Is Groupon To Bitcoin As Hegel Was To Easter? (Part 1)

Trade with Dave: Is Alexander Herzen contemplating Who Is To Blame for odious debts or illegitimate births? I think I may have just stumbled onto some common ground between Antal Fekete’s New Austrian School of “Real Bills” Economics and Murray Rothbard’s Ludwig von Mises “Regression Theorem” Institute.  How many of you can remember when Ron Paul and Ralph Nader declared that they both discovered common ground?  Dave calls that moment The Comedy of the Garrett Hardin Commons Tragedy.  That model is probably  best exemplified by the revolving door turned quantum duality of libertarian paternalist Cass Sunstein’s Harvard/White House – particle/wave political party known as  The Libertarian Paternalists.

Not to get overly academic or technical, it should probably be mentioned that the late Elinor Ostrom was the first woman to receive the Nobel Prize in Economics and was cited by the Royal Swedish Academy of Sciences “for her analysis of economic governance,” (what Dave calls Gubernetics) because Ostrom showed how common property could be successfully managed by groups using the commons via her 8 Design Principles For Common Pool Resource Management (http://www.cooperationcommons.com/node/361).
Ostrom’s research showed that the commons doesn’t have to end in a Garret Hardin tragedy but rather can operate within the larger framework of a Socio Ecological System (SES) such as forests, fisheries and fresh drinking water reservoirs:
  http://www.sciencemag.org/content/325/5939/419.  Dave’s general view on the subject of sustainability (whether Ostrom or Hardin) is that it leads to a personal development roadblock miraged as a cul de sac where the Karl Marx & neighbors legend lives on and personal accountability is conveniently transferred from the individual to the state (aka the Too Big To Fail economic Gubernet).  Remember that forgiveness is not an existentialist option in the Jean-Paul Satre “No Exit” Subdivision where the boulevard of ideas narrows to a single Toll Brothers McMansion encircled Court clearly marked “No Thru Street.”  I’ve written plenty about that before and I will list the links below.
Ostrom suggested that the prisoner’s dilemma was a game that could be played by choice.  On that issue I agree with her entirely from the single perspective that you can’t imprison the Ghandian mind (any more than you can imprison a “personhood” of a bank’s charter thanks to Citizen’s United vs. FEC so we’ll just fine the corporations a small % fee and let the responsible HSBC drug party launderers go free) as long as the mind can express free will it can choose to ignore the lack of habeas corpus surrounding it in say… a Guantanamo Bay cyclone fenced dog pen.
“You can chain me, you can torture me, you can even destroy this body, but you will never imprison my mind.”   Mahatma Gandhi
For those who prefer to express their liberty and due process both in their minds, their bodies and an NDAA-drone-free sky above them, Dave would disagree with points #7 and #8 specifically where Ostrom expresses community member access to “low-cost conflict resolution mechanisms” (sounds like a drive-thru mini-mart of court referral services formed as a government of “expert” men rather than of laws) and Ostrom’s “multiple layers of nested enterprises” are nothing more than artificial boundaries imposed on what would otherwise be genuine complex adaptive systems.
Think of the set-up as a metaphor of those nested dolls that my grandmother would bring back from her ’round the world cruises.  Ostrom’s ideas were good enough to win half of a $1.44 million prize, so somebody liked them, but to claim that you can “nest” an enterprise and then claim to set those individuals free to manage the commons just doesn’t make common sense to Dave and I know that you can “nest” a complex system.  Yes, you can design a process that isolates the individual from the enterprise through Matryoshka (think 100,00o Euro limits on Cyprian bank account insurance for non-Russians) but  such recursions, in Dave’s opinion, remove the complexity of free will and replace it with the ultra-localized cronyism of some easily accessible arbitrator who stands to pocket a lot more than $722,000 under the table or through the still open during the Fantasy Island bank holiday “leaky” London Laiki Branch so to speak (http://www.zerohedge.com/news/2013-04-01/list-released-132-names-who-pulled-cyprus-deposits-ahead-confiscation-day).

When form follows the function of the matryoshka set. 


