Prologue
2016-2017 saw many MLM operations launch claiming to generate and/or trade-in cryptocurrency.
Almost all of them promised fixed returns on the money invested by the investors who in turn could get new investors and earn commissions on the money invested by the new investors and so on and so forth.
They then also added online educational literature, training courses, books etc. to delay exposure of their real intent and being booked under the Prize Chits and Money Circulation (Banning) Act 1978 and other relevant acts which are enforced to punish perpetrators of scams raising money with promises of unreal returns.
Many fizzled out leaving the investors in tatters while a many still continue with challenges but continue to gather more victims who also are the perpetrators. Most of them are listed here or are being examined by the audit team of Strategy India before listing here https://goo.gl/ZyBECi
This article will help to understand the inbuilt risk of associating with MLM operations promoting or claiming to promote or trade in Cryptocurrencies.
Currency Simply Defined
Currency is best defined as an accepted form of money, such as paper notes and coins. Currency is issued by a government and used throughout both national and international economies. Customers utilize currency for purchasing of goods and services while also using it as a way to build an investment portfolio.
Global currency is one that is accepted for trade across the world. Among the world’s top accepted currencies are the American dollar, the Euro, and the Yen. This accepted global currency is also known as a reserve currency.
When a company wants to expand into an international market, one common issue is implementing workable growth strategies. Without acceptance of currency of the nation in which a company wants to operate, business would be difficult to conduct due to the legal and regulatory issues in different countries. It seems simple to just accept different currencies, but it involves many factors. For instance, the company would have to deal with exchange rates, which are constantly fluctuating. Payment management, internal accounting, and security issues can also have an impact. Customers also want to pay using their own currency rather than constantly having to exchange currency in order to do business with a certain company. Without acceptance, individuals would be required to continually have to have different forms of currency on hand, which is not always easy. This is evidence why currency acceptance is so important overall.
Digging Deep into Currency
Most countries have its own type of currency that may or may not be accepted in other countries. Euros, for instance, can be used throughout many different European countries. The US dollar is considered legal currency in other countries also. In fact, it is the declared form of tender in countries such as Panama and El Salvador.
The central bank of a country is charged with issuing money for circulation in an economy. Local currencies are forms of tender that are used for purchasing and trade in a very small area. Any central banking institution does not nationally back them. Local currencies have a history that stems back to before the time of state and national banking institutions. Many local currencies still exist across the globe today. Some local currencies are even IOUs that are traded for a variety of reasons. Acceptability is also inherently important in local currency. Acceptability occurs when money is accepted as a value exchange mechanism. The currency eventually moves from being local currency to national currency the more it is circulated within a population. The more it is accepted, the higher the odds of increased circulation.
Generating New Currency
Physical currency is created at the national mint in a given country. However, that currency must be backed or secured by something; it is otherwise worthless paper. To generate new currency, financial institutions lend money in exchange for interest payments. In fact, over 90 percent of new currency generated is through bank lending.
Banks create money by charging customers to borrow. The currency is not typical of the currency you are familiar with in paper notes and metal coins. Bank currency is simply accounting figures that are kept in the computer that you see when checking your account balances. They are essentially IOUs given to you by the bank in exchange for a promise of payment from you. These electronic IOUs are essentially an electric form of currency created by banks as a substitute for cash.
Currency Generation Without Security
There are no restrictions on printing physical paper money within a government, which often makes people wonder why the government cannot just print as much money as is needed.
The primary reason for this is inflation. Paper notes do not have any value unless they can be exchanged for something of the same value. A piece of paper money is not actually worth its face value but can be exchanged for something of the value on a particular note. For example, a 5 dollar US note is not worth 5 dollars but can be exchanged for an item that is worth that amount. This is why it is considered legal tender and is authorized by law to use it to exchange for goods and services.
When Ownership of Currency is Not Claimed
Cryptocurrency Defined
A cryptocurrency is a digital currency that utilizes cryptography. A benefit of cryptocurrency is the fact that is less likely to be counterfeited because it contains a security feature a unique code and a time stamp. Cryptocurrency is not issued by a bank or central authority. Therefore, it can in no way be manipulated or interfered with by a government.
There are both advantages and disadvantages to the lack of government oversight and cryptocurrency. An obvious advantage is the fact that there are no fees and tedious documentation required associated with using cryptocurrency when it comes to buying and selling it. There are no major rules as to how you obtain your cryptocurrency, and you can spend it willfully in any nation that will accept it as a form of payment. There is also a lack of government surveillance with cryptocurrency, which is ideal if you wish to use it anonymously.
