Blockchain Revolution

THE BANK APP: WHO WILL WIN IN RETAIL BANKING
The Google of Capital—that’s what Jeremy Allaire is building, “a consumer finance
company providing products to consumers to hold money, send money, send and
receive payments; the fundamental utilities that people expect out of retail banking.”
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He sees it as a powerful, instant, and free utility for anyone with access to an Internet-
enabled device. His company, Circle Internet Financial, is one of the largest and best-
funded ventures in the space.
Call Circle what you like, just don’t call it a bitcoin company. “Amazon was not
an HTTP company and Google was not an SMTP company. Circle is not a bitcoin

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company,” said Allaire. “We look at bitcoin as a next generation of fundamental
Internet protocols that are used in society and the economy.”
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Allaire sees financial services as the last holdouts, and perhaps the largest prize,
to be fundamentally transformed by technology. “If you look at retail banking, there
are three or four things that retail banks do. One is that they provide a place to store
value. A second is that they provide some kind of payment utility. Beyond that, they
extend credit and provide a place for you to store wealth and generate potential
income.”
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His vision: “Within three to five years, a person should be able to
download an app, store value digitally in whatever currency they want—dollars, euro,
yen, renminbi, as well as digital currency—and be able to make payments instantly or
nearly instantly with global interoperability, with a very high level of security and
without privacy leakage. Most importantly, it will be free.”
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As the Internet
transformed information services, the blockchain will transform financial services,
instigating unimagined new categories of capability.
According to Allaire, the benefits of blockchain technology—instant settlement,
global interoperability, high levels of security, and nearly no-cost transactions—
benefit everyone whether you’re a person or a business. And what of his plan to make
it all free? Heresy! say the world’s bankers. Surely, Goldman Sachs and the Chinese
venture firm IDG did not commit $50 million to create a nonprofit or public benefit
company!
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“If we’re successful in building out a global franchise with tens of
millions of users and we’re sitting at the center of transaction behavior of users, then
we are sitting on some powerful assets.” Allaire expects Circle to have “the
underlying capabilities to deliver other financial products.” Though he wouldn’t speak
to it specifically, the financial data of millions of customers could become more
valuable to the company than their financial assets. “We want to reinvent the
consumers’ experience and their relationship to money and give them the choice of
how their money is used and applied and how they can generate money from their
money.”
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Leaders of the old paradigm, take notice.
Companies like Circle are unburdened by legacy and culture. Their fresh
approach can be a big advantage. Many of the great innovators of the past were
consummate outsiders. Netflix wasn’t invented by Blockbuster. iTunes wasn’t
invented by Tower Records. Amazon wasn’t invented by Barnes & Noble—you get
the idea.
Stephen Pair, CEO of BitPay, an early mover in the industry, believes newcomers
have a distinct advantage. “Issuing fungible assets like equities, bonds, and currencies
on the blockchain and building the necessary infrastructure to scale it and make it
commercial don’t require a banker’s CV,” he said. For one, “You don’t require all the
legacy infrastructure or institutions that make up Wall Street today. . . . Not only can

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you issue these assets on the blockchain, but you can create systems where I can have
an instantaneous atomic transaction where I might have Apple stock in my wallet and
I want to buy something from you. But you want dollars. With this platform I can
enter a single atomic transaction (i.e., all or none) and use my Apple stock to send you
dollars.”
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Is it really that easy? The battle to reinvent the financial services industry differs
from the battle for e-commerce in the early days of the Web. For businesses like
Allaire’s to scale, they must facilitate one of the largest value transfers in human
history, moving trillions of dollars from millions of traditional bank accounts to
millions of Circle wallets. Not so easy. Banks, despite their enthusiasm for
blockchain, have been wary of these companies, arguing blockchain businesses are
“high-risk” merchants. Perhaps their reluctance stems from the fear of hastening their
own demise. Intermediaries have sprung up between the old and new worlds. Vogogo,
a Canadian company, is already working with Coinbase, Kraken, BitPay, Bitstamp,
and others to open bank accounts, meet compliance standards, and enable customers
to move money into bitcoin wallets through traditional payment methods.
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Oh, the
irony. Whereas Amazon could leapfrog incumbent retailers with ease, the leaders of
this new paradigm must play nice with the leaders of the old.
Perhaps we need a banker with Silicon Valley’s willingness to experiment. Suresh
Ramamurthi fits that bill. The Indian-born former Google executive and software
engineer surprised many when he decided to buy CBW Bank in Wier, Kansas,
population 650. For him, this small local bank was a laboratory for using the
blockchain protocol and bitcoin-based payment rails for free cross-border remittance
payments. In his view, would-be blockchain entrepreneurs who don’t understand the
nuances of financial services are doomed to fail. He said, “They are drawing a
window on the building. Making it look nice and colorful. But you can’t assess the
problem from the outside. You need to talk to someone from inside the building, who
knows the plumbing.”
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In the past five years, Suresh has served as the bank’s CEO,
CIO, chief compliance officer, teller, janitor, and, yes, plumber. Suresh now knows the
plumbing of banking.
Many Wall Street veterans don’t see a battle between old and new. Blythe Masters
believes there are “at least as many ways for banks to improve the efficiency and
operations of Wall Street as there are opportunities for disruption from new
entrants.”
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We can’t help feeling the tides turning toward the radically new. That’s
why the Big Three TV networks didn’t come up with YouTube, why the Big Three
automakers didn’t come up with Uber, why the Big Three hotel chains didn’t come up
with Airbnb. By the time the C-suites of the Fortune 1000 decide to pursue a new
avenue of growth, a new entrant has broadsided them with speed, agility, and a

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superior offering. Regardless of who lands on top, the collision between the
unstoppable force of technological change and the immovable object of financial
services, the most entrenched industry in the world, promises to be an intense one.