Bitcoin: The next rewards-based economy?

Cryptocurrency advocates are cheering on the adoption of bitcoin by merchants. You can now buy everything from online dating accounts to a pint and a pie using the system. But could bitcoin also be the next basis for company rewards programs, targeting both employees and consumers?

Recognize

, an employee reward system that includes a mobile app, has announced that it is considering support for bitcoins as a form of monetary reward for workers. Yet, at the same time, it argues that cash rewards are less productive than non-cash rewards. So, why consider bitcoin as part of an employee reward system?

Employee rewards have a lot in common with gamification systems, which use game-like concepts to motivate employees and improve performance. But gamification theorists have long disparaged the idea of simply paying employees more money to excel at certain goals.

"Tangible rewards like money can lead to disengagement," warns Mario Herger, who designs enterprise gamification schemes, and is the CEO of the Austrian Innovation Center in Silicon Valley. Money may be financially beneficial, but it doesn't necessarily encourage engagement. "There are a lot of scientific examples where giving people money rewards other than salary means that people are interested in going the last mile." (You can find one of them here, if you fancy some light bedtime reading).

This is why many gamification systems in the enterprise use points as the basis for motivation. Points and badges alone won't motivate employees (in fact, they may feel patronized by them in some cases). But when those points are tied to intangible rewards that have real world relevance, they can be powerful incentives, argues Gabe Zichermann, founder of Gamification Corp., which gathers gamification news and resources.

"It's about status and recognition," Zichermann says, adding that points and badges awarded for going the extra mile take on huge meaning when they become redeemable for something that employees truly care about. "They are giving meaningful virtual rewards for exceptional work," he says, describing companies that adopt this approach. "They deliver what employees and consumers actually want, which is emotional reward."

What does that look like? An intangible benefit could be the chance to trade in points for lunch with the president of the company, for example, or perhaps even upgrading to a corner office. Or perhaps you simply get to display your point score on a company scoreboard, or use it as capital to unlock certain areas on an internal social network.

That's not to say that employees don't like something with monetary value, though – we could all do with a few extra bucks in our pockets. So where does bitcoin come in?

Bitcoin is a strange mix of both money and points, argues Alex Grande, founder of Recognize. "Research has shown that cash rewards can lower people's internal motivation to complete tasks," he agrees. "But at the same time in a workplace, people really like money. To find a middle ground, we can offer points or bitcoins in an attempt to shield people from losing motivation."

Bitcoins attraction is that it straddles both worlds, Zichermann agrees. On the one hand, it is redeemable for fiat currency. On the other, it is abstract enough – separated enough from fiat currency – to be used as a points system in its own right. This gives it merit both as a unit of currency for gamification, and as an easy gateway to traditional cash. In short, says Zichermann: "Bitcoin is interesting, because it's both money, and not money."

Altcurrencies enable companies to walk a fine line between offering something loftier than money as a reward for good performance, while also offering something spendable. "It's a shared delusion," says Zichermann," where everyone comes out ahead because psychologically, employees don't know the monetary value. And companies have to keep that abstract."

This obfuscation enables an altcurrency to jump between two roles, as money used for tangible goods, and a currency used for intangible rewards. Those two things are normally best kept apart, because you don't want to sully one with the other. You can pay for lunch with the president of the company using points that you earned by performing well at your job, but cash is awkward. "Lunch with the president is worth $50? That's a problem," Zichermann says.

Another benefit of a reward system that can hop between abstract points and hard cash is the appeal to different kinds of workers in a company, who may have different motivations. It may be an overgeneralization, but executives in a company may be less interested in physical goods such as a new iPad or an Xbox than blue-collar workers, Zichermann suggests, whereas they may be excited by the prospect of ranking higher in the corporate hierarchy, or getting privileged access to a motivational event. On the other hand, Larry in the warehouse may not really care about having lunch with the head honcho, but he might really want a new stereo system.

This portability extends beyond internal company economies, and creates the potential for employee incentive programs to bridge with, say, customer loyalty programs from third party companies. If customer loyalty programs began supporting bitcoin, then it could become a means of porting value between the programs.

Why would companies operating points-based customer loyalty programs want this to happen? One of the biggest problems for any points-based program is that they can be hard to sustain economically. They can suffer from inflation, meaning that the number of points needed for a reward goes up over time. There’s an example here, and another here.

“By being more convertible, you’d create more opportunities for deflation to occur,” Zichermann says. “If you could take points and spend them on a wider array of things, it would keep inflation under control.”

Zichermann speaks to many companies in the incentive program space, both for employees and for customers, and says that there is strong interest in using bitcoin as the basis for their loyalty and engagement programs. Patrick Murck, general counsel for the Bitcoin Foundation, came to speak at Gamification Corp.'s GSummit conference in San Francisco this year. The likes of Murck speaking at a gamification and employee incentive conference indicates the potential for a crossover between both internal and external incentive programs, and the cryptocurrency world.

Would companies running their own non-interchangeable points reward programs want to begin accepting bitcoin? Possibly not. After all, by controlling their own points in a closed system, they get to set the value of a room, or airline flight, for points holders. But if bitcoin makes enough inroads into the employee incentive space, and establishes a foothold in the customer loyalty world, they may not have a choice. Increased portability between other loyalty programs would eventually decrease the attraction of a closed loop system, forcing their hand.

We’re already seeing some interesting developments. Perk, a rewards system that offers points and prizes to consumers when they search and shop using its web browser, is now offering bitcoin rewards, for example.

We have a long way to go before you'll be converting bitcoins earned in one loyalty program into Aeroplan points, but Zichermann believes that over time, the cryptocurrency will eat away at 'walled garden' points programs currently dominating both employee and customer incentive and loyalty schemes. Many may argue that this is unrealistic. But then, they probably said that about bitcoin and gift cards, before Gyft’s deal with BitPay made that a reality, too.