The Fine(d) Blend of Bitcoins and Multi-Level Marketing (MLM)
'There are three eras of currency: commodity based, politically based, and now, math based.'
- Chris Dixon
Let’s keep it simple! Cadberry sells chocolates to its distributors worldwide by a distribution contract signed between Cadberry and its agents. In turn, distributors fulfill their payment obligations by transferring ‘money’ to Cadberry. Now, let’s make it complicated! ‘So very soon?’, One might ask. Yes, that is what this article demands! Cadberry makes fundamental changes to its business by deciding to allocate zero revenues towards advertising and marketing. Now one might ask why on earth Cadberry would resort to such an act. Let’s keep reading. Cadberry appoints a new CEO who has proven expertise in selling products through human assets. He convinces the Cadberry top brass that he will hold a mega event inviting nearly thirty thousand people who will be persuaded to follow every word of Mr. CEO. He will request each of the attendees to become an active participant in a network that will deal exclusively in Cadberry products. The idea is simple – they sell Cadberry to people (including retailers) they know and earn commissions, and in the process, the buyers of those products inherently also become part of the network whereby any sale by those buyers to other persons they know makes the original buyer eligible for kickbacks. By doing so, Mr. CEO expects to generate five times more business than with the application of traditional marketing. Wait! There’s nothing to invest in other than the first event. Apologies, but this gets even more complicated now! Mr. CEO now wants to implement bitcoins and do away with traditional currency. So, he imposes a condition on the network that every retailer who buys Cadberrys should accept bitcoins. To convince these retailers, he tells them that the processing fee per transaction will be only 0.23% as against the standard 2% for credit cards. To this, he also adds that there will be no contracts whatsoever, and offers free software, packages, and Apps that will help retailers grow and promote their business more efficiently. At this point, one might wonder how they could become a part of this network, and we would just request them to get in touch with Mr. CEO.
The economic pitfalls of the past decade have proved that the financial sector is an ideal platform for the implementation of anomalous concepts like collateral debt obligations (CDOs) and bitcoins. The bitcoin industry has been ushering in the recent years with one foot in the regulated financial piazza and the other in the global information technology (IT) emporium. However, the bankruptcy application of Mt. Gox in 2014 had jolted the fundamental pillars of the cryptocurrency industry due to the loss of credence of its investors worldwide. Mt. Gox was a prominent bitcoin exchange in Tokyo which conducted over seventy percent (70%) of the global bitcoin transactions by 2013. However, the turbulences of the bitcoin airplane eventually passed through the gloomy clouds of the financial sector after major governments of decided to leave the bitcoin industry unregulated. Therefore, the existing players in the bitcoin industry are necessitated to turn to various forms of marketing to cajole the investors about the veracity of this peculiar form of currency.
It is general knowledge that investors are not attracted to 'experimental' business ideas due to the uncertainty involved. Hence, entrepreneurs strive to efficiently promote their novel products and services to enlighten the buyers of its different advantages, despite the difficulty mentioned above. The novelty and the change of the bitcoin industry have forced a few players in the market to follow various untraditional marketing techniques such as multi-level marketing (MLM) to lure new investors. MLM is a 'dynamic' marketing strategy by which the distributors get remunerated for the sales generated by them. First introduced in the mid-twentieth century by a company named Nutrilite to educate potential buyers about the importance of vitamins in their daily life. However, MLM has come a long way from then. It has transformed into a dynamic and modern marketing practice by which businessmen enhance the demand for their products and services by providing the distributors with attractive incentives for their performance. This article aims to discuss the nexus fabricated between the 'novel' bitcoin industry and the century old MLM strategy.
The Bitcoin Identity
Who gives the value to the currency in our wallets? What makes a hundred dollar bill worth a hundred dollars? The currency of a state derives its value from the monetary authorities of that particular state and its subsequent demand variations. Therefore, we understand that the need for a product is the primary tool which estimates the value of the same. However, could a group of individuals produce a currency and assign it with a particular value? Yes, as evidenced by bitcoins which are produced or mined by people themselves through computers which run software that solves mathematical problems. The bitcoin industry is perceived to be a revolution in the financial sector because they remain unregulated by the various monetary authorities of the world economy, affording anonymity and speed to its users. The cryptocurrency industry runs parallel to the 'actual' financial sector including the banks and financial authorities. Therefore, the value of cryptocurrencies such as bitcoins ultimately rests upon its demand and supply due to the absence of any particular authority to regulate the same.
