Before Bitcoin: The Rise and Fall of Flooz E-Currency

iStock
iStock

In the late 1990s, Silicon Valley entrepreneur Spencer Waxman was in Morocco on holiday when he heard an Arabic slang term for money—flooz—that stuck with him. In the dot-com boom taking place back in the United States, URLs with obscure etymology were popular. When Waxman and partner Robert Levitan decided to co-found a novel way of disrupting the online commerce industry, calling it Flooz.com was almost a foregone conclusion.

What Levitan and Waxman envisioned was a virtual gift certificate that would drive business to participating online retailers, give consumers some sense of security over their private information, and make shopping for stubbornly gift-resistant recipients easy. Rather than merely offering cyber currency, this was a service with purpose.

Unfortunately, it was also one that was doomed to fail.

A screen capture of Flooz.com
Flooz.com

Non-cash currency has been with us since the Chinese used cowry shells to sort out debt for goods and services more than 3000 years ago. In the 1960s, credit cards became an alluring alternative to saving and carrying paper bills. When online retailing exploded in the 1990s, it was only natural that startups would begin to explore virtual payment methods.

At the time, digital transactions were perceived by many consumers to be a near-guarantee of identity theft. Handing a card to a vendor in a closed-loop retail environment was one thing, but the thought of hackers seizing their information once it was entered into the borderless environment of the internet kept many away from online shopping.

As it turns out, that paranoia would turn out to be justified in our current climate of constant data breaches. It was also good for businesses hoping to turn their apprehension over credit card security into a monetized solution. Flooz.com debuted in 1999, just one year after another currency-based URL, Beanz.com, had garnered press. Beanz were a kind of earned points system, with approved transactions gifting customers with redeemable gift vouchers. Flooz took a different approach: Customers would sign up to Flooz.com and purchase gift certificates for specific retailers, which they could then use themselves or pass along to a gift recipient via email.

For businesses, it was a way of driving traffic to sites; for consumers, it was a way to keep credit card transactions limited to one vendor; for Flooz.com, being the intermediary meant taking a 15 to 20 percent cut of completed transactions on the selected retail sites, which ranged from Godiva Chocolates to Barnes & Noble and Tower Records.

To help Flooz.com cut through online marketing noise, Levitan enlisted actress Whoopi Goldberg to be their spokesperson. In exchange for company shares and Flooz.com money, Goldberg led an $8 million ad campaign for radio, television, and print that extolled the benefits of using Flooz.com.

Whether it was Goldberg’s pitch or the concept itself, Flooz.com met with a receptive audience. The company debuted in the fall of 1999, and had opened 125,000 accounts by January 2000. That year, roughly $25 million in Flooz.com money was purchased and used. (In a nod to the impenetrable vocabulary of the internet at the time, the media loved to point out that Beanz could be used to purchase Flooz.)

Bolstered by the attention and early success, Flooz.com was eventually able to raise $35 million in venture capital. Consumers could meet their gifting obligations by emailing a code to their gift recipient without having to waste time shopping. For a time, it appeared Flooz.com would become a leading method of payment for online transactions.

Actress and Flooz.com spokesperson Whoopi Goldberg is photographed during a public appearance
Paul Hawthorne/Getty Images

But it didn’t take long for the seams in the Flooz.com model to show. While gifting vouchers to family and friends was convenient for the gifter, the giftee was stuck with a very limited number of vendors that took Flooz.com as payment. If Amazon, for example, had a deal on a DVD or book that Barnes & Noble didn’t, Flooz users were out of luck. Shopping for a bargain wasn’t possible.

The second and most crippling detail was one Flooz.com was forced to make in order to strike deals with vendors. The company guaranteed its transactions, meaning that it would make good on orders even if Flooz dollars had been purchased via fraudulent means. By the summer of 2001, that commitment became a tipping point. Agents from the FBI informed Levitan that they suspected a ring of Russian hackers had purchased $300,000 worth of Flooz in order to launder funds from stolen credit cards.

