Circle’s Bitcoin Service is Free—But Someone’s Gotta Pay

If bitcoin goes mainstream, companies like Circle Internet Financial will probably lead the way.

The Boston-based startup isn’t banking on techno-libertarian visions of a unregulated financial system. Instead, Circle is hoping to bring the emerging digital currency trend to everyday consumers by giving it the familiar feel of online banking, complete with trusted-middleman protections.

The price ain’t bad, either. Circle unveiled its digital wallet service this week with an enticing pitch: convert your real money to bitcoins and send them instantly and securely to other people around the world. Everything’s fully insured. And it’s all completely free.

So how will Circle make money? The company, headed by experienced technology entrepreneur Jeremy Allaire, isn’t giving many specifics right now.

Circle has raised about $26 million from private investors, which should be enough to bankroll its consumer services for quite a while. But eventually, somebody will have to pay to keep it going, and a generation of savvy digital consumers has learned to be suspicious when there’s no clear business model behind a new service.

How do you convince people to start using an obscure, volatile digital currency without a clear idea of how the service will stay in business? Allaire, whose previous entrepreneurial successes include digital video company Brightcove, isn’t blind to this conundrum.

Jeremy Allaire Headshot


“If you go on social media sites like Reddit, there are a lot of users speculating,” he says. But right now, possible business models are “not things that we’re going to talk about, or have really given that much thought to.”

If you poke and prod a little, however, it’s possible to get a broad idea of the business models Circle might try in the future. And, importantly, where it’s not planning on making money.

In an interview, Allaire said Circle was taking general inspiration from the path carved by Internet giants like Google and Facebook, which concentrated on delivering a free service to a huge number of users before turning on the revenue engine.

In those cases, of course, the money came from advertisers. You could certainly see a way for Circle to profit by advertising to its users, or selling their demographic data to marketers in some other way.

After talking with Allaire, I wouldn’t bank on that option right now. Instead, it sounds like Circle is more interested in up-selling its users on additional, premium services that could help make their digital transactions more convenient.

“We think there are a number of interesting products that we could build and offer our users that they would find useful and pay for,” Allaire said.

That doesn’t include the basic things that most financial consumers are accustomed to paying for. On its website, Circle puts it this way:

“You shouldn’t have to pay fees to use your own money. We don’t charge fees when you convert funds to or from bitcoin with a linked bank account, when you store your bitcoin, or for bitcoin transactions.”

As pointed out over at GigaOm, that’s distinct from competitors that charge a percentage fee for things like converting real-world money to bitcoins.

Circle also is not planning to make money by charging merchants for their end of a transaction with buyers. “We’re exclusively focused on consumers,” Allaire said.

Instead, Circle plans to leave the merchant-acceptance business up to companies like PayPal, Square, Stripe, and others that have begun experimenting with bitcoin as one of their digital-payment options.

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4 responses to “Circle’s Bitcoin Service is Free—But Someone’s Gotta Pay”

  1. Corey says:

    How they make money is obvious. Every time I look, their bitcoin price is 4 dollars higher than every other exchange/wallet. They’re probably just pocketing the difference between what they pay for a coin and what they charge people for it. Ends up costing around the same amount as Coinbase even without the fees if I buy on Circle.

    • chris says:

      I have been sending my bitcoin to circle and having it deposited in my bank as USD, so they are losing on that end

    • Mike Hawk says:

      Yeah I mean thats the whole point of an exchange rate. They simply offer you less bitcoin per $USD than competitors. Which is fine, I accept that and I use circle for some things when it’s convenient. It’s the cost of doing business sometimes.

    • RostedRhino says:

      They don’t have different “buy” and “sell” prices, so if their buy price is higher than the market price as you said, they are loosing money whenever you sell your bitcoins.