A few thoughts on crypto reward tokens

Wednesday 13 January 2016

Reward tokens are the perfect use case for crypto - but no one’s done it properly yet.

This post originally went out via our newsletter a couple of months back. This is an updated version.

I’m sitting in Starbucks, drinking a steamed coconut milk (it’s late and I value my sleep too much these days for caffeine).

Starbucks run a loyalty system. Pay with the mobile app, linked to your bank card, and you’ll get Stars. Earn enough Stars and you can redeem them for a drink. Simple.

Read also: Why crypto is ideal money

I don’t use it, despite the fact it would probably be worth my while. Why not?

Starbucks

Who are the rewards really intended to reward?

Well, there are a few reasons. One is a passive-aggressive resistance to being forced to download new apps for my phone, and link my debit card to the app, though I could probably overcome that if I had to. But then there’s the nature of the reward token in the first place.

Starbucks’ Star tokens can be used only to buy Starbucks drinks. And they can only be used by you - they’re non-transferrable. And despite the fact that not using the app is costing me a drink every now and again, I don’t like that and won’t use it. It’s not necessary to restrict me like that. It means that everything about this is designed to funnel money and custom up to Starbucks. Sure, I get a ‘free’ drink here and there. But this is fundamentally not about me. It’s about Starbucks. 

So what would my ideal Starbucks loyalty token look like?

Well it’s pretty simple. Very similar, but transferrable.

What benefits would this have?

It means I can send someone a Starbucks drink whenever I want, ideally straight from the app that I would immediately download to my phone. It also instantly opens up a third-party market for Stars. I could buy these at market rates from anyone willing to sell them, on one or other exchange that would no doubt start trading them within a day of the initiative being launched.

So a Star would immediately have market value - value that would approximate to the value of the coffee it represented in any of Starbucks' outlets around the world. It would be a decentralised token, effectively a currency, ‘backed’ by Starbucks’ willingness to redeem it for drinks. (Naturally a blockchain would be a good way to administrate this.) It would, to all intents and purposes, be money. There’s no reason that money couldn’t be used to pay for all kinds of things that Starbucks doesn’t know or care about.

But Starbucks don’t do this. They limit me from using their reward tokens in the way I want to, and in doing so they make it clear that the whole thing is designed very firmly for their benefit. These might be sound commercial decisions, or they might be short-sighted. The jury is out on that, but regardless, I choose not to use it.

It’s clear to me that cryptocurrency offers the perfect use case for reward tokens. They would effectively become private currencies, issued by corporations, small businesses, charities and not-for-profits, backed by whatever economic activity that organisation undertook. We can do so, so much better than the limited, limiting zero-sum thinking we see all the time in the traditional corporate world.

There are several 2.0 platforms that allow you to create coins on top of the existing protocol, saving you the trouble of bootstrapping your own network. There are pros and cons to all of them (such as the requirement to pay fees in the original currency, whether that is bitcoin fees on a token created by Counterparty, or NXT fees on a separate currency hosted on that chain), but no doubt fairly soon the perfect solution will arise. At least one protocol I know of is developing a white label blockchain option: the ability to create a whole new crypto, secured on the original chain, but otherwise fully self-contained. Crypto offers unique opportunities, not just to incentivise customers to spend more money at a particular store but to give them genuine rewards. In fact, to reward everyone involved in the system - merchants, customers, the platform creators itself, holders of the currency, even the wider crypto economy - with a genuine and meaningful token with real monetary value.


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