- Any private cryptocurrency that is only backed by the full faith and credit of the Brand that issues it is a Line of Credit. Lines of Credit are regulated by banking authorities, e.i.: The Federal Reserve Board.
- Any private cryptocurrency that is backed by an asset is actually a derivative. Derivatives are regulated by the Commodity Futures Trade Commission (CFTC).
- Any private cryptocurrency (or token) that is neither backed by assets or only the Brand of the issuer is most likely a security. The Securities Exchange Commission regulates securities.
Private cryptocurrencies are no more than Lines of Credit. The following article expounds upon this obvious thing, that only becomes obvious once we acknowledge how Amazon, Facebook or any other private company would create and issue a cryptocurrency. That and why the Federal Reserve Board (and Consumer Financial Protection Bureau (CFPB)) should enforce existing laws regarding entities that issue Lines of Credit.
The Amazon Token
Hypothetically if Amazon issues a “cryptocurrency” they are in fact issuing “tokens”. Amazon will be issuing “tokens” because in order to get said tokens you’ll exchange USD for Amazon tokens. Confused? Think Chuck E Cheese. When you go to Chuck E Cheese you exchange your hard-earned dollars for ChuckE tokens. You can do this because ChuckE has an arcade where you can then spend the tokens you just bought. Without the arcade in place, that token would either be a complete waste of money (because you couldn’t use it) or part of an investment scheme and thence security regulated by the SEC.
Amazon can do the same thing because Amazon has an even bigger arcade, called Amazon.com. On Amazon dot com you can exchange your Amazon tokens for any and everything Amazon sells. Why you wouldn’t just use USD is a mystery…until Amazon offers you 1.25 Amazon Tokens for every US Dollar. Who doesn’t love a little Amazon arbitrage?
In that scenario, Amazon would be issuing a token that has a set value, again very similar to your Chuck E Cheese tokens. They love this because at the end of the day you can only get Amazon Tokens from Amazon and if the Amazon Gift Card industry has taught us anything, Amazon knows you’re going to either lose your tokens, not use them or only use them at Amazon.com. On that note – I can’t see how Amazon doesn’t eat the world.
Lines of Credit – Amazon Style
Yes, yes. We could call the Amazon Token a “coupon” or even a “gift card”. But let’s not get distracted by calling something exactly what it is. That isn’t very sexy nor confusing to everyday speculators. As it is known when consumers are confused over what they are in fact purchasing a company can make even more actual money (USD) than if they were selling them digital coupons that gave them 25% off at Amazon.com.
That said, we tackle the reality of Amazon’s Lines of Credit with a question,
“If you don’t purchase Amazon cryptocurrency (as a token) then how do you get access to it?”
Yes, you could theoretically work for Amazon and then they could pay you in the Amazon Crypto (henceforth referred to as AC). However, based on how Amazon currently pays its employees it’s doubtful you want to be yet another underpaid employee, who relies on taxpayer-funded food stamps simply to survive. In defence of Amazon, they’re not nearly as bad as Wal-Mart when it comes to the number and percentage of employees your tax dollars are subsidising on food stamps. Regardless, the question remains, “How do you acquire Amazon cryptocurrency?”
If you have to earn AC this in no way means you’ll earn a living wage or get off of food stamps. Yes, I know. If you’re reading this you’re probably not on food stamps. But if you were and you worked for Amazon, getting paid in AC would no more help you then getting your low wage salary in the $15 dollars an hour equivalent of diamonds or oil. You still only get fifteen dollars worth of diamonds/oil and your rent would remain $1500 a month. Meaning you’d still have to work 125 hours a month just to cover your rent. In case you’re confused by that math, the 25 hours is so you can pay taxes and net $1500.
So, how then do you get access to Amazon Crypto? Amazon extends you a line of credit.