Before we delve into the fruits of your labors to raise your “Fair” Isaac credit score (as opposed to “Unfair” Jacob getting Esau’s blessing for a few boiled lentils) as a form of currency, let’s take a step into the third dimension of Credit and Debit which Dave has coined as “The Prebit.”  Pardon me while I explain to you from first-hand experience how using Groupon to buy your Grey Poupon might just plant a mustard seed in your mind as to how the enhanced value of prepaid transactions (such as those that cannot be reversed) are best exemplified by the rising price of a single Bitcoin as the nail being driven into the coffin of the counter-party of bank depositors turned creditors  right in front of your eyes.
Is Groupon a gateway currency to Bitcoin?
I just had my first genuine experience with the power of Groupon from the perspective of the business owner/retailer.  I am involved in a business that did a Groupon promotion.  We had looked at such a promotion a year and a half ago when Groupon consciousness was rising and stories of nail salons being overrun with new customers and cupcake bakeries driven into bankruptcy by excessive low margin sales were the Groupon norm.  At that time we actually attempted to connect with Groupon but due to some algorithm our relatively new start-up didn’t hit their radar.  After reading about all the debacles caused by too much low margin business and no recognition of capacity as a reality, we were thankful that we didn’t waste our time on a promotion that would do nothing but cause distress to the modest yet vested business and further drive up the vacuous value of the Groupon stock price.
A year and a half later it was a different story.  At this point, Groupon was calling us.  They sent a sales rep on a hundred mile drive to come and visit what is essentially a tiny retail start-up.  They liked what they saw enough to feature the business in a major metro area resulting in thousands upon thousands of impressions on their website and an immediate positive impact on the company’s sales and cash flow.  You see Groupon had come around to the reality that they couldn’t take half of the gross revenue from small businesses, especially ones in the food service vertical.  Not only had they dropped their 50/50 split to something like 70/30, they accelerated the cash flow and bank transfers in a such an efficient manner that there was little if any delay in the realization of the costs for increased sales and the money being wired into the company’s account directly from Groupon.  Problem solved.

We have sent 147,552 emails promoting your deal to Groupon subscribers.

There was even this real quirky event because we offered three or four different promotions and one of them involved a punch card for five store visits.  The promotion launched before we had the punch cards printed and when we looked back at the meeting notes and we saw that Groupon had said they would provide the punch cards.  Having over thirty years experience in retail operations, I proclaimed “There’s no way we’re going to get actual punch cards from Groupon” and my declaration was meet by three or four days of staff sending emails to Groupon and leaving unanswered voice mails while I took it upon myself to create some temporary punch cards to deal with the onslaught of new customers.
I was eating my words and the paper those temporary cards were printed on when we got a phone call and a Fedex package the next day from Groupon that included a copious supply of custom printed punch cards and an actual call back from the sales rep who said “We’ve never actually done a punch card like that before… you were the first.”  Although I found that hard to believe at first, based on how it went down I think it was probably true, but I digress.
About the same time I was doing the analysis of the overall lifetime value of the new customer acquisitions and how it appeared that for every $1 dollar invested in Groupon we were getting $5 back within the first 12 – 18 months I really started to take notice of what was going on and all I can say is that there was some very unique implied validation that a small start-up business being featured and associated with Groupon (which appears to the consumer as an instant establishment) motivates buyers to step across the threshold of a business that they may otherwise have never darkened the door of.  The cost ratios for this benefit were probably the lowest I have ever seen in what is a thirty-six year business career.
One of the things I really took notice of was the “currency” aspects that the Groupon coupons seemed to take on in the eyes of smart phone carrying participants and this is what motivated me to write this article – alternative currencies.  The mostly new customers would either eagerly present their paper-based bar code bearing Groupon coupons or their smart phone screen displaying the Groupon glyph.  The low rate of friction in the redemption process was impressive and took Dave straight to a real world experience of “The Coincinet” that I had been writing about since February of 2011.
On the same day that I started to take Groupon seriously as a vehicle for social change and a gateway drug to Bitcoin (via the Coincinet) was the same day that Groupon CEO Andrew Mason was relieved of his duties.  That definitely fell into the category of “Things that make Dave go hmmmm?”  Is it possible that a little bit too much of the reality of$5 to Dave and $1 to Andrew (times a hundred thousand Groupon merchants) made  its way to the boardroom. Although Groupon had been the poster child of ponzi schemes Dave knew that something had changed and that issues relating to capacity management and revenue share appeared to be resolved if not overly beneficial to the retailer.  All the while, at least from Dave’s perspective, most all of the costs of doing business and the lion’s share of the risks, even down to the punch cards, now rested on the Groupon side of the equation.
At the point that the retail operations staff had all simply downloaded the merchant scanning app to their own smart phones and were easily using it to process the redemptions on behalf of the company and our point-of-sale system was capturing the sales information while Groupon was putting the money directly into the company’s account what more was there to love about Andrew Mason’s invention.  Throw in an 85% positive feedback rate from active redemptions and only 71% actually redeemed their coupons before the discount expired and you come pretty close to wiping out the $1 cost per new customer acquisition as quickly as they wiped out Andrew’s job as CEO.

