Op Ed: Could an Amazon Token Become a Viable Worldwide Cryptocurrency?
Combining the benefits of a utility-based cryptocurrency and a company that exhibits the characteristics of a power law network creates the perfect opportunity for a globally adopted cryptocurrency –– the Amazon Token.
Amazon’s Full-Circle Economy
In this hypothetical futuristic scenario, Amazon extends on the suite of products and services it provides customers in 2018 including: online shopping, physical grocery, web services, artificial intelligence, internet of things, video and music streaming, healthcare (in development) and banking (small business loans).
For reference, Amazon ships to 100 countries and has separate retail websites for 15 countries. In the United States alone, 55 percent of online shoppers begin their searches on Amazon and over 80 million shoppers subscribe to Amazon Prime.
In the future, the customer-obsessed, low-priced “Amazon economy” could expand into all industries and become self-sufficient. In other words, Amazon will be selling everything to everybody in the “best” and cheapest way possible.
In this hypothetical scenario, instead of 15 individual Amazon marketplaces scattered across the world operating in country-specific currencies, imagine a global Amazon e-commerce store with a single sign-on, billions of unique ASINs, and the Amazon Token as a single payment method.
In a recent study by LendEDU, 52 percent of 1,000 Amazon customers surveyed responded that they would use an Amazon-created cryptocurrency to make purchases on the Amazon website. So, what might the Amazon token look like?
Amazon’s Past Attempt at Tokenization: Amazon Coin
In 2013, Amazon released the Amazon Coin, a virtual currency designed for U.S. customers to “purchase apps, games and in-app items on Kindle Fire” on the Amazon Appstore.
Each never-expiring Amazon Coin is worth a cent, meaning that 100 Amazon Coins are worth one dollar. Users are enticed to use Amazon Coins in the Amazon Appstore because they can earn up to a 24 percent discount on their purchases. For the curious reader, Amazon Coin can be purchased here.
Ultimately, the Amazon Coin hasn't been a smashing success for a variety of reasons:
- Amazon Coin is exclusively useful for the niche market of the Amazon Appstore. The Amazon Coin is not an option to purchase any other goods or services offered by Amazon.
- There is no secondary market for users to resell unused Amazon Coins to one another.
- Many users feel that the Amazon Coin creates an unnecessary layer of friction in the payment process, asking questions such as, “Why would I need to convert my fiat currency into a virtual currency to purchase an item on the Amazon Appstore that can already be purchased with my fiat currency?”
Interestingly enough, Amazon is not the only company that has previously attempted (and failed) to create a long-lasting virtual currency for a niche in their ecosystem. In 2005, Microsoft created the Microsoft Points currency for content on the Xbox marketplace. In 2009, Facebook created Facebook Credits for game purchases and virtual gifts. Neither currency is widely used.
The Amazon Token (AMZN)
By focusing on their entire ecosystem instead of a niche, Amazon could create a cryptocurrency that creates a single portal for global commerce and delights customers. If implemented correctly, it’s possible to imagine that an Amazon Token (let’s call it AMZN) could become the world’s first global currency and trillion-dollar protocol.
There are many ways that Amazon could implement the AMZN token and varying degrees by which that token could become embedded in the Amazon economy. In this example, keeping in mind that Amazon’s vision is to be accessible for everyone, let’s assume that all products and services offered by Amazon will be available to everyone in the world, but that they must be paid for in the AMZN token. In other words, the AMZN token unlocks the door to the Amazon platform.
Users will not be forced to use any of Amazon’s services, but rather, they will choose to use AMZN Tokens because Amazon offers the cheapest and “best” products and services.
For this example to work, we’ll also assume: Amazon will create a mobile application and web-version of their AMZN Token wallet, allowing users to store their AMZN token securely and send/receive it efficiently, and that Amazon will facilitate and maintain an underlying exchange so that users can purchase AMZN tokens on a secondary market.
Type of Token
Depending on Amazon’s interests (and on the way that the various regulatory issues with cryptocurrencies and utility tokens get resolved), there are various types of token that they could consider when architecting the AMZN Token.
A Utility-Based Token
The AMZN Token will serve as a medium of exchange on any Amazon platform, while also unlocking additional utility (benefits) that fiat currency cannot.
In this case, Amazon would set a date after which it would no longer accept fiat currency on any of their platforms. The company could leverage its behemoth network effect and immediately onboard their 80 million plus Prime users. Small quantities of AMZN tokens could be “air dropped” or placed in Prime users’ wallets for free, to speed up the onboarding process.
Once the change to the AMZN cryptocurrency is made, the only difference to Amazon platforms is that all transactions on all Amazon platforms are occurring in AMZN tokens, rather than in local fiat currencies. Amazon stock will continue to operate as usual.