This created a paralyzing cash flow problem: As their credit card processor withheld funds until Flooz.com could secure the transaction, people were still busy redeeming Flooz dollars they had already spent. Retailers then looked for Flooz.com to reimburse them. Suddenly, customers trying to pay with Flooz were greeted with error messages that the site was down.

Those issues, coupled with the fact that corporate clients had already started to move away from gifting employees with Flooz dollars, forced Flooz.com to file for Chapter 7 bankruptcy in August 2001. Court papers cited almost $14 million in liability. (Beanz.com was also a casualty of the dot-com bust, when participating retailers processing the points steadily went out of business.)

Levitan rebounded, founding the Pando file sharing network and selling it to Microsoft in 2011 for $11 million. Meanwhile, Flooz.com remains a barely-remembered footnote in e-currency, though it would be hard to chart the rise of digital funds like Bitcoin without it. Like with so many other good ideas, timing is everything.

When Y2K Sent Us Into a Digital Depression

iStock.com/Laspi
iStock.com/Laspi

It's hard to pinpoint the exact moment when the paranoia first began to creep in. Sometime during the late 1990s, consumers noticed that their credit cards with expiration dates in the year 2000 were being declined by merchants. Shortly thereafter, people began stocking up on shelf-stable food and water, potentially condemning themselves to months of all-SPAM diets. A number of concerned citizens outside of Toronto, Canada, flocked to the Ark Two Survival Community, a nuclear fallout shelter-turned-bunker comprised of dozens of decommissioned school buses buried several feet below the Earth and protected by a layer of reinforced concrete.

In the months leading into New Year's Day 2000, millions of people steeled themselves for a worst-case scenario of computers succumbing to a programming glitch that would render them useless. Banking institutions might collapse; power grids could shut down. Anarchy would take over. The media had the perfect shorthand for the potential catastrophe: Y2K, for Year 2000. The term was used exhaustively in their coverage of a situation some believed had the potential to become one of the worst man-made disasters in history—if not the collapse of modern civilization as we knew it.

In the end, it was neither. But that doesn't mean it didn't have some far-reaching consequences.

John Koskinen of the President's Council on Y2K Conversion makes a public address
Michael Smith, Getty Images

The anticipatory anxiety of Y2K was rooted in the programs that had been written for the ginormous computers of the late 1960s. In an effort to conserve memory and speed up software, programmers truncated the date system to use two digits for the year instead of four. When the calendar was set to roll over to the year 2000, the belief was that "00" would be a proverbial wrench in the system, with computers unable to decipher 2000 from 1900. Their calculations would be thrown. Using "98" for 1998 was a positive value; using "00" would result in negative equations. How computers would react was based mostly on theories.

That ambiguity was quickly seized upon by two factions: third-party software consultants and doomsday preppers. For the former, rewriting code became a cottage industry, with corporations large and small racing to revise antiquated systems and spending significant amounts of money and manpower in doing so. General Motors estimated the cost of upgrading their systems would be about $626 million. The federal government, which began preparing for possible doom in 1995, ended up with an $8.4 billion bill.

Some of that cost was eaten up by soliciting analyses of the potential problems. The U.S. Department of Energy commissioned a study looking at the potential for problems with the nation's energy supply if computers went haywire. The North American Electric Reliability Council thought the risks were manageable, but cautioned that a single outage could have a domino effect on connected power grids.

As a result, many newspaper stories were a mixture of practical thinking with a disclaimer: More than likely nothing will happen … but if something does happen, we're all screwed.

"Figuring out how seriously to take the Y2K problem is a problem in itself," wrote Leslie Nicholson in the January 17, 1999 edition of the Philadelphia Inquirer. "There is simply no precedent."

