Open Loyalty Layered On Bitcoin
Bitcoin, digital assets, and “web5” technologies are on an unprecedented growth trajectory which will increasingly compel brands to act, similar to how they embraced earlier web technologies as internet usage grew among their customers.
“Having NFTs for your business will be like having a website in 2005 or having social media accounts in 2015 ... it’s just digital infrastructure” — Gary Vaynerchuk
Research from Global Macro Investor shows how crypto adoption is growing 135% per year vs. 85% for the internet at a comparable point in its adoption curve. This is proving to be the fastest adoption of any technology in history. The phenomenon makes sense when considering Reed’s Law, which states that the utility of networks can increase exponentially with size. Indeed, Bitcoin is the digital network of value built upon the digital network of information that is the internet. Even assuming more conservative growth rates going forward, it is estimated that the world will see over a billion crypto users in two years and five billion users by the end of the decade.
The critical imperative for brands is to recognize the meteoric rise of this consumer segment. Research from Bakkt, a crypto rewards and payments platform, shows that crypto adopters tend to skew younger, higher-income, and are more highly engaged in loyalty programs, particularly in travel, hospitality, and finance. Crypto users are also twice as likely to redeem loyalty points for cryptocurrency and consider cryptocurrency rewards in many cases as a more valuable form of cashback. Consumers are increasingly viewing bitcoin and other cryptocurrencies as a way to store wealth for the long-term in a world that is presenting fewer and fewer traditional options to do so.
The question then becomes: how should brands adapt to attract, engage, and retain this emerging super segment? We are already seeing Big Tech and payment platforms making sizable bets on the space: Twitter has integrated the Bitcoin Lightning Network for tipping along with supporting NFT profile pictures; Instagram is quickly following suit on the latter; CashApp and Block (formerly known as Square) have unrolled a full suite of Bitcoin products; Salesforce has spun up a web3 studio to incubate related projects. Very broadly speaking, we can translate these efforts into two main categories in terms of what they offer the end consumer: (1) monetary value (e.g. bitcoin) and (2) other digital assets (e.g. NFTs or collectibles with utility tied to a brand’s product or service).
For monetary value, we see bitcoin as the “apex predator” of cryptocurrencies, the single most attractive asset given its unique features of true digital scarcity and decentralization that no other cryptocurrency can replicate. Jack Mallers and the team at Strike are demonstrating just how powerful open monetary networks like Bitcoin can be. After making bitcoin legal tender in September 2021, El Salvador saw in just one month more Salvadorans with a bitcoin wallet than a traditional bank account. With secondary layers such as the Lightning Network on top of the base Bitcoin protocol, bitcoin is rapidly becoming not just a store of value but also a viable day-to-day medium of exchange. The network effects in play are becoming rapidly reinforced, rendering bitcoin the supreme monetary unit for consumers. As Microstrategy CEO Michael Saylor reminds us, “there is no second best crypto asset.”
For other digital assets such as NFTs, we have thus far seen notable profile-pic (PFP) collections such as Bathing Ape Yacht Club dominate headlines and drive the most recent hype cycle. Brands have experimented with NFTs and virtual worlds in what has largely been an attempt to generate short-term PR buzz to date. Increasingly, however, there is an opportunity to use these programmable digital assets to deliver real utility back to consumers. Harvard Business Review sees NFTs as the basis for a “multifaceted digital consumer connection” and advises that brands “experiment, but with authenticity and an eye on the future.”
Combined, we believe these assets will usher in Open Loyalty as the next phase of loyalty program evolution. These assets can not only increase the value and relevance of rewards for consumers but also augment existing communication channels and unlock new revenue streams. Digital assets open new possibilities for value exchange not only on a brand-to-consumer (B2C) level but also on a consumer-to-consumer (C2C) basis where brands can benefit through royalties when assets are sold on a marketplace. In addition, with third-party data diminishing due to data privacy legislation and cookie restrictions, Open Loyalty can be a new and welcome vector for new customer acquisition via sales of digital assets.
The “Open” aspect of Open Loyalty largely reflects that consumers have the additional ability to trade these assets with other consumers (C2C) on a marketplace. This drives three downstream benefits for brands:
(i) Brands win because the customer wins — new optionality increases the flexibility, relevance, and value of loyalty rewards which are commonly cited as reasons for loyalty program attrition. Such a setup deepens stickiness with existing customers, and new customers can buy their way into a certain level of loyalty instantly, rather than having the time to build up to it.
(ii) Customers that sell digital assets in an open marketplace could drive incremental customers for a brand. The trading of a brand’s digital assets by customers becomes a marketing machine for the brand.
(iii) Royalty fees programmed into the sale of digital assets can unlock a new revenue stream for a brand.
The variety of consumer benefits that can be programmed into these assets are limited largely by the imagination, but we see two key early use cases: (i) a digital asset that affords the owner lifetime access to exclusive perks, and (ii) a single-use asset specific to a certain event or occasion. These could be further broken down by tiers that create levels of exclusivity depending on the digital asset tier the customer qualifies for. Beauty and cosmetics company Clinique offers a good example of a brand tying loyalty-based utility to digital assets in a way that really gives back to their customers. They launched their “Meta Optimist” campaign in late 2021 with NFTs that change color based on two of its most popular products. Loyalty members were able to post ‘stories of optimism’ on social media for a chance to win one of a select few NFTs that provide winners with exclusive products and offers for 10 years.
Use cases will differ by industry but can range across early access to events, product launches, offers, rewards for action or perpetual access to unique services. Brands also have the opportunity to build a dialogue and community with customers for such use cases as beta testing, product feedback and bug bounties, by rewarding customers with some monetary value. Such a program can inform the product development roadmap of a brand and bring brands closer in alignment with customers’ wants and needs. If brands wish to take this a step further, they can reward customers with monetary value for their attention or data enrichment, possibly disrupting the extractive advertising ecosystem — but that’s a discussion for another day.
At Trubit, we offer brands a complete and easy-to-use toolkit that includes both bitcoin and programmable digital assets as reward options for their consumers.
By building on the granite foundation that is Bitcoin and incorporating cutting-edge scaling technology such as the Lightning Network and Taro protocol, Trubit ensures that brands have the most robust home possible for their digital assets. We believe brands should not have to risk exploits, hacks, or downtime on less-proven blockchains. We expect that satoshis (a sub-unit representing 1/100 millionth of a bitcoin) will eventually become the universal medium of exchange and unit of account connecting an open loyalty network.
Historically, brand loyalty programs have largely been walled gardens, but the incentives to open these walls will only become stronger going forward based on shifts in consumer behavior and demand. As the number of brands (including examples such as the Starbucks rewards app or more recently Emirates Airline) adopting bitcoin as a payment option increases, this flywheel of converging forces will spin faster and faster. Put simply, brands that plug into this open network early will have a significant competitive advantage over those that do not.
If you’re interested in becoming one of our early partners, please send us an email at contactus@trubit.tech.
