Bitreserve, a startup that offered consumers digital wallets funded with Bitcoin, is rebranding itself as Uphold and starting to accept other currencies, making it the latest in a string of Bitcoin startups to further embrace fiat money.
Beginning Tuesday, Uphold is allowing members (businesses, consumers and charities) in 33 European countries to fund their accounts with euros by bank transfer, credit cards, and debit cards. Next month, the company will offer members in the United States and China the same services. (Previously, members would send Bitcoin and then could convert and hold it as one of 24 currencies, such as euros, Chinese Yuan or British pounds, or precious metal of their choice. They’d then have to convert it back to Bitcoin to move money out.) These new services are aimed at fulfilling Uphold’s goal to become the “Internet of money.”
“When I launched Bitreserve the idea was that, using the cloud and cloud money, you could eliminate all expenses related to anything monetary — the movement and conversion of money in all forms: foreign exchange, bounced checks, remittance fees,” says founder and chairman Halsey Minor, who also founded CNET. “If you’re making money by moving money — credit cards, remittances, bounced check fees — all of those fees, we will take out in the next five years.”
Members of Uphold will be allowed to transact with each other for free, even when their transaction requires converting from one foreign currency to another.
Later this year, the company will begin offering Visa V +1.33%, MasterCard MA -1.05%, and Discover payment cards that allow members to pay online and brick-and-mortar merchants directly from their Uphold accounts.
Except when it directly deals with Bitcoin, the company will not use distributed ledgers, the technology behind Bitcoin, which is also called “blockchain technology,” in which multiple computers hold copies of the same ledger and each one is updated simultaneously with the latest transactions. The technology has piqued Wall Street’s interest because of its transparency, security and speed (10 minutes to process transactions) relative to bank transfers, which usually take a few days.
However, Uphold will settle transactions instantaneously. “If there’s $100 in the cloud and you send me $100 on [Uphold], …. the ledger entry goes from you having $100 to me having $100. It is the movement of money from account to account versus from bank to bank that is at the core of the idea of cloud-based money,” says Minor.
He calls Bitcoin “training wheels for money,” because of how little value is in circulation with the currency, but says it allowed his company to build a system that can offer 24 currencies and four metals and instant foreign exchange.
Cloud-based money, says Minor, functions similarly to Spotify in the way that Spotify has one digital version of a song that many people can stream, or the way Facebook FB +0.00% stores one copy of a photo that many people can see. In order to benefit from this instantaneous transfer, each party in the transaction has to be a member of Uphold — just like each side in a transaction over secondhand goods would have to be a member of eBay, Minor says.
When it connects to the U.S. banking system, Uphold will look like any other bank making an automated clearinghouse (ACH) transfer, the process by which money is moved from bank account to bank account. Similarly, when it makes a transfer to European bank account, it will look like any other bank on Europe’s equivalent of the ACH system, Single Euro Payments Area (SEPA).
“We’re the only place in the world where you can connect to the blockchain, the European banking system, all the credit card systems and very shortly, after we make sure were comfortable with our SEPA launch, then we’ll launch ACH and we’ll connect every U.S. bank account,” says Minor.
The company is keeping full reserves of the money held in its accounts in every currency it offers, instead of a fractional reserve as a typical bank does, and it will continue to make those holdings completely transparent on its site. “In 10 years people are going to look back and think it’s really bizarre that people put their life savings into a bank and 83% of it goes out to Joe to buy a pickup truck. That’s the way the system is but that’s not how the system should be,” says Minor.
Though services like transferring and holding money and foreign exchange will be free, the company will charge a small commission from money entering and leaving its system through traditional fiat systems such as credit cards. For instance, it will charge a 0.05% fee for withdrawals over $1,000 per month via bank transfer.
However, in the long run, the company expects to make most of its money from two avenues. One is from small and medium-sized businesses and individuals that need to move money around the world. “We’ll probably make no money from consumers but we’ll make it so convenient for businesses to move money around, trading all of their different subsidiaries, and different currencies and different banking systems. Ultimately, that’s probably where the vast majority of the money and profit comes from,” says Minor.
The company hinted at future partnerships that would target this market, such as ridesharing companies that operate in multiple countries. They could use the service to pay their drivers and pay nothing for the foreign exchange or for payments to drivers.
Another revenue stream will include buying government bonds with a portion of the money left in its reserves. For example, once the amount in its reserves reaches a certain size, such as $10 billion, Uphold may invest some of it in liquid investments. For instance, 10% of the U.S. dollars in its reserve may be used to purchase short-maturity U.S. Treasury bills.
As Bitreserve, the company had attracted almost $3 million into its reserves, with $1.1 million of it held in U.S. dollars and slightly more held in Bitcoin.
The name change is spurred a partially by the motivation to rebrand itself as more than a Bitcoin company. “I spent a lot of time explaining to people that we had bit dollars, bit euros, bit yuan but new matter how many times I said that, people kept hearing Bitcoin reserve, not bit reserve, as in digital,” says Minor. “Bitcoin has made it so you can’t unhear the word ‘bit’ and have it mean digital again. And some banking systems don’t like Bitcoin, so having the word ‘bit’ in our name was problematic.”
Laura Shin is the author of the Forbes eBook, The Millennial Game Plan: Career And Money Secrets For Today's World. Available for Apple iBooks, Amazon Kindle, Nook and Vook.
Beginning Tuesday, Uphold is allowing members (businesses, consumers and charities) in 33 European countries to fund their accounts with euros by bank transfer, credit cards, and debit cards. Next month, the company will offer members in the United […]