By now "everyone" has heard of Bitcoin. It's been called everything from a "ponzi scheme" to the next great internet invention. Paul Krugman, a Nobel laureate no less, famously declared that BitCoin "is evil" in one of his columns. Is the truth somewhere in between? Or is it really a transformative technology?
The Block Chain
As you may or may not know, BitCoin is powered by "the blockchain." The blockchain is essentially a distributed "public ledger" of transactions. In this case, the blockchain maintains a record of BitCoin transactions. Essentially, the manner in which the blockchain has been designed prevents the "double spending" problem. The public ledger, which has a record of every Bitcoin transaction essentially prevents a Bitcoin from being spent twice.
While the blockchain is not perfect, we have seen minor issues in transfers (malleability and transfer speed), it does in the opinion of many (see here: http://startupboy.com/2014/03/09/the-bitcoin-model-for-crowdfunding/ ) represent a transformative breakthrough in terms of how digital tokens (Bitcoin, et al) are transferred from one party to another. And it is precisely the ability to "transfer" a digital token without the ability to "double spend" it which provides the basis for some very cool applications above and beyond Bitcoin itself.
Colored Coins
Colored coins? We have Bitcoins and now "colored coins?" What the heck are colored coins? Making it "easy" to understand, a "colored coin" is essentially a Bitcoin that has been given properties or attributes. These attributes are encoded into the Bitcoin through what's called a "genesis" transaction. The author of the genesis transaction can be an individual, corporation, etc. Thus, anyone with the technical know how can author a colored coin.
Colored Coins: A Loyalty Application
Well, what good are colored coins for loyalty marketing? How can they be used? What are the applications?
Let's start with a few simple examples:
1. A "Colored Coin" can be given "terms." These terms could be expiration dates, usage terms, et. For a loyalty application, the expiry information could be embedded in the colored coin itself. There would be no need to rely on a complex loyalty platform to manage this.
2. A Colored Coin could be assigned to a specific loyalty program. Only colored coins authored by the loyalty program through a "Genesis" transaction would be authenticated and accepted for redemption by that program.
3. A Colored Coin that is also a Bitcoin would be a "dual use" coin. That is, the Colored Bitcoin could be accepted for redemption by a proprietary loyalty program, and can also be used by a loyalty member to make Bitcoin enabled purchases from any merchant that accepts Bitcoin.
If you're a loyalty program and you want a truly fungible currency, then colored coins will surely provide a highly tempting solution (my opinion).
4. Using Colored Coins as the underlying currency of your loyalty program will streamline your database, lower your costs, decrease your liability and offer consumers greater choice.
Get Rid of Your PointBank
If you're using the public blockchain to record and transfer points/miles (via colored coins) you no longer need to manage a point bank as we now know it. The blockchain will manage this function for you. The loyalty program simply "rides" on top of the blockchain.
Ok, not everything is so simple, there is work to do to make it "simple." But that work will pay dividends to the early adopters.