The concept of cryptocurrencies such as bitcoins aims at instituting financial liberty by providing a platform for a currency that is not governed by any authority. Therefore, the control on the production of bitcoins would depend on the demand of the same. The economic predicaments of the global financial crisis of 2008 have brought light on the Ponzi schemes that develop in the financial sector. Therefore, investors now exercise a higher degree of caution before pouring their resources into a single novel financial commodity. However, over the past few years, an unprecedented expansion of the bitcoin industry has been witnessed due to the security and tranquility of the transactions. Bitcoin transactions provide a high degree of transparency and safety due to the existence of a global ledger known as the blockchain. Every bitcoin transaction is confirmed "only" once it gets recorded onto another ledger of the bitcoin network. Therefore, it is difficult for the players of the industry to manipulate the market due to the authenticity of the transactions and the transparency of the records.
In the present day scenario, the value of bitcoins is based largely on speculation rather than actual payment volume. However, the bitcoin currency should have a certain value before it could bear any amount of real world payment volume. Therefore, the rise in the value of bitcoins due to the increase in its speculative demand has been proving the worth of bitcoins in virtual transactions around the globe. However, the usage of bitcoins has been limited to very few merchants and customers due to its volatility and uncertainty. Million dollar companies such as Microsoft, Dell, and Zynga have modernized their financial policies to accept payments in Bitcoin currencies. The success of bitcoins can only be established when its popularity extends to one’s neighborhood stalls. Hence, Bitcoin miners and traders are placed with the mammoth task of elevating the demand of Bitcoins in the domestic marketplace to increase the value of the same. Nonetheless, the demand for a commodity would only increase when the consumers identify the needs and benefits of the same. This is where the notion of bitcoins overtakes the dynamics of the MLM strategy.
The MLM-Bitcoin Alliance
The popular MLM strategy has been used by various companies and organizations with the view to coax people into purchasing their unpopular products. MLM is practiced by companies that produce specific novel products and services that require a certain amount of persuasive marketing to entice potential buyers. The buyers would not usually invest their resources into a product or commodity that has no value in the marketplace. Therefore, it could primarily be comprehended that intricate contemporary commodities, such as bitcoins, which involves substantial financing would require adequate marketing at a global platform to grab the attention of the merchants.
Bitcoin traders provide various MLM propositions with the view to attract merchants with different incentives to use the new cryptocurrency technology at their workplace. Currency will have no value if it is not accepted by merchants in their daily transactions. Hence, the general MLM model would not suffice the requirement of the bitcoin promoters due to its complexity and the fact that the merchants or businesses are the primary users of their commodity. The colossal duty of the bitcoin promoters is to elevate the demand for the same by luring the local merchants to accept bitcoins as a currency at their outlets. This can be elucidated with the help of the following illustration: Bitcoin promoters attract and engage marketing distributors in different countries with the view to promote the usage of bitcoins at the domestic markets of those countries. Subsequently, these distributors would approach local merchants with various packages including the know-how of bitcoin transactions, mining equipment and membership to the promoter’s organization in return for accepting the promoter’s bitcoins as a means of currency at their outlet. The merchants would only be charged with a negligible transactional fee when their customers use bitcoins to pay for their expenses at the outlet. Therefore, the merchants who accept these bitcoins at their outlets would have the opportunity to scrimp the ancillary commission costs that they would incur when their customers pay with credit or debit cards. Further, the distributors would also receive a percentage of their sales as a commission in exchange for the sales generated by them. This MLM strategy would substantially elevate the usage of the promoter’s bitcoins at the domestic marketplace of the distributors.
The customers at these local shops and outlets would have no value for bitcoins unless they are domestically accepted as a means of payment. Therefore, bitcoin promoters indulge in these convoluted schemes to foster the use of bitcoins at the local shops and outlets as they are the ultimate end users of these commodities. Only time will tell the enormity of the issues associated with the fusion of the bitcoin industry and the MLM strategy.
The bitcoin-MLM duo is a dynamic element that is expected to take over the financial sector in the coming years. However, the legalities that are involved in the bitcoin industry due to the use of the MLM strategy could vary in different jurisdictions. MLM is a highly criticized form of marketing because of the scanty regulations surrounding the same. Both the bitcoin industry and the MLM scheme are major controversial global sectors that remain unregulated by their independent regulatory authorities. Many financial authorities have publicly advised their citizens to avoid indulging in bitcoin transactions due to its vulnerability to money laundering and terrorist financing risks. Further, the legality of the MLM structure is also closely scrutinized by the governments because of its legitimacy issues in the trade industry. In 1979, the United States Federal Trade Commission had indicated that the MLM was not illegal per se in the US. However, individuals and organizations promoting their bitcoins through MLM schemes should exercise utmost caution and engage a law firm that provides bespoke legal advice to guide them through the related legal issues.