Pending economic and societal collapse fueled the second pop-up industry: survivalist suppliers. As people stocked up on canned goods, bottled water, flashlights, and generators, miniature societies like Ark Two began to spring up.

While the panic surrounding Y2K was dismissed by some as unwarranted, there was always fuel to add to the fire. The United States and Russia convened to monitor ballistic missile activity in the event a glitch inadvertently launched a devastating weapon. People were warned checks might bounce and banking institutions could freeze. The Federal Reserve printed $70 billion in cash in case people began hoarding currency. Even the Red Cross chimed in, advising Americans to stock up on supplies. Y2K was being treated like a moderate-category storm.

Adding to the concern was the fact that credible sources were sounding alarms. Edward E. Yardeni, then-chief economist at Deutsche Morgan Grenfell/C.J. Lawrence, predicted that there was a 60 percent chance of a major worldwide recession.

As New Year's Eve 2000 approached, it became clear that Y2K had evolved beyond a software hiccup. Outside of war and natural disasters, it represented one of the few times society seemed poised for a dystopian future. People watched their televisions as clocks hovered close to midnight, waiting to see if their lights would flicker or their landline phones would continue to ring.

A software program is represented by a series of ones and zeroes
iStock.com/alengo

Of course, nothing happened. So many resources had been extended toward the problem that the majority of software-reliant businesses and infrastructures were prepared. There were no power outages, no looting, and no hazards. The only notable event of January 1, 2000 was the reporting of the resignation of Boris Yeltsin and the arrival of Vladimir Putin as Russia's new president.

With the benefit of hindsight, pundits would later observe that much of the Y2K concern was an expression of a more deeply rooted fear of technology. Subconsciously, we may have been primed to recoil at the thought of computers dominating our society to the extent that their failure could have catastrophic consequences.

All told, it's estimated that approximately $100 billion was spent making upgrades to offset any potential issues. To put that into context: South Florida spent $15.5 billion rebuilding after the mass destruction caused by Hurricane Andrew in 1992.

Was it all worth it? Experts seem to think so, citing the expedited upgrades of old software and hardware in federal and corporate environments.

That may be some small comfort to Japan, which could be facing its own version of Y2K in April 2019. That's when Emperor Akihito is expected to abdicate the throne to his son, Naruhito, the first such transition since the dawn of the information age. (Akihito has been in power since January 1989, following the death of his father.) That's significant because the Japanese calendar counts up from the coronation of a new emperor and uses the name of each emperor's era. Akihito's is known as the Heisei era. Naruhito's is not yet named, which means that things could get tricky as the change in leadership—and the need for a calendar update—comes closer.

It's hard to predict what the extent of the country's problems will be as Akihito steps down. If history is any guide, though, it's likely to mean a lot of software upgrades, and possibly some SPAM.

When Mr. Rogers Taught Kids About Mutually Assured Nuclear Destruction

Focus Features
Focus Features

After months of hype, the ABC television network premiered a made-for-TV film titled The Day After on November 20, 1983. Presented with minimal commercial interruption, the two-hour feature illustrated a world in which both the United States and Russia made the cataclysmic decision to launch nuclear missiles. The blasts wiped a small town off the face of the Earth; the few who did survive writhed in pain, with their skin hanging off in clumps.

The imagery was graphic and unsettling, and it was supposed to be. Director Nicholas Meyer wanted to portray the fallout in sober detail. The Day After drew a sizable viewership and was hailed as a responsible use of television in order to educate audiences about the reality of the tension between the world’s superpowers.

In the weeks before the film premiered, though, another prominent broadcast was exploring the same themes. It was intended for young audiences and explored—via the use of puppets—the consequences of international aggression. For five episodes across one week, the threat of nuclear annihilation was looming in Mister Rogers’ Neighborhood.

