission that Bitcoin offers, but rather to adhere to all the rules.
In a way, Circle does exactly what some Parts of the Bitcoin community have long been demanding: It does not turn the Bitcoin blockchain into a payment system, but into a settlement network. It uses the blockchain to process payments, but not the Bitcoin as a means of payment.
Choosing Spark goes hand in hand with the decision against Bitcoin trading. Circle writes:
With the introduction of these new features, Circle moves even further away from being a Bitcoin exchange and we will continue to focus our resources on global social payments and next generation blockchain technologies rather than on buying and selling bitcoins directly .
If Bitcoin is not a means of payment, then there is consequently no need for the payment app Circle to facilitate the use of Bitcoin. Therefore, Circle cut this service – which was presumably a loss-making business anyway – without further ado.
Stuck situation – stuck communities
Circle’s change of direction does not shed a good light for the Wall Street Journal the status of bitcoin. “The move is another indication that the financial revolution that the early adopters of Bitcoin wanted to ignite is not proceeding as planned.”
Circle CEO Jeremy Allaire explains a little more clearly to the Journal, What made him take the step: Bitcoin “did not develop fast enough to support everyday financial activities.” According to Allaire, blockchain-based payments in normal currencies have grown many times faster than Bitcoin payments.
As has so often been stated, Bitcoin offers few advantages as money for everyday transfers. It is a good investment, stable money and a means of making private transfers and overcoming borders. Wherever normal money works, there is little need for Bitcoin as a payment system.Instead of now realizing that his expectations of the use of Bitcoin were wrong (and Bitcoin is still a success story), Allaire is now pushing the buck to the core developers:
The thing is that the situation among core developers is de facto deadlocked while mainstream companies begin to use this technology. We are deeply frustrated with the lack of progress and we want things to move forward.
The Bitcoin community reacted to this statement by Allaire as if it were scripted. The Pavloff dog says hello. At r / btc, the place where criticism of Core is always open, people cheered Jeremy Allaire and condemned the Core developers. On r / bitcoin, on the other hand, where the core developer has shown downright submissive following, Jeremy Allaire was insulted. How dare he criticize Core?
How can someone like Circle accuse Bitcoin if they haven’t invested a single bitcoin or dollar in the Bitcoin protocol? If they don’t pay a single Bitcoin developer?
After that, the forum decided to open a thank you thread for the core developers. In rows, the Redditor fell on their knees in the name of a free currency to thank Core for preventing the developers from taking Allaire’s criticism seriously.
Not that it It’s not great that the core developers are doing something for Bitcoin – but most of them are on Blockstream’s or MIT’s payroll. They don’t need to be paid by Circle, and their work is not a charity that is rewarded only by the gratitude of the community.
Bitcoin, as a whole, is also not just a developer thing , but also depends on entrepreneurs. Entrepreneurs who risk their personal freedom as well as their own capital or that of investors to enable trading in Bitcoins ensure that Bitcoin is not just software, but also money.
It may be inevitable that Bitcoin no longer fits into Circle’s business model. But it’s a shame, and it shows, as Allaire rightly says, that Bitcoin has in some ways hit a limit.