Circle CTO Sean Neville clarifies his company's business model

Last week, much speculated-upon bitcoin startup Circle officially exited “stealth mode,” revealing for the first time what exactly the company’s business model is. As was generally expected, Circle’s plan is a variation on the concepts used by bitcoin service providers Coinbase and BitPay, facilitating payments and acting in many ways like a bitcoin bank. The two major twists in Circle’s system are that most of its transactions from fiat to bitcoin (and back) appear to be almost instant, and that all of its consumer-level services will be offered completely free of charge.

This last point caused considerable discussion in the bitcoin community. If Circle was completely free, how would it make money? If users can charge their accounts from their credit cards, how is Circle not losing money to fees on every transaction? Wouldn’t those transactions be exposed to credit card fraud?

Today, Circle’s Chief Technology Officer Sean Neville clarified his company’s revenue plans in a blog post. Although light on specifics, it’s clear that Circle has a definitive vision for making a profit with their system through still-unrevealed premium services.

We’re interested in the long-term value of digital money, not optimizing for minor short-term profit. We will have future, higher-level products that we fully intend to be revenue-generating, but this first basic product needs to be free. That’s the cost of mainstream consumer adoption.

Neville also said that Circle’s conversion rate may fluctuate higher and lower than at exchanges, allowing the company to do some margin trading, but that this isn’t intended to be revenue generator. Additionally, Neville noted that “free” transactions did not mean that Circle would be covering credit card interchange fees, and that these costs would be paid by the users. He also clarified what Circle meant by “free” in their overall business philosophy.

On the whole, “free” is part of giving people more control over their own money. If you send an email to me, SMTP doesn’t chop off a few words as a tax or toll, and my IMAP server doesn’t delete a few more words as yet another toll — but that is essentially what card networks do to money. Like email and other Internet standards: so it should go for the Internet of money. The Internet wants movement of information on its rails to be free, or very close to free, and revenue-generating value to be built on top of those basic democratized rails.

The blog post also touched on the slow rollout of beta-version invites, credit card fraud exposure, issues with price volatility and Circle’s claims of 100% theft-insured deposits.