Reinventing Loyalty

Nov 30, 2015 · Unlisted

Naol Duga, Chief Blockchain Technologist, (@NaolDuga)

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1. Background

Loyalty is the quality of being loyal to someone or something. Agents are actors in loyalty relationships, the totality of which, at a societal level results in a loyalty network. Agents may assign a subjective or objective value for their loyalty to others or to that of others who are loyal to them. The structure of the loyalty network, as well as its dynamics if properly formalized and automated, has a lot to say about collective behaviour, individual action, social interaction, and the resulting virtual economy built on loyalty capital.

Rewards are the often invisible engines that incentivize agents to behave in a certain way. Agents reward themselves or others in various ways. Rewards have economic value and are issued in relation to past, present, or future behaviour. A loyalty network is generic and powerful enough to capture many aspects of reality. And it is such a network, together with a rewards system, that we employ to re-invent loyalty.

2. System Model

We introduce a model of computation as social agency where the loyalty of an agent to someone or something is rewarded based on logical rules that are used to compute reward value. Every agent is situated in a rewards universe that is overlaid on top of the loyalty network. Information flows between agents as they act, interact, and transact. A shared ledger keeps a truthful record of relevant information about agent and system state.

The resulting structure is a distributed system and is a microcosm of a new kind of digital economy. Agents in this model need not be human. They may be organizations, software agents, AI agents, inanimate agents, and combinations thereof. Using “agent” allows the model to be kept simple and generic.

3. Distributed Ledger Technology and Smart Contracts

New technologies enable us to realize the model as a platform for innovative applications. A distributed ledger or a blockchain serves as a public data structure, allowing for the storage of information such as agent identity (as accounts) and agent interactions (as transactions). A distributed virtual machine (Turing-complete computer) processes data via smart contracts, code that formalizes and cryptographically secures the rules of interaction in the system. A peer-to-peer network keeps an incorruptible record of the system’s state transitions over time and space.

Leveraging distributed ledger technology and smart contracts, we build our LoyaltyNetwork™and SmartRewards™ platform. The platform allows Rewards Applications (RApps™) to be built. The core of the platform comprises a distributed ledger network (DLN), a distributed virtual machine (DVM), and a smart contract system (SCS). Agents interact with each other through the platform, thereby becoming nodes in the loyalty network. Agents use RApps that are built on the platform through APIs and plugins. RApps that operate autonomously on our network reward agents with tokens.

4. The Abstracted Value Consensus Protocol (AVCP) Stack

Herein we give a brief overview of the protocol suite (AVCP) on which our LoyaltyNetwork and SmartRewards technologies are built. For a detailed discussion of the protocol, please request a copy of our White Paper. For the mathematically inclined, a formal specification of the the core protocol is forthcoming.

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AVCP is a distributed ledger protocol that comprises two sub-protocols together with a smart contact execution model. The first sub-protocol is a Consensus Protocol and is used to maintain the distributed ledger’s state. The second is a Value Distribution Protocol, which is used to variously reward agents in a loyalty network, including those validating and adding entries to the ledger.

The Consensus Protocol is a component of the distributed ledger network (DLN) that governs the peer-to-peer system. Nodes in DLN run Network Clients implementing the consensus protocol. This protocol is the basis for our LoyaltyNetwork technology.

The ledger can be programmatically manipulated using smart contracts which are executed on a distributed virtual machine (DVM), which currently is the Ethereum virtual machine (EVM).

Most distributed ledger protocols have their reward scheme embedded in the consensus protocol. In AVCP, however, so-called block rewards are abstracted away into a smart contract system (SCS) that contains an implementation of the Value Distribution Protocol. The SCS is executed on the DVM. This protocol is the basis for our SmartRewards technology.

There are two kinds of tokens: a Native Token and a Rewards Token. (There is a bidirectional mapping between the two that makes our platform amenable to rigorous economic modeling. Refer to the white paper for more information.)

The Native Token has two primary purposes. First, very much in the sense of Ethereum’s notion of “gas,” it is used as a workaround to the Halting problem. Second, it is used to understand, model, parameterize, and control the loyalty economy. By limiting its utility, we ensure that there is no value-leak outside the loyalty network.

The Rewards Token is the base token for all rewards. It can be thought of as being “backed” by the Native Token. Alternatively, we can think of the Native Token as fuel produced by the LoyaltyNetwork explicitly for the SmartRewards engine to run.

Any agent in our network can issue rewards to other agents by creating a RApp which interfaces and becomes part of the SmartRewards engine. Reward programs of arbitrary complexity could be built in this manner. Any agent may create any number of RApps, and a single RApp may contain any number of sub-RApps, which may in turn also contain any number of sub-RApps, and so on.

Agents participating in the consensus protocol may be rewarded. It should be noted that the rewards for nodes in the LoyaltyNetwork will be issued in the form of the Rewards Token, not the Native Token.

5. Using the AVCP Stack

An agent intending to reward certain kinds of behaviour starts by building a RApp, a piece of software that encapsulates the logic of a rewards program. This way the agent becomes a rewards program operator. Alternatively, an agent can install a pre-made RApp thereby choosing to participate in an existing rewards program.

An agent interacts with the RApp to earn a specific brand of the Rewards Token, and uses a wallet to store the tokens. Where agents may redeem their rewards is determined by the rewards program operators.

A wallet is an interface that allows agents access to the LoyaltyNetwork. It is like a browser that allows a user to install RApps published within the platform. It has a social network functionality that lets agents communicate and interact with each other.

The steps for AVCP integration are:

Programmable Rewards

Enabling universally interoperable and programmable rewards is what we set out to do when building the AVCP Stack. What you can do with RApps is limited by your imagination only.

What will you build?

We have thought of quite a few RApps ourselves (actually that is how we have fun when we are not busy creating the AVCP Stack!). So expect to see official RApps in the soon to come RApp Store.

However, nobody knows your business and market more than you do. So we encourage you to use our API!

We are also interested in building RApps in collaboration with partners. If you are interested, feel free to reach out to me at and tell us what you are thinking. We will get back to you!

Why a universal platform instead of your own?

6. Value Proposition

The loyalty network is value innovation. AVCP is the world’s first full-stack, self-contained, distributed ledger-based loyalty platform. It can consolidate all existing rewards programs, making them interoperable, programmable, and smart. To participate, existing rewards programs only need replace the value layer in their current systems, everything else can remain exactly the same.

Many existing problems in the loyalty industry, such as redemption networking between an airline and a hotel for example, are a result of friction, making the ideal scenario of a universal platform economically unfeasible. The introduction of a frictionless universal loyalty network platform will generate explosive growth of loyalty capital, and propel this industry into the greatest bull market it has ever seen.

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In an upcoming post, we will compare our solution with the state-of-the-art in the loyalty industry. In subsequent posts, we will discuss the application of our technology beyond the current loyalty and rewards industry scope, like being able to incentivize people for non-transactional behaviour such as healthy living.

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