Over the past year I’ve been asked my thoughts about ‘loyalty points on blockchains’ many times. The thinking seems to be bitcoin -> digital currency -> digital tokens -> loyalty points and at first pass it feels like a natural extension of a theme. People read about cryptocurrency trading and interoperability then think “Wouldn’t it be really cool if I could exchange my loyalty points for other ones, or if I could buy and sell them with real money?”.
This post attempts to describe how I understand the purpose of loyalty points, and in this context, how applicable blockchains are as a technical solution.
I enjoyed listening to episode 107 of the podcast “Epicenter Bitcoin” where Gideon Greenspan, CEO and Founder of Coin Sciences was interviewed about MultiChain. Gideon also writes a great blog. Here are my notes on parts of the podcast that I found particularly interesting. Misunderstandings and paraphrasing errors are mine.
Note: The term ‘miner’ is used frequently in the podcast but I try to refer to them here as block-makers or block-adders.
This gets fairly technical; if this is hard to follow, it may be helpful to read my introductions to blockchains, bitcoin, digital tokens, and smart contracts first.
Important note: If you own more than $1,000 worth of cryptocurrency then you should definitely be using a hardware wallet instead of keeping coins on exchanges. I recommend a Trezor which you can buy for €89 directly from their website.
Digital tokens have come to the fore recently, firstly with excitement about cryptocurrencies such as bitcoin, then with digital tokens being used to represent different assets on a blockchain. What are they? How can you digitise a token? Why is it important?
When I hear the word ‘token’ I think of round plastic things like a casino chip, or something which I can use to exchange for a beer under a specific system or in a specific marketplace.
My idea of tokens.
We will explore the original usage of the phrase ‘digital token’, then take a look into the world of cryptocurrency tokens, differentiating between blockchain-native tokens like BTC on Bitcoin or ETH on Ethereum, and asset-backed tokens like IOUs on Ripple.