Could Amazon's New Virtual Currency Rival Bitcoin?


J.P. Hicks
Blog Tips

Last week Amazon announced a new way for customers to buy and sell goods on its massive online retail platform: a virtual currency called Amazon Coins.
Coming in May, Amazon Coins is a new virtual currency for purchasing apps, games, and in-app items on Kindle Fire. 
Amazon Coins is an easy way for Kindle Fire customers to spend money on developers’ apps in the Amazon Appstore, offering app and game developers another substantial opportunity to drive traffic, downloads and increase monetization even further. 
Amazon will give customers tens of millions of dollars’ worth of Amazon Coins to use on developers’ apps in the Amazon Appstore—apps and games must be submitted and approved by April 25 to be ready when Amazon Coins arrive in customers’ accounts. (Source)
Amazon calls the Coins an important step to create the "most complete end-to-end ecosystem for building, monetizing and marketing their apps and games."



How it Works

Creation: Amazon will issue 10's of millions into circulation for free.
Value: One US cent ($.01) per Coin.
Use: Purchase digital items available for sale on Kindle Fire for US customers.
Exchange: Sales in Coins will automatically convert to dollars for developers.

Although the roll out of Amazon Coins will be limited to US customers and Kindle Fire purchases, it has the potential to become a legitimate international alternative currency. With over $50 billion a year in sales, Amazon is by far the largest online retailer. But it's unclear what Amazon plans to do with the Coins.

There have been several retail companies that have attempted incentive "point" systems to encourage loyalty at their platforms. There have also been a handful of virtual currencies to hit the Internet, mostly in-game currencies to buy virtual upgrades. Yet, there has never been a retailer to offer its own true currency to buy real goods, let alone one as dominant as Amazon.

They have not specified how users will "earn" Coins or how their value will be determined. For this Beta rollout Amazon has been vague, saying it's giving away "tens of millions of dollars' worth" of Coins to its customers, and the value of each Coin will be arbitrarily set at $.01.

Currently the most popular internet-wide virtual currency is Bitcoin. Bitcoin's appeal is that they're not controlled by a central authority, they allow for anonymous transactions thus it is nearly impossible to tax, they can be exchanged for any currency, and the supply is regulated by a complex algorithm that will ultimately result in higher values. However, as popular as it has become, Bitcoin is still not accepted for many retail goods.

That's where Amazon has the upper hand if in fact they have aspirations of making Amazon Coins a viable alternative currency. The fact that they can offer a wide range of goods in exchange for this virtual currency holds incredible power.

"Amazon stands a better chance than anyone else because its customer base uses the company regularly," Yanis Varoufakis an in-game economist for Valve told The Verge. "When entering amazon.com, at least for some people, it is a little like going to a foreign country. If this ‘foreign country’ has its own currency and gives you discounts and various goodies provided you change some money into its currency upon entry, you may well do it."

There has been some confusion about Amazon's motivation for its virtual currency and just how it adds any value besides increasing customer loyalty, if it even does that.

"Anything that’s going to help Android monetize anything at all is good," Kevin Galligan, president of Touch Lab, told The Verge. "But how do you get Coins? They don’t go into that. If you have to buy Coins, then I don’t understand what’s the difference between that and money."

It's clear that they're targeting boosting their app development business, but there are many ways to inject "tens of millions" into a certain area to boost business. Therefore, it seems that Amazon has bigger plans for their Coin scheme.

Most states in America have begun to tax online sales which temporarily dampened business for Amazon. The Coins could conceivably help individual sellers avoid sales taxes if all income remains "in house" in a Coin wallet to be spent only within the Amazon community. So perhaps avoiding taxes is a small part of the motivation.

Even though many customers have grown wary of incentive schemes and it remains unclear how Amazon Coins will add value to its business, if Amazon expands the program to their broader store and establishes a straightforward currency exchange for the Coins, it's possible for them to make a huge impact in the world of online currencies.

Amazon promises to give more details about the currency when they roll them out in May.  Stay tuned.

J.P. Hicks is an entrepreneur, pro blogger, editor of BlogTips.com and author of Secrets to Making Money with a Free Blog. Follow @ Twitter, or like on Facebook and get the FREE ebook SEO For Bloggers.