A nuclear explosion creates a mushroom cloud
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Since its inception on Pittsburgh's WQED in 1968, Mister Rogers’ Neighborhood had informed its young audience about topical issues in subversive and disarming ways. When civil rights were discussed, host Fred Rogers didn’t deliver a lecture about tolerance. Instead, he invited a black friend, Officer Clemmons, to cool off in his inflatable pool, a subtle nod to desegregation. In 1981, Rogers—the subject of this year's critically-acclaimed documentary, Won't You Be My Neighbor?explored the topic of divorce with puppet Patty Barcadi, whose parents had separated. Rogers comforts Prince Tuesday, who frets his own parents might split. Famously, Rogers also explored the subject of individuals with disabilities with the introduction of Jeff Erlanger, who became a quadriplegic at a young age after undergoing spinal surgery to remove a tumor. (Decades later, the two were reunited when Erlanger made a surprise appearance as Rogers was being inducted into the Television Academy Hall of Fame.)

Despite Rogers's history tackling tough topics, there was perhaps no greater a hot-button issue for the children’s show to tackle than nuclear war. Rogers wanted to address what he felt was a growing concern among schoolchildren who processed Cold War headlines and interpreted tensions between Russia and the U.S. as potentially disastrous. (In one survey of classrooms across several major cities, students labeled the possibility of nuclear war “likely.”)

Rogers conceived and taped a five-episode storyline on the subject in the summer of 1983, which wound up being prescient. In November 1983, president Ronald Reagan ordered the invasion of Grenada to topple a Marxist regime.

“Little did I know we would be involved in a worldwide conflict now,” Rogers told the Associated Press. “But that’s all the better because our shows give families an opportunity for communication. If children should hear the news of war, at least they have a handle here, to assist in family communications.”

In the five-part series titled “Conflict,” Rogers again turned to the puppets that populated his Neighborhood of Make-Believe. Provincial ruler King Friday (voiced by Rogers) is handed a “computer read-out” that tips him off to some counterintelligence: Cornflake S. Pecially, ruler of the neighboring land of Southwood, is allegedly making bombs. In a panic, King Friday orders his underlings to do the same, mobilizing efforts to make certain they can match Southwood’s fiery super weapons—even if it means not having the financial resources to care for his people in other ways.

Lady Elaine Fairchilde and Lady Aberlin aren’t quite convinced. Rather than succumb to paranoia, they decide to travel to Southwood to see for themselves. They find its citizens building a bridge, not a bomb. A misunderstanding had almost led to unnecessary violence.

Of course, no mushroom clouds envelop the Neighborhood of Make-Believe, and none of the puppets suffer the devastating effects of radiation poisoning. Rogers wasn’t even claiming the story was necessarily about war, but the prevention of it.

“This show gives us a chance to talk about war, and about how it’s essential that people learn to deal with their feelings and to talk about things and resolve conflicts,” he said.

A publicity photo of Fred Rogers for 'Mr Rogers' Neighborhood'
Getty Images

The episodes sparked conversation in classrooms, where some teachers used the footage to broach the subject. At an elementary school in Venetia, Pennsylvania, students in a third-grade social studies class discussed the consequences of war. “No water” was one response. “Injuries” was another.

Unlike The Day After, which one psychiatrist declared as inappropriate for children under 12, Rogers proved it was possible to provoke conversation without rattling any nerves.

Following their initial run in 1983, the five-part “Conflict” episodes have never been repeated. The close of the 1980s saw a reduction in concerns over nuclear attacks, and it’s possible producers of Mister Rogers’ Neighborhood regarded the shows as dated.

They resurfaced briefly on YouTube in 2017 before vanishing. The series was subsequently uploaded to a Dailymotion video account in 2018. Like The Day After, the shows are an interesting time capsule of an era when the fear of devastating conflict was palpable. For a number of kids who experienced that concern, Mr. Rogers helped frame it in a way they could understand.

“I don’t want this to be a frightening thing,” Rogers said. “I want children to know that war is something we can talk about. Whatever is mentionable is manageable.”

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