the image is generated by AI

Will crypto ever return to its community-first ideals? As banks and institutions gobble up Bitcoin and whales consolidate control over ETH supply, true believers might be forgiven for reminiscing.

Circles (V1) began its life in 2020 as an experiment in decentralized, permissionless currency. The aim was to give the de-banked and financially marginalized universal basic access (UBA) to digital cash.

As an alternative to UBA leaders like centralized, biometrics-driven Worldcoin, it was laudable and intriguing. But the idea didn't catch fire.

Now Circles is back with V2, which the project says delivers better value and a stronger economic model.

At a low-key launch event in April, co-founder Martin Köppelmann noted that bringing V2 to life has been a decade-long journey.

"Circles is a big and radical idea. It poses the question, ‘How does money really work, and can we make it better?”

Because Bitcoin is still held by a fraction of the world's population, Köppelmann said its adoption curve means price rises mainly profit those who bought-in early. Circles V2, he said, aims to deliver crypto's benefits to the masses.

"We are trying to take the best of Bitcoin, its decentralization, but try to be radically fair in its distribution."

A Global Currency for a Globalized World

Circles V2 is part of Köppelmann's Gnosis Chain project for an open and decentralized internet. At its core is a democratic money system that spreads financial gains widely.

Every Circles user can mint the same number of Circles (CRC) tokens for as long as they are active – one per hour.

That's very different from Bitcoin, where current holders are poised to benefit most. It also sets it apart from Worldcoin, which depends on biometrics and gives big investors a bigger stake. Circles is equitable and permissionless by design.

It's built on four core principles:

1. Access is universal – Anyone can join and mint CRC tokens; they simply have to be granted a ‘trust' rating by three current users. There are no special privileges for insiders or early adopters.
2. Issuance is distributed by design – Users can mint one CRC per hour, no more and no less. That ensures an equal and predictable pipeline of new money without insiders or early adopter advantages.
3. Incentivized circulation – An annual ‘demurrage' fee of 7% is applied to all balances to encourage spending over hoarding.
4. Social curation to resist manipulation or cyberattack – Circles ‘Rule of Trust' means users can only transact with those they have an established trust link with. That should make it harder for bots to operate.

V2 also aims to overcome two of the biggest complaints about V1, namely usability and liquidity. Circles' new Metri wallet offers an intuitive mobile-first interface akin to something like Safe (which it's based on) or Revolut.

How Does Circles Work?

Once inside, Circles users can make purchases, trade their CRC, and look for local groups to join. In the latest version, users can also back their minted CRC tokens with stablecoins using an automated market maker (AMM). This creates market-based price discovery for what was once a purely social currency.

Users can browse trust connections, join local groups, and spend or trade their CRC. One of the added features in V2 gives users the power to back their minted tokens with stablecoins using an automated market maker like Balancer. That elevates Circles from an experiment in social money to one offering the benefits of market-based pricing.

Yet the community-first ethos remains intact. Instead of going the Worldcoin route – using iris scans to validate profiles held on a centralized global database – Circles is designed to grow organically.

Transactions start with trust built on a web of social connections. At least three current users have to bestow their trust before a new user comes onboard.

Co-creating Crypto’s Future

With more than 100,000 accounts established on Circles V1, the barrier to entry should be reasonably low. V2 could attract users already networked to other serious crypto enthusiasts, favouring ‘quality' customers committed to the project's technical approach and local-first ethos.

If there's a wow factor in V2 it's arguably the Groups function. It brings together users with mutual interests and allows them to mint CRC jointly, coordinate spending, and establish shared rules.

Crucially, Groups can issue their own CRC sub-currencies, with rules and restrictions attached that delineate what they can be used for. The mini-currency just needs to be backed by a pool of CRC that the group agrees to set aside.

In practice, that could see a group's specified stock of Circles restricted to groceries only, or to specific vendors or marketplaces.

Unlike failed hyper-local currency experiments like Colu, which eventually abandoned crypto completely, Circles V2 isn't dependent on partnerships with independent shops and municipalities. The point is to generate a self-perpetuating network effect, rooted in mutual trust.

Circles is also free from set-asides for VCs or other investors. At the launch, Köppelmann said this is one of Circles' key differentiators:

"There is no protocol owner or insider group that gets 30% of the whole thing. That does not exist."

The Take Away

Circles has drawn kudos from the likes of Ethereum founder Vitalik Buterin and Uniswap's Hayden Adams. But can it work in practice? Many people conflate UBA with UBI (universal basic income). Free money for all with no strings attached might sound like a brilliant market penetration strategy, but that's not quite what Circles has in mind.

Will interest wane once people understand the specifics? Practical utility and the opportunity for gains surely need as much emphasis as equity and fairness.

Another lesson to be drawn from Colu's rapid rise and fall is the onslaught of regulatory actions it faced when it tried to launch multiple new digital currencies into multiple local jurisdictions.

Köppelmann has positioned Circles as Bitcoin's spiritual successor, minus the supply constraints. It remains to be seen if regulators will want to impose constraints of their own.