Building Gift Cards 2.0 On The Block Chain - Guillaume Lebleu - Medium
Building Gift Cards 2.0 On The Block Chain - Guillaume Lebleu - Medium
Building Gift Cards 2.0 On The Block Chain - Guillaume Lebleu - Medium
The stats say they’re good for business, too. According to CEB, 65% of
consumers spend 38% more than the face value of their gift cards.
• A 16–19 digit card number printed on the front or back of the card
and encoded on the magnetic stripe. It’s usually enough info to re-
deem the value on the card.
Digital gift cards are essentially these codes without the plastic.
Where do the codes come from? The codes are typically generated by
the issuing merchant’s gift card processor and transmitted in electronic
form through secure channels to distributors who may print them on
cards for sale at retailers, or further transmitted in digital form to ag-
gregators and resellers (Gyft is one), until they end up in the hands of
a buyer and ultimately the gift card recipient. From the moment these
two codes are issued to the moment they are redeemed, these numbers
never change.
Each party in this chain of exchanges must be trusted to keep the codes
safe from thieves. Unfortunately, gift card codes do get compromised,
which results in a bad customer experience and financial loss for the
issuing retailer. Retailers themselves estimate that 62 percent of gift
card losses are attributable to dishonest employees and 13 percent to
counterfeit or skimmed cards.
I’ll start with addresses, then explain transactions, then the block chain.
Addresses
A fairly accurate metaphor for a single Bitcoin address is a transparent
public lockbox.
It’s public and transparent, meaning anyone can see how many bitcoins
are received or sent from it, and anyone with the public address may
send bitcoins to it.
While it is possible to have a single Bitcoin address to send or receive
money from, it is not desirable. Remember, the lockbox is transparent
so anyone can just watch money coming in and money coming out. If
for any reason your address is linked to your identity, someone would
know everything about your related transactions, which may disclose
such private information as your income and expenses. In other words,
addresses are how you leak or control your privacy on Bitcoin.
To protect one’s privacy, the best practice is then to generate and use
new addresses for each transaction. For instance, when sending bit-
coins from one of your addresses to a merchant’s address, the unsent —
also called unspent portion — of the bitcoins would be sent to a brand
new address called a change address. Conversely, when receiving bit-
coins, the receiver can protect its privacy by providing the sender with
a brand new receiving address for each new transaction.
Wallets
Wallets are best viewed as a software or service that provides secure ac-
cess to the public addresses and corresponding private keys you own.
Wallets hide the complexity of dealing with many addresses. Instead,
they show the sum of all the unspent addresses that it has the private
keys of.
Transactions
To stick to the public lockbox metaphor, a Bitcoin transaction starts
with requesting the recipients’ lockbox address, unlocking the lockbox
and transferring the bitcoins to the recipient’s lockbox, like slipping an
envelope into a locked mailbox.
The beauty of this push model is that the private key required to unlock
the bitcoins at the recipient’s address does not have to be disclosed to
the sender.
The block chain, the chain of blocks of Bitcoin transactions, showing confirmed blocks and a new
unconfirmed block
Gyft Block leverages several open protocols to issue gift card assets on
the Bitcoin block chain.
While it doesn’t seem much, 40 bytes are plenty to add an entirely sepa-
rate layer of meaning and value to existing Bitcoin transactions’ inputs
& outputs.
For instance, we can record issuance and transfers of gift cards of a par-
ticular issuer.
How do we know that this is a gift card asset and that 5000 really
means $50.00? The answer is in the asset definition file attached to the
first issuance transaction of the particular asset (or just kept off-chain
in a private database for privacy).
The Open Assets Protocol defines a basic set of parameters for assets. A
number of additional fields have been added to cater to the unique re-
quirements of store-issued prepaid cards, a.k.a. gift cards.
Below is a sample gift card asset definition file:
{
"asset_ids": [ "AJFBvf2FdGiGmia2MFkMc357ps8RTLPJYu"],
"name_short": "USD",
"name": "Truth Coffee Gift Card",
"contract_url":
"https://block.gyft.com/contracts/AJFBvf2FdGiGmia2MFkMc357p
s8RTLPJYu.md",
"issuer": "Truth Coffee co",
"country": "US",
"state": "CA",
"cash_redemption": {
"maximum": 500
},
"description": "Truth Coffee Gift Card is redeemable at any
Truth Coffee location for products and services.",
"description_mime": "text/x-markdown; charset=UTF-8",
"type": "storeCard",
"divisibility": 2,
"link_to_website": true,
"icon_url":
"https://block.gyft.com/images/AJFBvf2FdGiGmia2MFkMc357ps8R
TLPJYu_icon.png",
"image_url":
"https://block.gyft.com/giftblock/images/AJFBvf2FdGiGmia2MF
kMc357ps8RTLPJYu.png",
"version": "1.0"
}
In the U.S., gift cards are regulated by the federal CARD Act, state regu-
lations and by FinCEN’s Prepaid Access. The federal and state rules
mainly focus on fees, while Prepaid Access mandates reporting and cus-
tomer information collection for certain kinds of prepaid programs.
Prepaid Access for instance exempts programs that provide “closed loop
prepaid access to funds not to exceed $2,000 maximum value that can
be associated with a prepaid access device or vehicle on any day.” A
closed loop program is further defined as “prepaid access to funds or
the value of funds that can be used only for goods or services in trans-
actions involving a defined merchant or location (or set of locations),
such as a specific retailer or retail chain, a college campus, or a subway
system.” Unfortunately, transferability of prepaid access within users of
the programs challenges the exemption.
The co-signing program manager is trusted to enforce the terms & reg-
ulations of the assets, including daily spending limits and unauthorized
transfers, by rejecting any non-compliant transactions.
Effectively, only transactions authorized by both the user and the pro-
gram manager can be executed. Such a model can be easily integrated
in a variety of wallet providers.
A co-signing service for gift card assets must therefore support a num-
ber of key technologies and capabilities, including but not limited:
Costs
It’s not free to issue and transfer assets on the Bitcoin block chain.
There are tiny Bitcoin costs.
For instance, assuming a $25 gift card, redeemed in full in two transac-
tions. The cost break down looks like this:
Total: 0.00004096Ƀ transaction fees, which is ~0.96 cent per card for
its full lifecycle at current Bitcoin price.
In addition to Bitcoin costs, there are wallet & program manager costs.
Still, for a level of security fundamentally superior to cards (including
bank-issued open loop gift cards), this is cheaper than the 2.5%+$.20
bank card transaction fee, or $1.5 per plastic gift card.
Conclusion: benefits of gift card assets on
the block chain
Reduced gift card issuance costs with a level of security superior to
bank cards will have profound effects on the payment industry. It is dif-
ficult to envision all the merchant and consumers benefits it may
enable.
Beyond gift cards, merchants now have the tools to print their own
digital currency, which will likely openly trade on secondary markets.
They will use it to reward their best customers and attract new ones, to
bolster their cash or practice better yield management. Merchants can
also publish offers that target customers with particular assets as assets
may become a way for consumers to design personas.