Only USD Accepted – Paying Your Amazon Line of Credit
When Amazon extends to you 10,000 AC line of credit they do so by creating a profile that is tied to your social security number, payment history, employment and earning potential. Before you freak out, Amazon already knows all that information, your favourite flavour of ice cream and whether you’re expecting it. As a matter of fact, go open your door right now. There is a 50/50 chance that there is an Amazon box sitting on your porch right now that you didn’t even order but that you’re going to be thankful that it’s there.
Freaky predictive, privacy-invading Amazon algorithms aside, when Amazon “gives” you 10,000 AC that you can use dollar for dollar on Amazon dot com, to purchase any item on Amazon be aware that Amazon didn’t actually give you $10k. They give you a Line of Credit worth $10k USD…before interest kicks in.
However, these 10,000 Amazon crypto “units” can only be used on Amazon dot com. Yes, later there will be secondary markets where you can trade your AC for other private cryptos (Facebook Coin, Apple Crypto, Best Buy Token etc…), much like you can transfer/exchange sky miles and reward points. Well, unless Amazon’s cryptos are similar to the programmable money that is Central Bank Digital Currencies (CBDCs) and programs your “money” to not be tradable outside of Amazon stores or vendors.
But before we get off track about the Emperor having no clothes that are CBDCs, when you use your 10,000 units of Amazon Crypto on Amazon dot com, you’re not spending “money”. You’re accessing your unsecured, personally guaranteed Line of Credit that Amazon has extended to you.
It is true, Amazon has not given you a credit card per say. Rather, very similar to how “credits” work on Audible.com (another Amazon company) Amazon has given you 10,000 AC credits (units) that you can exchange on a dollar for dollar value in Amazon’s ecosystem/arcade. Amazon’s ecosystem/arcade includes any of the other billion-dollar companies like Wholefoods, Audible, Zappos, WickR, etc…
Here is the hitch. How do you pay Amazon back for the items you purchased using AC? In US dollars of course.
The Danger of Re-Inventing the Wheel
Again to recap, if a private cryptocurrency’s value is based solely on the full faith and credit of the Brand that issues it, it’s not “currency” or “money”. It’s a Line of Credit. If the cryptocurrency is secured by a basket of other assets then it is a derivative. Last but not least, the rest are most likely securities, especially if their price/value fluctuates.
Either way, there are already regulatory structures and rules in place that govern Lines of Credit, derivatives and securities. So, while we may want to rush off and reinvent the rule book, often we simply need to simply take a step back and enforce the laws we already have.
Too, and the point of this article, is that we should recognise the danger of allowing private companies to re-inventing the credit wheel. Unsecured debt, especially unsecured consumer debt, is second only to student loan debt in stifling economic growth.
Allowing private companies (especially those whose profits rely on taxpayer food stamp subsidies) to create unregulated, novel, confusing and complex credit instruments will only serve to further undermine the social safety net American. To this end, I recommend the following:
— A Crypto-Czar be appointed to the Consumer Financial Protection Bureau (CFPB)
— The CFPB’s Crypto-Czar mandate should be to work across regulatory bodies (CFTC, SEC, FTC, etc…) to define basic terms and nomenclature in the blockchain-based, digital assets space.
— Then collaborate to enforce current rules and regulations with its sister agencies and, as needed, co-author new rules and regulations that protect consumers from emerging, novel and confusing digital assets.
I don’t know who said it but it remains true, “There is nothing new under the sun.” So too when it comes to business, trade and commerce. While the technology may advance, not all advancements are improvements and at the end of the day, we’re still engaged in the most basic of monetary transactions that is the creation and tracking of social IOUs we call credit and debt.
About the Author
Samson Williams is an adjunct professor at Columbia University in NYC and the University of New Hampshire School of Law. When not exploring the realities of blockchain, cryptocurrencies and The Space Economy Samson is President of the Crowdfunding Professional Association, a serial entrepreneur and investor who champions a very simple fact that “Customers have more money than VCs.”
Prepared by Ebony Ximines-Parke
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