What does Groupon have to do with “Bitcon” (as Karl Denninger refers to Bitcoin) and what is Dave’s Coincinet exactly? 

The Coincinet looks like Square Wallet when you use it at Starbucks and they scan your phone or when we scanned your Groupon, but there’s a key difference and has to do with the escrow.  In the Coincinet you are redeeming against a prepaid model just like when you got to Wal-mart and buy a Green Dot card, put a MoneyPak deposit on it… “Transactions cannot be reversed.”  The same concept applies to American Express new Blue Bird card which is also a Wal-Mart product.  Not only did we receive 80% of the initial sales that Groupon made on the front end in the form of a cash bank deposit long before the majority of the customers had ever redeemed their Groupon coupons, the customer’s only counter-party was a local business that was well within what Dave refers to as “choking distance” creating the dual comfort of Groupon validation and small town charm.
It’s one thing to be owed money by somebody you’ve never met on E-bay and it’s another thing when a local small business owes you product that is prepaid.  It’s worthy to note that even after the discount expires the original purchase value of the Groupon stays in place indefinitely… at least I think so.  Clearly people buy the Groupons as a bit of an adventure to motivate them to try out a new business that they may never have experienced, but more importantly the Groupon validates the business in the mind of a less adventuresome non-early adopter.  Back to the Coincinet.
Anytime you use low friction technology such as Square Wallet at Starbucks or Groupon you’re doing 1/2 the work that is required to reverse Gresham’s law.  You know that’s the law that when it’s moving forward causes you to throw your wheat pennies and silver pre-1965 dimes into a special jar on your dresser.  As Dave has written many times before and explained exactly one year ago when I detailed the Rothschild focus on “money as a technology” meme (http://tradewithdave.com/?p=9772 and http://tradewithdave.com/?p=9629) the law (Gresham’s that is) has been in forward gear for a long time.   If you looked at a chart of the price of gold over the last three weeks and the price of a Bitcoin you might think Dave was onto something as Gresham appears to be backing up like one of those James Bond car races where the Aston Martin goes faster in reverse than it does in forwards.
But there’s another 1/2 to The Coincinet that goes beyond the reduction in friction that’s required to reverse Gresham’s law and that’s the elimination of out of reach counter-parties through the assignment of escrow entirely or at least bringing it within choking distance.  Choking distance is when your brother-in-law owes you $5 grand or your neighbor owes you a new chainsaw blade.  It’s one thing to lose money to a leaky Troika at Laiki Bank in Cyprus or to be MF’d by Global elites like Jon Corzine or even losing your fly-by-Knight Capital unexpectedly.  It’s another thing to be able to drive down the road and collect… the old fashioned way and I’m not talking John Houseman TV commercials for Smith Barney fashion, more like old Smith & Wesson fashion (http://tradewithdave.com/?p=11327).
It’s when you combine the low friction with the high escrow inherent within the Prebit model that you have the full effect of the Coincinet.  Here are eight articles on “The Prebit” but suffice it to say that you can only have a Prebit if you first have a Debit and a Credit (http://tradewithdave.com/?s=prebit).  In a triple entry accounting model as expressed in the Bitcoin blockchain a public record of all transactions with no counterparty except a flash drive that’s “gotta be around here somewhere” with your $100+ bitcoins on it, you have the Coincinet with one exception.  Bitcoin transactions cannot be processed quickly enough at the point-of-sale to be functional in a retail environment.  That’s where Ripple (or Groupon) will come in and provide the type of front end that you see with Square Wallet but by disconnecting The Fed (i.e. JP Morgan) from being able to artificially suppress the price of gold and instead drive gold out of hiding and back into the system as the fractional reserve backing of an entirely new form of currency.
