As I’ve talked with more people about what we’re doing at Circle, a common question I get is Why Now? Why hasn’t this already happened? What’s going on in the world that would lead to and enable such an innovation to happen and work?
The world has integrated online, why hasn’t money?
First, our money systems are built on enormous legacy platforms, with enormous costs in human and technical infrastructure. Just the systems and investments needed to produce, distribute, secure, and collect printed money cost us hundreds of billions of dollars annually in the United States. Cash is extremely expensive for society, not to say anything of the fact that 60% of the cash we produce are in $100 bills and shipped overseas. Who would need all that cash in overseas bank accounts and $100 bills?
The electronic money transfer systems we rely on today are four decades old, and result in money transfers taking nearly three days even if you are just sending $20 to a friend for lunch. Yes, this should remind you of newspapers and the postal service pre-Internet.
In addition to transfers taking three days, it’s also extremely expensive. Since the 1980’s, the majority of payments take place using Credit or Debit cards of some sort, where the banks and card processors charge a 2-3% fee, which is effectively a tax on every person and business in the world. Those ‘Swipe’ and ‘Interchange’ fees amount to over a trillion dollars in value per year.
How about sending money across borders? It’s still like the pre-Internet, when sending international mail was expensive, or making an international phone call was expensive. Global consumer remittance transfers are a $500B a year business, with an average transaction fee in the 7-9% range. And these punitive fees are often charged on consumers with the least amount of savings and financial stability.
Just as we can all instantly send mail/text and communicate using video at no cost, it strikes me that every person on the planet should be able to send and receive money instantly and at no cost. It should be a new de facto Financial Human Right in our globally connected world.
That’s trillions of dollars in economic value that is not going into the hands of consumers and businesses for productive use and investment. There has to be a better way to enable payments and money transfers between consumers and businesses and each other that is globally acceptable, secure and easy to use.
Again, why now, what led specifically to the creation of Bitcoin, the world’s first global digital currency?
Bitcoin itself, I think, was created in part in reaction to the 2008 world financial crisis, and released into open source availability and production in January of 2009. I don’t know about you, but I can really vividly remember January of 2009. It literally felt like the world was falling off a cliff, and it was a very dark and uncertain time. And yes, then, I think all of us (the collective of all humanity) felt at that moment that our money might disappear, that we really didn’t know if it would be there at the bank.
The world’s trust in banks and government had been shattered at that moment.
So, yes, it is not surprising at all that enterprising inventors thought through how to design, build and operate a new globally available, highly secure, and free to use and operate international monetary system. In fact, one might say, it was the prudent thing to do at that time.
And this is really why this needs to happen now. We’ve come so far globally integrating the planet’s people and communications, let’s take the next step and start building and using new financial technologies that make using money more efficient, more secure, easier to use and more powerful.
For the past two decades, the financial industry has been highly resilient to disruption and change from the Internet -- and there are many reasons for this. But, right now, at this stage in our global development, it strikes me that the stakes are too high not to try and make significant changes and improvements in how money works, and there is a tremendous amount to be gained globally by enabling Internet and software-led innovation to work its way through the complexity of systems and rules that govern money.
“Why Now”, what specific technical and market innovations are making this possible today? I believe there are a number of recent trends and innovations that converge in an overlapping, mutually reinforcing manner and enable breakthrough innovations like Bitcoin. Without getting too detailed, these innovations include:
-- The mass adoption of mobile phones and smartphones as the core personal computing device in our lives
-- Continued hyper growth globally in broadband connected households
-- Advances in distributed and peer to peer computing learned over the past decade
-- Specific design breakthroughs in the use of cryptographic methods and digital signatures
-- Significant continued growth in online payments
As people like to say, these are some solid rails to build on.
Bitcoin and Digital Currency are here to stay, now our challenge is building on these open technologies and creating innovations for consumers and businesses around the world, making the technologies as safe and easy to use as possible, and working with governments to figure out how to enable these innovations in the context of the rule of law.
Next read: Consumer Benefits of Digital Currency