Loyalty: You (Probably) Don't Need Blockchain for It, Part VI
This is part five of a series of articles. While parts two onward deal with separate issues, it is recommended to read the first one in order to understand the context applied to the separate use-cases.
Part I: Introduction
Part II:Supply Chain
Part III: Commodities
Part IV: Energy
Part V: Asset Management
You can quite reliably expect, that when private blockchains (contradiction in terms and in fact slow and expensive databases) are thrown around in huge legacy corporations, then either Microsoft or IBM and one of the consulting big four is involved. Indeed that is the case with Singapore Airlines’ recent announcement, that they had launched blockchain solution for their KrisFlyer program.
I would love to get paid 10% of what SIA would save by implementing a much more appropriate solution - a database, services architecture and permissioned APIs. Since I wasn’t, I might as well give away the advice free of charge here.
Blockchain, as an integration solution is pretty terrible. It’s slow (you need to wait for blocks), inflexible (it’s much more difficult to make changes on the cryptographic algorithm than your standard structured database) and inefficient (with all the consensus overhead). Its value proposition is in providing the immutability without the necessity to trust and in cryptocurrency with transparent rules of issuance.
The immutability is created by distribution, which is incentivized by the cryptocurrency reward to those who provide the distribution. SIA’s private blockchain is in no way more trusted than its SQL database, but it is certainly much less efficient. The same goes for the currency, which is used within the loyalty program. There is no inherent scarcity to the currency, no upfront guarantee of the rules of issuance, transfer, or ownership, which is the major value proposition of Bitcoin and other open, permissionless and distributed cryptocurrencies. Private blockchain can in no way provide such a guarantee.
I wrote a draft of this piece along with previous chapters after Singapore Airlines had announced the intention of building the system without knowing the details and back then I wrote:
“It is safe to assume, that in fact, this SIA’s program doesn’t even attempt to create a limited supply of a cryptocurrency. They are probably not assuming any cryptocurrency in the project at all.
“Assuming, that the exchange system which is about to be created will be fully centralized stablecoin whereby users will either be collecting points of undefined value, which they will be able to exchange for goods, or they will be collecting points pegged to Singapore or US Dollar, which they can use for purchases for merchants. Either way, the dollar settlement happens between the SIA and the merchants using pre-determined rates, which is why it is, in fact, centralized stablecoin. The point is, that all of this can again happen in a fully centralized and much more efficient database and permissioned APIs.”
And according to their final launch release that is indeed the case. What they along with others in the industry who follow the similar path did was to move their existing programs to an inefficient database and integration sold by very expensive consultants with perhaps one minor value proposition - that other clueless retailers might be foolish enough to get swayed by the word “Blockchain” to drop some of the resistance they had before.
Solutions such as these completely miss the point of blockchain as distributed ledger technology and the importance of cryptocurrency in its application.
Which is all too bad, because cryptocurrencies are great for loyalty systems because of their digital and transactional nature. Existing, well-known cryptocurrency could be used to introduce gamification, to provide with settlement among participating merchants, and to benefit both customers and merchants thanks to its long-term growth. None of this, however, requires new blockchain, or a new pointless utility token.
As usual, this text in its draft continued with an explanation of such real-world application, however, because that morphed into my full-time project I am working on with my partner, you will have to wait for the announcement if and once we validate the concept and launch the first version of the product. Stay tuned :-)