A Hybrid Token
The AMZN Token will be a hybrid between a security and utility-based token, unlocking additional benefits that fiat currency cannot and entitling token holders to Amazon’s future cash flows, similar to a stock.
The hybrid token model requires a larger tolerance for risk but could potentially obviate the need for reliance on financial intermediaries in the future.
Using the AMZN Token to consume goods and services within the Amazon ecosystem is an audacious thought, but what about using the AMZN Token to replace the existing concept of shareholder value? If backed by Amazon’s Free Cash Flow, the Token begins to resemble the characteristics of a traditional equity security, enabling fractional ownership in the company.
Now, token holders are not just speculators, but actual consumers and owners of the Amazon ecosystem. Hoarding tokens and hoping to benefit from speculators driving up the price is no longer a viable strategy. Instead, spending the tokens actually drives tangible value to all participants — more sales should ultimately lead to more free cash flow.
Taken to its extreme, the usefulness of the traditional public market becomes questionable as Amazon has the ability to raise capital through token sales, manage the Amazon Token exchange, and directly link beneficial outcomes for both consumers and shareholders. Amazon could even pay employees –– anyone from a warehouse worker to CFO –– in their Amazon Token. Should other companies decide to follow suit, there will be major implications for financial markets.
Life With the AMZN Token in 2050
Now consider the case of Oscar, a 25-year-old Seattle resident who represents a regular first-world citizen in 2050.
His healthcare is covered by Amazon Health; he shops at Whole Foods; he streams Nicolas Cage on Amazon Video; he shops on Amazon.com; his personal savings are managed by the robo-advisors at Amazon Bank; he stores his data on Amazon Web Services; and Amazon Alexa manages his apartment while he’s at work.
Last week, Oscar travelled to Japan for work using tickets he purchased with AMZN tokens. While he was in Japan, he didn’t have to worry about any annoying foreign transaction fees or hassles with currency conversion –– his hotel, local merchants and restaurants all accepted AMZN tokens. Even the last-minute Prime delivery of snacks he ordered to his hotel were paid for in AMZN tokens.
Oscar rarely spends fiat currency –– he doesn’t have to. Even his favorite local shops and farmers’ markets accept Amazon tokens. Thankfully, the Amazon Bank program also helps him earn 3 percent interest on his savings every year by “staking” his unused tokens and paying back interest after projects are complete. For example, the robo-advisor algorithm allocated some of Oscar’s tokens to finance a 6-month process to build an Amazon warehouse in Jakarta, Indonesia. Once the warehouse was finished, Oscar’s “staked” tokens were returned to him with 3 percent interest. He is happy that his AMZN tokens helped contribute to the global marketplace and indirectly provided jobs for employees in Jakarta.
Nobody is forcing Oscar to use Amazon services, he chooses to utilize Amazon for everything because he loves it –– it is the “best” and cheapest option for every product and service he needs.
FAQ & Implications
This idealized vision for the AMZN Token is great, but there are many questions the company would have to answer before the AMZN Token can become a universal cryptocurrency and medium of exchange.
- Token Velocity: How will Amazon make sure that users are actively spending the token? Otherwise, as price of the AMZN token appreciates, users might hoard the token, which will continue driving price upwards. If customers don’t spend the AMZN token, it will become a store of value, rather than a medium of exchange. However, this problem should be alleviated if all AMZN services are priced in AMZN tokens, as it would be the only way to access the network.
- Dynamic Pricing: How will Amazon price their services across the world? One way could be to dynamically peg the price of AMZN services to local fiat prices. For example, a baguette from a Whole Foods in the United States could be priced at $1. If one AMZN token is worth $1, then the baguette would cost 1 AMZN token. If one AMZN token is worth $10, then the baguette would cost 0.1 AMZN Token.
- Fiduciary Duty: Is the Amazon corporation responsible for ensuring that their token holder’s AMZN tokens appreciate in value? Does Amazon properly align incentives between consumers and the corporation?
- Outside Speculation: If the AMZN token is tradeable on secondary markets, will the price become too volatile for consumers?
- Token Economics: How many AMZN tokens should Amazon issue? Should they issue a fixed amount of tokens? How will Amazon enact monetary policy?
- Macroeconomic Implications: The AMZN Token could cause inflation rates in local fiat currencies to rise. U.S Federal Reserve Chairman Jerome Powell recently shared that he believes Amazon and e-commerce have helped keep prices and inflation lower in the past decade. Should Amazon decide to take its 44 percent share of all U.S. e-commerce, the dollar’s inflation rate could be affected.
This is a guest post by Erik Kuebler. The opinions expressed are his own and do not necessarily reflect those of BTC Media or Bitcoin Magazine. The author does not have a relationship with Amazon.com.