Business Sphere

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Part I

As an economist-blogger member of Entrecard, I cannot help but blog about the economics of inflation and propose solutions to help solve the problem of inflation in Entrecard’s virtual credit economy.

On August 24, 2009 or just five days ago, Cindy Ung, Entrecard’s director of Business Development, has officially announced in the Entrecard blog a very radical and “huge change” that has created widespread controversy in the EC blogging community.

What is this radical announcement that continues to be the talk of the town in the Entrecard (EC) community?

This is the policy of changing the present system of earning credits via dropping. Where currently Entrecard is awarding 2 Entrecredits (ec) for each drop, 1 ec to the dropper and 1 ec to the site owner, effective September 1, 2009, only 1 ec will be given to the dropper, and no more to the site owner.

In her own words, Cindy Ung explains the reason as follows:

“We have noticed that the total number of Entrecard credits in the system has grown rapidly.  This has been due to the fact that more credits are being created than credits are leaving the system.  If this inflation continues, Entrecard credits will be worth less and less. To ensure a stable credit economy and reduce the outstanding credits, Entrecard will no longer give Entrecard credits to the person receiving a drop.”

What is inflation? Put simply, inflation is defined as the rising in the general level of prices. It is an increase in the supply of currency or credit relative to the availability of goods and services, resulting in higher prices and a decrease in the purchasing power of money.

Inflation is a fact of life. It is inevitable in any economy, and Entrecard recognizes the fact that it is having a problem of inflation now.

Is inflation good or bad? To some extent, it is healthy, for it encourages business and provide impetus for striving for full employment, e.g. for dropping the maximum 300 cards a day to earn higher  credits (Entrecredits or ec, which is the virtual currency in Entrecard).

However, inflation becomes an economic evil when it is excessive and unanticipated, like what is happening in the EC today, “where more credits are being created than credits are leaving the system”, as Cindy said.

How do the members earn credits in Entrecards?  At present there are various ways, as follows:

a.       Credit for dropping your card – 1 ec

b.      Credit for receiving a drop       – 1 ec

c.       Publishing a blog post              – 25 ec

d.      Accepting and running an ad from the other members.

While the above methods make earning credits easy, it is no wonder that this also lead to inflation, where there are more credits being created daily than credits being spend.

Its effect on Entrecard is that it has decreased the monetary value of the credits or the ec.

To combat inflation, Entrecard has been imposing a tax rate of 75% for running an advert from other members.

Since  August 12, 2009 Entrecard has terminated the awarding of 25 credits for publishing a blog post, saying that there was a bug in their software so it has temporarily disabled it until further notice.

And now comes the controversial announcement that effective September 1, 2009, it will no longer give 1 ec to members receiving a drop.

Because of inflation and since the main purpose of the credits or ec is to pay for advertising on the blogs, it makes the advertising value of the blogs less and less.

To be continued in my next post: Proposal To Solving Entrecard Inflation And Attain Stable Economy