Technology & The Blockchain Ecosystem
Blockchain technology is a peer-to-peer distributed transactional database where cryptography ensures data integrity. Public and permissioned blockchain technologies depend on consensus mechanisms and the ability to create accounts on the blockchain freely.
Public blockchains focus on cryptocurrencies, tokens, and smart contracts. Bitcoin, Ethereum, and Cardano are some of the well-known blockchain platforms.
Companies designed these platforms to be tamper-proof, secure, and work on the internet at scale. Public blockchains rely on proof of work and proof of stake consensus algorithms as a distributed database.
While they are quite secure, transaction throughput and privacy are limited. In addition, companies require a small fee (commission) with each transaction.
Public blockchain applications include:
Permissioned blockchains tend to focus on solving general enterprise problems for the company’s assets, however, implementing various tokens is also possible. For example, Hyperledger, Quorum, and Corda focus on using blockchain in this way.
Companies use permissioned blockchains for privacy, certificate-based identification, and higher throughput. Generally, companies employ raft consensus with dedicated transaction coordinator nodes.
It has no transaction commission, but the network requires governance for organization, joining the network, deployment chaincode to channel, and more.
Several characteristics make blockchain or distributed ledger technology unique:
Blockchain or distributed ledger technology offers unique immutable data storage designed to be tamper-proof. Blockchain can achieve this quality through cryptography, transparency, and distributed consensus algorithms able to tolerate even Byzantine faults.
Support of smart contracts allows teams to effectively implement and maintain complex multi-party, multi-stage business transactions and eliminates intermediaries’ needs.
In addition, enterprise blockchains or distributed ledger technologies offer increased levels of security (identification, access control, policies, encryption) and throughput, as well as integration with other services and client SDKs.
Enterprise blockchain has a few drawbacks, mostly related to network setup and integration:
Despite its distributed nature, enterprise blockchain networks require centralized governance.
Network node deployment and configuration, security hardening and testing, joining peer organizations, identity registration, and chaincode deployments are just a few examples of routine tasks.
Organizations deciding to join the network have to deploy several nodes serving different roles.
Unlike well-known client-server applications, applications based on blockchain communicate with a subset of network nodes and have to adhere to specific access control and transaction handling rules.
One of the strengths of distributed ledger technology is its transparency. While individuals can’t modify data on the blockchain, it is still open to all network peers for reading.
There are several approaches available (channels, partitions, private data) to address the issue, though they either limit scalability, completely avoid shared ledgers, or store sensitive data off-chain.
Teams can scale the Hyperledger Fabric network to 20k transactions per second; however, the throughput is not high enough to process transactions on the internet at scale.
There are more than a dozen blockchain-based digital coupon marketing platform implementations available. The following are a few popular and studied examples:
BMarkEn - Ethereum
Coupon Chain - Ethereum
Neon Network - Ethereum
Rouge - Ethereum
Sardcoin - Hyperledger Fabric
Most platforms use Ethereum fungible tokens that clients can purchase to settle subscriptions and other fees within the platform.
A certain amount of the tokens back the digital coupon value. Therefore, platform clients should plan before starting the campaign and account for the high volatility of crypto markets. Please see the References section for more details and comparisons.
At the time of writing, public blockchains with smart contracts (Ethereum and some others) provide alternative token-based payment systems to large numbers of startups and businesses in the energy, entertainment, digital art, and e-commerce domains, with Initial Coin Offerings becoming a popular founding model.
A smart contract is a code stored and executed on a blockchain network as part of the transaction. Smart contracts allow us to implement business rules of arbitrary complexity, for example, escrow transactions or secure auctions. Tokenization is a problem domain modeling approach representing business entities as tokens or assets with transferable ownership. The assets can be fungible or non-fungible tokens. Enterprises successfully utilize permissioned blockchains to solve problems that require transparency in the supply chain, manufacturing, finance, and e-commerce domains.
In the digital coupon market, because of its distinct characteristics, companies can effectively utilize distributed ledger technology and smart contracts to implement solutions for the following problems: authenticity tracking, fraud prevention, dispute resolution, improved targeting, and secure ownership transfer.
In addition, the blockchain-based coupon network establishes an ecosystem where every party joining the network owns a full copy of data (ledger) and contributes to the network depending on its role (creation, validation, auditing transactions, analytics, etc.). It ensures that every asset (coupon, user profile, loyalty point, etc.) stored on the blockchain can be identified, tracked, measured, and analyzed, thus making the ledger a single source of truth.
Merchants or brands deciding to start a coupon campaign have a few options: develop their own coupon distribution capabilities, use a third-party service (most typical), or collaborate with distributor partners on the blockchain network.
If a brand decides to utilize the latter, then they selected the strategic choice where transaction complexity, number of involved parties, and data trust outweigh integration efforts.
The context diagram above depicts various organizations or applications collaborating on blockchain networks to solve problems arising during digital coupon distribution and redemption.
Some organizations do not contribute directly to the process but provide services to network participants (analytics, token issuers, etc.).
A personal coupon wallet is a client application that allows customers to manage personal coupons and collect, redeem, transfer, and search them. On the other hand, it will enable customers to link their profile with assets and history stored on a ledger for improved security and relevance.
The application is responsible for creating and maintaining customer profiles on the blockchain.
Brand applications would integrate with the blockchain to create coupon campaigns and issue personalized coupons to specific consumer groups or a broad audience.
The applications can reward loyal customers with tokens stored on the blockchain and exchangeable for deals or discount coupons in their online or partner stores.
The main responsibility of the application is to create and maintain coupon campaigns and deals offered on the blockchain network.
By using coupons issued by brands or merchants, distributors can utilize various channels (email, SMS, mobile, social or direct) to deliver digital coupons to targeted customers.
Additionally, it is possible to develop a blockchain-based deals store, where customers can search for available discounts themselves.
The main responsibility of the application is to match coupons with customers based on targeting rules.
Big data and analytics services can be incorporated to continuously mine blockchain and provide data to improve targeting and relevance to all parties participating in the network. Examples of such reports can range from simple goods categories of interest in the last half-year to trends prediction or fraudulent patterns detection.
The analytics role in the ecosystem is to provide customer profile data anonymization, better targeting (relevance), demand prediction, and fraud detection.
To summarize, the system has the following properties:
These properties make the system different from existing digital coupon marketing platforms.
Teams designed the resulting system to span multiple brands, merchants, customers, analytics and governance services, and applications, openly collaborating.
Parties and brands joining the network can take advantage of available services or bring their own capabilities to the network. For example, a coupon wallet application can bring its user’s database there while offering them access to new brands and discounts.
Generally, companies chose Hyperledger Fabric to demonstrate distributed ledger applications for digital coupon business use cases. Companies make this decision based on the Fabric’s general-purpose design, modularity, performance, security, and various client SDKs.
The described solution architecture below relies on the following Hyperledger Fabric security and privacy features:
In addition, teams should ensure the following measures to protect all involved parties from fraud:
Since the blockchain storage is immutable, to support GDPR, it should only store non-sensitive data, for example, zip code, date of birth, and gender. Social profiles and PII on off-chain, GDPR-compliant storage can link this data, where teams can delete this data on customer request.
There are benefits to integrating with the public blockchain and the corresponding ecosystem.
First, tokens and NFTs on a public blockchain can be associated with a certain value and openly traded using smart contracts and wallets.
Second, Initial Token Offering opens new ways to fund start-ups utilizing token-based currency as an alternative payment system.
The downside of the integration is its complexity and coordination overhead for tokens stored on separate blockchains. As such, it’s often more feasible to transfer assets to the public blockchain rather than maintaining consistency between them.