With Jack Dorsey’s Square Wallet you’re using the conventional Master Card and Visa network which is reflected in the high merchant fees and discount rates associated with their model (even with Howard Schultz full support).  With Groupon those costs are somewhat bypassed because Groupon is the only one processing customer credit cards and their discount rate is quite low due to the concentrated volume unlike Square Wallet’s distributed volume.  However in a genuine Prebit model you could by-pass the entire credit card system once a reasonable escrow arrangement is made and a high speed utility such as Ripple (functioning like a MasterCard/Visa acceptance network) is configured as a front-end for Bitcoin (functioning like a wholesale back-end version of the Federal Reserve System).  If you can’t process a transaction at the point of sale in 2-3 seconds then you can’t play and I can’t see Bitcoin ever being able to do that, but it doesn’t need to.
Could Groupon simply morph into a form of currency that merchants agree to accept in exchange for paying to have access to an escrow account.  In other words, a retailer “joins” Groupon Generic Currency by paying a $800 fee to be in the acceptance network and then Groupon turns around escrows $200 to that Merchant?  That’s essentially what they did for our business, with the exception of the scarcity aspect of the timing of the coupon promotion.  I’m not kidding myself that if they remove the scarcity aspect of the coupon discount offer that much of the motivation would be gone (and the 33% of worthless customers… if there is such a thing), but at the same time what is the value of being able to bypass the entire MC/Visa/Discover/Amex infrastructure.  If Groupon was front-ending Bitcoin (or Ripple front-ending Bitcoin) there are considerable motivations for accessing the rapidly growing treasure trove of bitcoin millionaires who may want to part with some of their new found wealth in the same way that Dwolla is dis-intermediating Paypal in the conventional Fed-sphere through lower operating costs.
There are numerous ways to continue to promote “couponing” while also moving away from the scarcity paradigm of a limited time frame for usage or limited availability of quantity.  You could do “time of day” as a peak capacity management strategy or a weather-related promotion (rain or snow) or the increasingly common “day of the week” promotions such as my wife religiously getting her gas at Shell on Thursdays and receiving 5 cents off per gallon.  The promotions could be tied to excess capacity such as Priceline did for flights and hotel rooms.  With a Bitcoin-backed Groupon-fronted form of reversed Gresham low-friction currency the virtual currency actually become a store of rising wealth at least until the blockchain forks again or some bizarre coalition controlling 51% of the outstanding Bitcoin goes rogue on you and follows the fork leaving 49% holding the bag.  There’s even the possibility of a Groupon becoming a trading currency in its own right and not even linked to dollars.  Think of it as Cypriat-serialized Euros, you know, that can only be traded within a particular network.  Maybe Andrew Mason is planning to be the Mt. Gox of Groupon Forex, then again maybe Sir Evelyn is planning to offer a fractional gold backing to the next fork that Bitcoin takes.

I know it sounds nuts, but who would have ever thought you could trade 4 silver eagles for one Bitcoin?  I’ll still take the Eagles as a hedge against the Bitcoins dollar for dollar.  

(to be continued…Is Bitcoin a genuine complex adaptive system or just a 3-D novelty and what does Max Keiser’s association of Bitcoin with Jesus Christ actually have to do with the historical reference to the Hegelian Dialectic?)

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