DigitalBits launches open-source blockchain-based marketplace for loyalty points

All those points and rewards that consumers have accrued with credit cards, air miles programs and coffee shop purchases might become more valuable soon.

Their value — or at least their versatility — could get a boost if The DigitalBits Project is successful. This community endeavor, soon to become a nonprofit foundation based out of the tiny European country of Lichtenstein, is today launching an open-source blockchain-based infrastructure that supports trading loyalty points or rewards or transferring them to other individuals.

According to loyalty research firm Colloquy, about $48 billion worth of loyalty points and rewards are awarded every year in the US, but about a third are never redeemed.

Many consumers give up managing their loyalty points, DigitalBits founder Al Burgio told me, because it’s “too hard” dealing with them. He said that, to his knowledge, this is the first blockchain-based open market for points and rewards.

DigitalBits creates “tokenized points” that can be valued as tokens within the blockchain and then exchanged for the tokens of other points or transferred to other individuals.

For instance, if you have 500 air miles left over on Virgin Air, and you want to turn them into points redeemable through the loyalty program at restaurant chain Panera, you can — assuming Virgin Air and Panera have each tokenized their points using DigitalBits.

The exchange rate — how many Virgin Air points for how many Paneras — depends on what the market will bear, and DigitalBits provides the on-chain marketplace infrastructure. Outside developers and brands will create their own applications and interfaces to run on Digital Bits, so that, for instance, a consumer might trade their air miles right inside the Virgin Air app if the airline made that possible. Burgio said he expects applications to start emerging within a month.

It’s possible that no Panera points holder wants Virgin Air points, so the marketplace is designed to support up to six degrees of exchange. That is, perhaps a Virgin Air points holder wants to exchange them for Applebee’s points, and then the Applebee’s points for United Air and so on, with the idea that the Panera points can be reached within six linked exchanges.

The DigitalBits blockchain is a forked variation of the Stellar blockchain protocol, which was designed to be faster than the popular Ethereum blockchain in order to handle financial transactions. Burgio said the DigitalBits version is optimized for loyalty points trading and transferring.

While there have been internal tests, Burgio said there have not yet been tests with “unbiased consumers.” So, it remains to be seen if there is some unusual dynamic that will take place when points become, in essence, currency.