However, the disadvantages are also important to keep in mind. While there is built-in security in cryptocurrency, you are not protected should something happen. If you or the exchanges have a significant hack or computer disaster, you could potentially be out of luck with regard to recovery. Unlike traditional, regulated currency, there are no laws or rules that will guarantee at least a portion of your money will be returned to you.
Digging into Cryptocurrency
Cryptocurrency has an anonymous nature, making any transaction difficult to track. While it has many benefits, it lends itself to some more nefarious acts, such as Scams, Tax evasion or Money laundering.
There are many different cryptocurrencies, most notably Bitcoin. Bitcoin was launched in 2009. There are currently millions of bitcoins being circulated with a value in the billions. Other commonly used cryptocurrencies are Lite coin, Name coin, Ripple, Ethereum, NEM, Ethereum Classic, Dash, Monero and Zcash and PPCoin.
Interestingly, Potcoin, a type of cryptocurrency was introduced especially for transactions between marijuana consumers and dispensaries.
Drawbacks and Benefits of Cryptocurrency
Cryptocurrency has many benefits, particularly making it easier to transfer money in a transaction, which is completed through the use of public and private keys in order to ensure it is secure. The transfers are facilitated with low fees, allowing users to not incur expensive fees charged by traditional financial institutions like banks.
Cryptocurrency utilizes an online ledger of all transactions that are conducted that remains permanently accessible. This provides a solid structure that is not easily infiltrated by hackers, keeping money invested in cryptocurrency quite secure.
One of the downfalls of cryptocurrency is the fact that it is not backed by any central bank, but is rather virtual in nature. If there were any significant crash of a computer without a backup of the holdings, or there are many other ways you can lose the value of money invested in cryptocurrency.
Another drawback of cryptocurrency is that prices are based on supply and demand. Depending on where the transaction takes place, the value or exchange rate of the cryptocurrency can fluctuate high or low. The value of cryptocurrency will also fluctuate regularly, so it can be difficult to always know its exact value.
Hype can inflate or deflate it.
Acceptance of cryptocurrency is also a deciding factor. Obviously, if a company or business entity that offers goods and services do not accept cryptocurrency as a form of payment, there is certainly no way you will be able to invest in or purchase those goods and services without a traditional form of payment.
Theft is another drawback that must be considered. Millions in cryptocurrency have been stolen through hacking in its short history. However, these instances are fairly rare, and many users are willing to take a chance.
Increasing the Value of Cryptocurrency
One common question many potential investors want to know is how cryptocurrency will make them more money. The price of cryptocurrency can increase, but it will highly depend on supply and demand. If more people want to purchase and use cryptocurrency, the price is going to increase. Lower demand for the product will decrease the value. The more people that want to utilize cryptocurrency as a payment resource for transactions, the price will increase.
Increasing the value of cryptocurrency also has to do with investing. New investors that want to invest significantly into cryptocurrency will cause the value to increase. When investors want to sell off his or her cryptocurrency, the price will go down.
Entities That Accept Cryptocurrency
Cryptocurrency is slowly taking over as a used digital currency. Some of The large companies are accepting cryptocurrency especially Bitcoin as a legitimate source of payment. Many products and services can be purchased with this form of currency (especially Bitcoin) due to the easy facilitation and earning of cryptocurrency. Since the value fluctuates up and down, it has the opportunity to help a company during an upswing.
Online companies are also starting to accept cryptocurrency as a legitimate source of payment. Well, known businesses such as Wikipedia, WordPress, and Overstock are some of the largest online businesses and retailers that use cryptocurrency but accept only bitcoins. In addition to online companies, however, there are many brick and mortar stores that also accept cryptocurrency (only bitcoins), including Subway, Dell, and Microsoft.
Direct Selling—What Is It?
Direct selling is the process of promotion and selling products to people in places not inside a fixed brick and mortar establishment. Direct selling typically involves a B2C (business to consumer) selling model.
Direct selling includes a direct selling company, a direct seller who may be a customer and a consumer himself, as well as a customer and a consumer (not a direct seller) to purchase and consume the product. The sellers can earn special incentives/commissions from selling products alone or have the potential to earn commissions on sales effected by the other direct sellers below them in their network. The compensation program deployed to reward multiple generations is known as the Multilevel(MLM) compensation plan.
