Despite the turmoil surrounding bitcoin, a Boston startup led by a prominent entrepreneur has raised $17 million to accelerate its attempt at bringing digital currencies into the mainstream.
The company, Circle Internet Financial Ltd., raised the funding in early February just before the collapse of one of the largest bitcoin exchanges, Mt. Gox, according to company chief executive Jeremy Allaire. The sudden crash led to the loss of nearly $400 million worth of bitcoin, at current prices.
Unlike paper currencies that are backed by national governments, bitcoins and other crypto-currencies exist solely within a vast network of computers around the world. They are bought and sold on specialized exchanges that set their value based on supply and demand and that store individual holder’s accounts. A small but growing number of businesses accept bitcoin as payment, including several Boston-area restaurants and retailers.
Founded by Allaire a year ago, Circle is developing a way for consumers to more easily convert, store, send, and receive digital currencies such as bitcoin. The company debuted its account services for a limited number of users Wednesday and plans to make them fully available to consumers later this year.
“We want to make this as easy to use as Gmail, Skype, and other consumer services on the Internet today,” said Allaire, who previously founded two successful companies, Allaire Corp. and Brightcove Inc., a provider of online video services.
Circle announced the new round of funding on Wednesday, one day after the US Internal Revenue Service said it will tax bitcoin as property, instead of treating it as currency.
The IRS decision was unwelcome news to some early proponents who have gravitated toward it precisely because it had nothing to do with governments anywhere, anyhow. But Allaire said he was pushing the IRS to treat the crypto-currency as property as a way to make bitcoin a legitimate tool in the mainstream economy.
“I’m not so concerned about the vocal, early-adopter community of anarcho-libertarians, who may be frustrated or disappointed about that,” Allaire said. “We’re moving into a different phase which is much more focused on the utility value of this technology.”
Allaire is among those who argue bitcoin offers greater protection against fraud and is faster and cheaper to use than other forms of payment. For instance, it does not have the transaction fees typical of credit and debit cards.
Allaire said incidents such as the Mt. Gox collapse have exposed what can happen when crypto-currency businesses aren’t held to consumer protection requirements by governments. In November, Circle sought to build bridges with the government by adding Raj Date, former deputy director of the US Consumer Financial Protection Bureau, to its board of directors.
And Circle is lobbying to become the first virtual-currency company to join the Treasury Department’s Bank Secrecy Act Advisory Group, which helps steer antilaundering policy.
The new funding will allow the company to double its staff to 46 employees by the end of the year. Investors included Breyer Capital, Accel Partners, and General Catalyst Partners. Circle has now raised $26 million in funding to date, with the initial $9 million raised last summer.
Allaire acknowledged it will be challenging to get mainstream adoption for bitcoin until the currency is more stable. Bitcoin has dramatically fluctuated in value, from $87 a year ago to $1,100 in November, and back down again in recent months. Bitcoin traded in the $580 range on Wednesday.
Allaire said bitcoin needs to be embraced by more financial institutions in order for its value to stabilize, and more government oversight should help with that.
Ultimately though, he said, it could be two or three years before the price stabilizes to the point where mainstream adoption is possible.