37Coins Plans Worldwide Bitcoin Access With SMS-Based Wallet

Startup 37Coins has created a universal bitcoin wallet that can be used on any cellphone, aiming to provide people around the globe with better access to financial resources.

The service allows consumers to pay in bitcoin from any mobile device with SMS functionality via a 'gateway' in the user's country of origin.

This means that the benefits of the digital currency can be accessible to people who arguably stand to benefit the most, like those in poorer regions of the developing world and areas without advanced communications infrastructure.

As Jonathan Zobro, one of the company's founders, explained:

"We can give tools to people to help bring bitcoin’s benefits to their economy."

How it works

For each country, 37Coins plans to establish a gateway for its service.

A gateway is a private operator who allows an Android device to be used as a conduit for transactions via its local number and Internet connection. Gateways are rewarded with small transaction fees in bitcoin for providing the service.

Anyone wanting a 37Coins wallet can set one up at the company's website, but, for people lacking web access and/or smartphone, a hosted wallet is automatically created once a small amount of bitcoin is sent to their cellphone number.

The service acts virally and once, say, Alice has bitcoin in her new wallet, she can send funds on to Bob – thus creating a wallet for him, and so on.

The 37Coins system is operated at the user end via a series of inputted commands. By texting 'Bal' to the gateway number, a user can find out their balance, while 'Addr' requests their bitcoin wallet address, and so on.

To send value, the user texts an amount in either a fiat currency or bitcoin, along with the receiver's phone number. The gateway will then ask for confirmation via a code before executing the transfer.

For security, users can opt to set up two-factor authentication. Once initiated and a PIN recorded, the system will then call the user to confirm each transaction.

Simplifying bitcoin payments

Johann Barbie, a German-born engineer and the co-founder of 37Coins, has been working on the SMS-payment concept since last autumn.

The idea arose, Barbie said, through his desire to be able to send people bitcoin without the complication of manually setting up wallets and buying bitcoin:

"I wanted to find an easy way to send bitcoin, force bitcoin on them."

Automating the creation of wallets seemed by far the best way to introduce people to digital currencies. Initially, Barbie tried an email-based system, but soon decided that SMS was even more ubiquitous, something everyone can use:

"I had difficulties always explaining bitcoin. And you want people to set up a wallet so they don’t forget about it."

Barbie then asked Zobro and Songyi Lee, who has a background in social work, to join him in the creation of 37Coins. The company is now based at the Plug and Play Technology Center in Sunnyvale, California, which is incubating 37Coins as part of its group of bitcoin startups.

Cellphone penetration

The reason 37Coins sees SMS as the best way to reach the most people, is that almost everyone now has access to a cellphone. According to the International Telecommunications Union, cellphone penetration will reach 95.5% globally by the end of 2014 – far higher than the roughly 40% of people using the Internet globally.

There are already mobile network-based digital currency platforms. In Africa, payments platform M-PESA is being used by a major cellphone operator to ease payments in countries such as Kenya.

Yet, 37Coins' system has the potential for a wider, more global reach.

"Having this technology figured out in a number of countries is [our] competitive advantage," said Barbie. "It’s not as easy to do as delivering an app through the Internet [but] I think it can be very useful [for adoption]."

The challenges

37Coins will need to rely on the trust and ability of third-parties in order to make its business a success. "We can provide this technology itself, that’s fine. But we cannot solve all of the other problems," said Songyi Lee.

There is potential in Africa for 37Coins, she added, but very little in terms of infrastruture exists today:

"There is a long way to go [in Africa] because they don’t have the liquidity. They don’t have exchanges there."

In order for 37Coins to work as a conduit for bitcoin, there need to be onramps: gateways, exchanges and point-of-sale systems.

That's why the company is developing key partnerships, starting with Asia. In Singapore, 37Coins is working with locally-based Coinpip in order to get its service off the ground in that country.

Furthermore, the company recently made a trip to Manila, Philippines, with the aim of working with a local operator there.

Li says that 37Coins is an ideal service for the Phillipines – it lacks an adequate Internet network and people are dispersed across the nation's thousands of islands. However, almost everyone owns a cellphone.

The SMS market

Other companies like Coinbase offer SMS bitcoin wallets, but while some do offer this as an additional service, 37Coins is focused solely on SMS. That might give that startup an advantage.

In fact, the company is banking on it. 37Coins plans to make money as a 'white label' solution for regional operators: offering use of the SMS-based wallet system in return for a cut of transaction or exchange fees from the operator end.

However, the founders of 37Coins know it will have to spend money helping operators market this. Said Zobro:

"We’re going to have to make promotional materials, especially if they are only using an SMS phone. We’re going to have to make little cards for them for shorthand."

Banking on bitcoin

M-PESA in Kenya is an example of the growth of digital currencies in different markets. Plus there is the growing number of altcoins to consider as well, that might eventually come to compete in the space.

Despite this possibility, the 37Coins team remains confident that it is bitcoin that will continue to be utilized as a global store of value.

This is especially for those who do not have access to a bank, they think. The appeal of plugging into bitcoin's international community with 37Coins' SMS wallet system could generate a lot of interest from local operators.

"[Bitcoin] is the one with the most development, the most developed ecosystem and network. Maybe in the future, if something takes over, it would be pretty easy to switch over. But right now the best one is bitcoin," said Zobro.

No matter what happens in the digital currencies market, 37Coins aims to be a part of it.

According to its website, 37Coins' gateways are already operating in a handful of countries including Germany, Japan and the Philippines, and they are currently recruiting for more.

Old cellphones image via Shutterstock