This startup believes digital currencies can help to change community behavior, making them stronger
Bitcoin community innovators Colu announced today the close of their Series A, adding $9.6 million to their wallets and bringing them a step closer to bringing their vision of changing how the world thinks about and uses money.
Leading the round were Aleph, Spark Capital, and an unidentified individual who was reported as being “a global leader in the world of currency”. They were joined by the Digital Currency Group and former Thomson Reuters CEO Tom Glocer. Colu previously raised a Seed round of $2.5 million back in 2015.
The Tel Aviv-based company was founded in 2014 by CEO Amos Meiri, VP R&D David Ring, and VP Product Mark Smargon.
The team behind Colu have been working in the Blockchain space for sometime, having built the Colored Coins Bitcoin protocol that allows users to use the currency not only cash transfers, but to track and trade all kinds of assets.
Along the way, Meiri discovered that nearly 40% of their users were using the protocol to build local community currencies. These groups of folks who wanted a local system were growing organically in different locations, using the currency to make changes in local behavior.
Through their tools, Colu allows communities to create, issue, and manage digital currencies built on the Blockchain, offering a dashboard as well as an API and SDK. Users can access and transfer their digital assets through the company’s app, which is available for iOS and Android.
The app is easily customizable for communities to add their own personalities, really giving it a local feel.
Community building through digital currencies
The team at Colu see cryptocurrencies not only as a way of exchanging goods and services, but as a method of bringing people together and changing behavior.
Meiri tells Geektime that the larger vision of the project “is to change the way people think about and use money, from something that simply makes a purchases to something that can help connect people and strengthen local economies.”
At its core, Blockchain is a system for people that do not trust each other, providing a public ledger where all records are kept. So while small communities might have trust between one another, there are some challenges that make Blockchain very appealing for these local communities.
One of the biggest concerns in the digital currency space investor Eden Shochat from Aleph tells Geektime, is that users often fear what will happen to their balance in the event that the issuer closes up shop or simply leaves with the cash.
Through the Blockchain, the user’s currency is kept safe, and can be transferred to a new community system if needed. So if the group from Jaffa folds up, the users can easily move their holdings to another one in Tel Aviv.
The question that Shochat says is important in these cases of moving accounts, is whether anyone can actually read the bits off the Blockchain?
“Yes,” he says, explaining that on the business level, communities can set exchange rates if they so choose.
“If you want to move to digital and become a global phenomena, then the Blockchain is an ideal solution,” says Shochat while noting that he is a bigger believer in locally organized exchanges as opposed to the global cryptocurrencies.
Shochat is not so fast to trash Bitcoin, saying that, “Any term like cloud or Big Data will get overused and under defined. If you look at the basic thing, it is a guaranteed ledger that can contain any data sets. If you have that thing which allows communities and individuals to trust each other, what would that enable? One of those things would be community currencies and that’s what Colu is focused on.”
Built on their Colored Coins model, Colu hopes to strengthen communities by keeping more of the cash local, creating jobs and value.
The concept of local currencies has been tried before, with the Brixton Pound as an example where the community decided to issue their own distinct paper money in hopes of encouraging people there to support local businesses.
Shochat says that while cases like the Brixton Pound have found success since folks can hold onto physical money, the move to digital becomes a bit trickier since the issuer has the ability to transfer the funds to their own account, absconding with the cash.
The advantages of being close to money, even if it’s virtual
Beyond his backing of community currencies, Shohat sees significant dollars and cents value in this venture, telling Geektime, “Think of the opportunity to become the central bank for new forms of currencies.”
Further down the road, he believes that business models could arise for handling lending, transactions, and other aspects of the ecosystem, but have not decided on any particular application at this time. “If I’m looking at a company that runs money, then I’m less concerned,” he says of the potential for revenues.
Following the funding, Colu will pour their efforts into scaling up the existing communities in places like Jaffa and Florentin in Tel Aviv, while seeking to grow new ones in the US and Europe.
Part of this effort will include a push to sign up 80% of local merchants to become a part of the digital currency network, hopefully supporting their business and providing value for everyone in the community.
The future of digital currencies
Digital currencies have many advantages, helping to reduce costs by cutting down on problems like defected bills, to fraud and embezzlement. Transferring funds is also significantly cheaper since it cuts out the banks and other financial institutions.
In the past few years, banks and others have expressed increased interest in the Blockchain, looking to retain their position as the gatekeepers of the financial industry while incorporating more efficiency into their process.
“Blockchain itself as a technology is growing and expanding in incredible ways across multiple fields,” says Meiri, believing that, “It will come to represent the most significant technological development since the internet itself. I think in many ways we are just beginning to understand its potential and it will take a number of years to see larger institutions adopt it en masse.
For the time being, startups like Colu and others are quickly moving into this space, building solutions with the potential to bring about some serious disruption, albeit not likely the revolution as some folks may prefer.