From: stewarts@ix.netcom.com
Date: Mon, 25 Nov 1996 12:24:14 -0800 (PST)
To: Clay Olbon II <clay.olbon@dynetics.com>
Subject: Re: Pyramid schemes and cryptoanarchy
Message-ID: <1.5.4.32.19961125201114.003a831c@popd.ix.netcom.com>
MIME-Version: 1.0
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At 11:23 AM 11/10/96 -0500, clay.olbon@dynetics.com wrote:
>It seems that pyramid scheme spamming has increased of late (if that is
>possible!).  In my lifetime, I can only remember a single snail-mail
>instance of a pyramid scheme - over the net it is an entirely different
>story (although the number of instances is probably proportional to the
>number of lists I subsribe to).  With fully anonymous digital cash will come
>the ability to develop untraceable pyramid schemes.  As a staunch believer
>in the free market, I find laws against these schemes distasteful, quite
>hypocrytical (i.e. Social Security), and soon to be unenforceable.

Aside from illegality, snail-mail pyramid spamming is rare because it costs
enough money per piece of mail that it's hard to make money given the
fraction of recipients who are both suckers and not too lazy to respond.
Email, on the other hand, is cheap, and sending large quantities is easy.
So you can expect to see a lot more email pyramid spamming, and electronic
money, whether digicash or traceable, will make it more popular.

On the other hand, I don't see anonymity helping it much - to the extent
that the public understands it, they'll realize that the people higher
up on the pyramid may all be tentacles, and they've got to mail out 
an address that's "theirs" to collect any money from lower-down suckers.
Dealing with complexity tends to encourage clues, or at least delay,
which is death for most pyramid scams.  Pyramid schemes benefit more from
traceable cash and non-anonymous suckers who can be targeted for later scams.

Multi-level marketing reacts interestingly with the Internet.
Where it's relatively legitimate, rather than a scam, it's a scaleable way 
for a company to hire a bunch of sales people that grows about as fast as the
sales of the product, who don't have to be paid if sales drop off,
and pay for advertising through sales people and word-of-mouth rather than 
expensive broadcasting.  The Internet and electronic communication in general
encourage small, flexible niche businesses that grow, sell stuff, and close.
So MLM is useful for them, especially if their product is physical stuff
rather than bits, and lower transaction costs make it easier to pay
the sales people (either anonymously or taxably....)

On the other hand, lower transaction costs make it easy to broadcast and
deliver information to potential customers and deliver stuff by NextDayAir,
and of course you can deliver bits for almost-free.  So MLM probably won't
work well for commodities with competing suppliers, like phone cards, soap, 
and high-tech motor oil, but may survive for products where personal
recommendations are important, like Super Blue-Green Algae and Smart Drugs, 
(where the sales rep and customer know each other and anonymity at most
keeps out greedy tax collectors and meddling FDA censors)
or where the sales person performs some useful part of the process,
like made-to-measure lingerie or direct personal loan collections.



#			Thanks;  Bill
# Bill Stewart, +1-415-442-2215 stewarts@ix.netcom.com
# You can get PGP outside the US at ftp.ox.ac.uk
#     (If this is posted to cypherpunks, I'm currently lurking from fcpunx,
#     so please Cc: me on replies.  Thanks.)