Bitcoin: The Next Gen, Closed-Loop Gift Card Platform?

by Tim Sloane 0

Bitcoin, the anonymous peer-to-peer digitalcash token, has captured the attention of the press because itcombines a mysterious story (who created Bitcoin) with a great”David versus Goliath” story as the U.S. government attempts toregulate the bitcoin startups. This post isn’t concerned with theseissues; instead, we look at several unique capabilities of bitcointhat drive substantial cost out of the payment system. Embracingthese unique capabilities of bitcoin could greatly benefit anypayment network.

Bitcoin Implementation Overview

Like everyone else, I’ve been thinking about bitcoin. Probablyunlike everybody else, I’ve been considering how the softwarealgorithms that make bitcoin operate could be used by a merchant tosimplify their current increasingly complex and costly gift cardenvironment (Mercator will release a report in February detailingthese complexities that have evolved as new channels and newtechnologies have been deployed across an ever increasing number ofthird party suppliers). This complexity is manifested in complexsettlement processes and data located in too many locations to beeasily and cost effectively harvested to create even basicreports.

Bitcoin Attributes Perfect For Gift Cards

Driving my thinking process was the extreme simplicity of a bitcointransaction since there is no settlement to speak of: using aBitcoin is like handing over cash. Once I started to think thisway, I developed a list of the six key benefits that an issuerwould derive from a modified closed loop version of Bitcoin. Youcan read them in the private version of this blog on MercatorAdvisory Group’s website (Prepaid and Emerging Technologymembers need to be logged in).

Implementation

So how would a merchant implement a private version of a bitcoin?Well, there are already several public derivatives of the Bitcoinalgorithm (for example, the Ron Paul Coin), but these are alldesigned to be used at multiple merchants. When a bitcoin is”traded,” a message is sent to test the validity of the bitcoinbeing spent (through the public blockchain). In the public versionof bitcoin, this is done anonymously through a highly distributednetwork (established by bitcoin miners), which is the opposite ofwhat a merchant needs for a closed-loop gift card program. Readmore in the private version of this blog on MercatorAdvisory Group’s website.