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9 Respones to "Could Amazon's New Virtual Currency Rival Bitcoin?"

Levon said...

Thank you for sharing this information about Amazon coin.
I do not believe the amazon coin will compete against bitcoin.
One feature of good money is scarfity. Bitcoins are scarce and require an input to "mine" the bitcoin, similar to precious metal commodity money. The Amazon coin, as described above, will be created in an arbitrary volume and given an arbitrary value of $0.01. Amazon coins may be scarce at any temporary moment but there is not a limit to the number that can be created and circulated so scarcity is not guaranteed.
Scarcity is one aspect of sound money. Not scarce in the sense that few exist. Scarce in the sense that man can not counterfeit into existence all that currency units he could want.
Amazon coins are counterfeitable, they are not scarce, they will not be the best form of money.
Bitcoin iin my opinion will be a better money. But bitcoin is money.
Amazon doesnt know what they have yet.


February 13, 2013 at 8:33 AM
Anonymous said...

I have to second what Levon said. The Amazon coin would not really qualify as a currency considering where and how it is crated. When compared to a bitcoin, they are two different worlds. Bitcoins are created from mining using pure processing power that hashes out complex algorithmic problems and awards coins for solving blocks of these problems. As the processing power of the network of participating miners increases, the difficulty of the problems increases to control the amount of coins created. A log of all transactions within the bitcoin network is kept on every mining system and to be sure this log never disappears, the programmer of the system makes you download the entire history of transactions in order to participate in the mining. it is impossible to counterfeit bit coins and this is due to the decentralized nature of the system coupled with the public broadcasting of all transactions in the system. the transaction occur between large strings of random texts known as wallets. The wallet numbers are NOT tied to a name of a person. So this is where you get the anonymity of the system. My money is on bitcoin surviving past any centralized currency. Amazon coin seems like a marketing gimmick more than anything else.


February 13, 2013 at 12:05 PM
Anonymous said...

I agree that what Amazon has proposed SO FAR, is not a currency. However, I agree with the author here, that if they wanted to, they have massive potential to transform these Coins into something much bigger.

PS: I like Bitcoin, but I would LOVE it if Amazon accepted them!


February 13, 2013 at 4:58 PM
Anonymous said...

How silly.
Will Apples ever overtake Oranges?


February 13, 2013 at 5:45 PM
Anonymous said...

We don't know enough about Amazon coins yet to make the comparison. Certainly their platform is big enough to compete with Bitcoin but only if coins are traded outside their platform. The ability to trade them for real goods will give them value instead of an algorithm.

That said, the privacy and decentralized nature of Bitcoins is far more attractive than Amazon pulling the strings.


February 13, 2013 at 6:15 PM
Anonymous said...

I really don't mean to be rude, but the comparison to Bitcoin here is absolutely laughable.

Amazon doesn't have a currency. They have miniature electronic gift cards, which are only useful on their own website. (Target & Wal*Mart will _never_ accept Amazon Coins.)

Amazon determines how many exist and what the valuation is. If Amazon Coins *did* happen to reach a wider adoption, they could literally print their own money.

That said, we already have a private company (the Federal Reserve) who can arbitrarilty print USD and few seem to have a problem with it, so.......


February 14, 2013 at 9:04 AM
JP Hicks said...

Hey all,

Thanks for the comments. I couldn't agree more that Amazon Coins are currently not the same as Bitcoin. However, they intended them to be "gift cards" they would not have called them a currency.

As to spending them at Target and WalMart, you're absolutely right...users would have to convert them to $ first, just like they would for Bitcoins. It remains to be seen if Amazon will create such an exchange.

I LOVE Bitcoin because of the lack of central authority and anonymity. Amazon can never compete with that. However, my article points to the potential of wide use for real goods.

Thanks again for taking the time to comment.

Muhammad Shoaib said...

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March 10, 2013 at 1:38 AM
coinsigner said...

Thank you for sharing like this information. I think that amazon coin will not compete against bitcoin.http://www.coinsigner.com


June 20, 2013 at 10:05 PM

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