Gyft, the mobile gift card company owned by first data, plans to use block chain technology like that used for Bitcoin and other crypto-currencies, to make it easier for small companies to issue digital gift cards.
A blockchain-powered process generates a new address for each transaction, even if the ultimate destination is the same. So, a consumer would receive a gift card into her wallet with one address and send that gift card back to the merchant’s wallet with another address. A fraudster can’t reuse any of these addresses to obtain the value from the card.
Although Gyft accepts Bitcoin for purchases, this not about creating a digital currency.
One of the most novel aspects of Gyft Block will be that the value of the gift card will not be held in Bitcoin, even though the transfers will be recorded on the blockchain. This means each gift card transfer will move a tiny amount of Bitcoin called a Satoshi, which is a hundred-millionth of a Bitcoin (a fraction of a cent), on which is coded metadata containing the value of the gift card (say, $50), the name of the merchant and other information. However, the transaction itself will not be moving $50 worth of Bitcoin.
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The company is working with Chain.com to enable the system, and provides a fairly technical discussion about how their system works at Medium.com.
Since Bitcoin 0.9.0, there is an official way to attach an arbitrary string of 40 bytes of data to a Bitcoin transaction using a mechanism called OP_RETURN.
While it doesn’t seem much, 40 bytes are plenty to add an entirely separate layer of meaning and value to existing Bitcoin transactions’ inputs & outputs.
If a particular transaction output is marked as an issuance transaction for a particular asset, a unique ID of this asset can be derived from the output, and it becomes possible to track subsequent transfers of this asset from address to address. For anyone who knows what to look for in the Bitcoin block chain, it is then possible to reconstruct the ledger of transfers of such asset between addresses, and compute up-to-date balances of each address for this asset.
In effect the company is attaching outside value to the Bitcoin block chain. What is not clear is what happens after the redemption of the card. Because the block chain is continuous, it seems this method would leave something permanently attached to the Satoshi. The company says that it will allow merchants to create their own “digital currency” and cautions them to remain in compliance with all applicable regulations.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Service
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