Jun-Yi “JJ” LauXiwei “Sherry” Xu

BlockchainBlockchain is an emerging technology that allows participants in an ecosystem to transact with each other, without relying on acentral trusted authority to record transactions. Blockchain ensures the integrity of a distributed ledger which is replicatedacross the ecosystem. Bitcoin uses a blockchain for financial transactions, but next-generation systems such as Ethereum alsoallow programs (“smart contracts”) to run as transactions, that enable the digital enforcement of agreements and clausesbetween parties, without the need of a trusted intermediary.

Blockchain Driven Digital Loyalty System network

MotivationDigital loyalty programs are common business strategiesemployed by retailers such as Starbucks, to drive profitablebehaviours and cultivate long-term brand affinity. However, thesheer volume of loyalty programs impressed upon consumershas led to ``loyalty fatigue'' prompting the development of`Coalition Loyalty Programs' such as Frequent Flyer programs.While these coalitions have benefited members, there exist twointeroperability pain points :

1. High contractual overhead for businesses in joining, runningand leaving the programs.

2. Lack of interoperability between digital loyalty systemsleading to a wide array of siloed collaborative efforts.

Blockchain Driven Loyalty Systems

System Interoperability Models EvaluationBased upon our evaluation we do suggest that blockchainand smart contracts are technologies that could be usedto power digital loyalty systems. We have evaluatedthrough implementation that it is feasible to create a basicsystem, and also offers an alternative solution to thestructural problem of "point fatigue" in the domain. Smartcontracts allow for the formation of more ad-hoc coalitionsbetween digital loyalty systems with substantially greaterflexibility in joining, running and leaving them.

Through comparison against interoperability models, weargue that blockchain and smart contracts do affordsystems a higher degree of interoperability. REST APIswere designed to make systems blackboxes. Whereasblockchain's capacity as a shared piece of infrastructurefor running code, allows systems not only the ability tocollaborate on data but also logic.

Unilateral functions it performs are :• Membership creation• Loyalty token setup• Token distribution and redemptionWhile not examples of interoperation, our system doesreplicate a basic digital loyalty system.

At present, the current state of practice forinteroperations between digital loyalty system isthrough REST API. We suggest in this thesis thatblockchain technology offers a higher degree ofinteroperability, over using REST APIs alone.

There are several key qualities of blockchain thatlend it to system interoperability :• Transparent and Immutable : allows for thestorage of data that is freely accessible to allparticipants in the network.

• Distributed : security and enforcement behindcollaboration agreements between parties bydistributed computational investment in solvingcryptographic challenges.

• Non-Repudiable : no single party canunilaterally make changes or vetoes to theledger, while allowing valid changes to berecorded.

• Smart Contracts : enable terms ofcollaboration to be codified, deployed andrecorded on the blockchain.

To demonstrate a trilateral interaction, we developed the’Reward Mile Contract’: shop at least once at each ofthree participating businesses and be rewarded extrapoints. Each business in this scenario has its own digitalloyalty system.

What can the system do ?

Point conversion is a bilateral function of the system. Twobusinesses with their own loyalty systems can setup anexchange rate between their points, enforced by theblockchain network.

ObjectivesOur goal was to assess applicability of blockchain in the domain of digital loyalty. To do this we had two main objectives :

1. To investigate the feasibility of using blockchain and smart contract technology in the digital loyalty domain.2. To evaluate if blockchain offers systems greater interoperability over the current state of practice of using REST APIs.

Why is it applicable ?

In our network we have businessesand users. Merchants have anapplication to facilitate pointredemption and distribution. Usershave wallet applications that givethem access to their digitalmemberships. Both operatethrough REST APIs to loyaltysystem backends.

Loyalty systems communicate witheach other via REST APIs andthrough operations on smartcontracts in the blockchain.

Loyalty systems operate as DAppsin our network, with the frontendserving as a GUI for smart contractdeployment

Levels of Information System Interoperability model Levels of Conceptual Interoperability model

We compared the state-of-practice for system interoperability – REST APIs – and blockchain against two widely recognisedsystem interoperability models: LISI and LCIM. The LISI and LCIM models have 5 and 7 levels respectively. Blockchain ratedhigher in both models.

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