Direct sellers are those individuals that work independently for a direct selling company with the opportunity to earn commissions for sales. In addition, he or she may have the opportunity to purchase a product at wholesale levels to consume or to resell. They also have the opportunity to build a team of direct sellers who are organized in a genealogy network structure as per the design of the compensation plan, through enrolling additional sellers.
More the sellers, higher the potential of consumption and retail.
Direct selling is also referred to as Network marketing by people who do not understand the intricacies of this business model.
The glossary of commonly used terms (developed by Strategy India) can be seen here https://goo.gl/gh78zZ
MLM operations and Cryptocurrency
Because cryptocurrency cannot be earned through traditional methods, it will need to be purchased using the traditional currency which is widely accepted in the country.
The seller (maybe an investor also) sells the currency to a customer for which he gets a commission from the company (selling/owning/generating the cryptocurrency) or it may also happen that the seller gets commission on the purchase of cryptocurrency by another individual who may have been directly or indirectly introduced by him to purchase or sell the cryptocurrency. In addition to the cryptocurrency or to cover-up the real intention, the seller may be made to sell the mining hardware and educational materials. There is no physical product to purchase, but rather a cloud mining service and the cryptocurrency which may be claimed to be mined by the company or already in existence.
The company promoting cryptocurrency may also offer a fixed return on investment to the investors for investing with them.
Benefits and Potential Risks with Cryptocurrency and MLM/Network Marketing operations
There are risks involved with the combination of MLM operations and cryptocurrency. Because there is no regulating body, there is no centralization of the currency. However, the demand creation for cryptocurrency through MLM may influence financial institutions into treating it as a traditional currency that can be exchanged for money. This will allow for more regulation but will detract from its more attractive features. This is not a certainty but is a possibility with the top 2-3 cryptocurrencies in years to come.
It is, however, important to highlight the possible risks that come along with direct selling of cryptocurrency. For example, what if the MLM operation claims to purchase cryptocurrency on behalf of the investor, yet fails to actually follow through? That leaves the investors out significant amounts of money, but it also paints cryptocurrency in a negative light and possibly even devaluating it.
It is also risky if the MLM operation commits to offer a fixed monthly or yearly return and then fails to fulfill those obligations. This is often the case if the MLM operation never bought/mined/generated the cryptocurrency to resell and instead used the current investor’s cash to pay out earlier investors.
At any point in time, the value of the cryptocurrency can lose value and cause significant losses to investors. The government of any given nation can also declare the use of cryptocurrency illegal and therefore cause unrecoverable loss to the investors. Governments could declare it in a negative product list for direct selling- MLM companies. This will not only cost the investor, but it will also significantly affect the direct sellers since they utilize a Multilevel Marketing (MLM) compensation plan based on his or her own financial future.
MLM compensation plans can also have a hand in causing potential scams if they commit to more payouts than is mathematically possible.
As is evidenced, there is a variety of moving parts with regard to the direct selling of cryptocurrency. The lack of awareness among the public and the determination of the governments along with the innate ability of MLM scams for flying below the radar could become the perfect vehicle to create the perfect setting for international scams that can cost investors trillions of dollars worldwide.
Here are some very important aspects individuals need to know and fully understand before investing in a cryptocurrency business deploying the MLM compensation plans:
- Is the cryptocurrency generated and shown to the investors in their e-wallet, actually mined by the company?
- Does the blockchain really exist with the company?
- If yes, is the blockchain - Public?
Public Blockchain requires more resources for upkeep but is a way to be transparent. If a company runs or claims to run a private Blockchain it is a red flag as there are high chances that the money collected from the investors are not used to buy the cryptocurrency shown to the investors in their e-wallet.
Well, an e-wallet is just figures generated by the company and therefore very easily manipulated by the company.
It is very dangerous in an environment where the company deploys a high paying Multilevel generation (MLM) compensation plan to investors to get new investors. - Last but not the least, ACCEPTANCE of the cryptocurrency is the key Who accepts the cryptocurrency being sold to the investors?
- If it is widely accepted as other currencies like US Dollars, Indian Rupees, Euros, etc. – Then there is HOPE If it is widely accepted are the holders able to get the products/services of the same value if they were to use a legal tender like an Indian Rupee, Euro or a US Dollars?
- If the acceptance is very limited and limited to trading of the cryptocurrency – Then DISASTER is imminent.
CAVEAT: None of the Cryptocurrencies are recognized as a legal tender in India.
