Is Decentralization Crucial for Loyalty Programs?

5 min readFeb 2, 2023
Is Decentralization Crucial for Loyalty Programs?

Loyalty programs have been a staple of customer reward systems for decades. But as technologies such as blockchain rise in popularity, companies are looking for ways to incorporate decentralized solutions into their loyalty programs. This document will explore the benefits and drawbacks of decentralized loyalty programs and whether or not it is a necessary step for businesses to take.

What is decentralization?

Decentralization is a core concept in blockchain technology that allows users to store and transfer data securely without relying on a central authority figure. This means that instead of relying on a single server or company, data is stored across a distributed network of computers, making it more secure and less vulnerable to manipulation or attack. This also allows users to transact directly with one another without the need for a third party intermediary.

Decentralized and centralized loyalty programs

A decentralized loyalty program is distinct from a centralized loyalty program, in which rewards and customer data are stored on a single server, owned and maintained by a single entity. By contrast, a decentralized loyalty program is powered by blockchain technology, which allows users to securely store and transfer data without relying on a centralized authority figure. Decentralized loyalty programs also provide users with greater control over their data and rewards, allowing customers to access their rewards and points through any device or platform.

Centralized loyalty programs can be vulnerable to data breaches and manipulation. As the data is stored on a single server, if that server is compromised, the customer data and rewards can be exposed or stolen. Additionally, as the data is stored on a single server, it is easier for malicious actors to manipulate or tamper with the data, making it difficult for users to trust the accuracy of their rewards.

Many businesses still choose to use them due to their convenience. Dentralized loyalty programs are easier to manage and monitor, as all customer data and rewards are stored in a single place, making it easier for brands to track customer activity and reward points. Finally, centralized loyalty programs are more widely recognized and accepted by customers, making it easier for businesses to offer rewards and promotions.

Benefits of decentralized loyalty programs

Data is stored more securely

Security is significantly improved due to data being stored across a distributed network of computers, making it difficult for malicious actors to tamper with or steal customer rewards. This is because the data is stored on multiple nodes, so if one node is compromised, the data remains secure on the other nodes. Additionally, the data is encrypted, making it virtually impossible for even cyber-criminals to access the customer rewards.

Save more costs for the business

Decentralized loyalty programs are usually more cost-effective and require significantly less maintenance than their centralized counterparts, as businesses don’t need to purchase and maintain a dedicated server, pay for regular maintenance and support, or worry about security issues that may arise from storing customer data. This can be especially beneficial for smaller businesses, as they can tap into the power of the blockchain without having to invest in the infrastructure required for centralized loyalty programs.

Making the process near real time

Decentralized loyalty programs also provide near real-time transactions, as customers can view their rewards and transactions in real-time, providing them with confidence in the accuracy of their rewards. This also allows customers to access their rewards and points from any device or platform in a more secure and reliable manner. Transactions are processed faster, as users don’t need to rely on a third party intermediary to facilitate the transaction.

For instance, the issues related to loyalty rewards programs, such as the lack of coordination between a loyalty rewards program issuer (a credit card, for example) and a loyalty rewards program provider. By leveraging a distributed ledger system, blockchain can enable a transaction to be recorded and accessed by multiple involved parties in near real time, thereby eliminating the need for a centralized third party and streamlining the process of loyalty rewards program management. Additionally, the immutability of blockchain ensures that all transactions are secure and tamper-proof, helping to protect the data and interests of all parties involved.

Other benefits

Blockchain loyalty programs have many advantages compared to traditional program: How Features of Blockchain Loyalty Solution is Differentiated

The most promising point is that it could improve customer engagement with brands’ programs, thanks to the ability to enhance their experience. This could lead to increased customer satisfaction and loyalty.

Blockchain technology has enabled businesses to create Non-Fungible Token (NFT) based membership cards for customers to use when engaging with loyalty programs. This offers businesses an incentive to keep customers loyal and engaged, as customers are rewarded for their loyalty. NFTs can also be used to provide customers with unique experiences, such as access to exclusive events or products. This allows businesses to create a more personalized customer experience and reward customers for their loyalty.

Drawbacks of decentralized loyalty programs

Despite the benefits of decentralized loyalty programs, there are still some drawbacks to consider. The most significant drawback is the lack of scalability, as the technology is still in its early stages and not yet fully developed. This means that businesses may encounter difficulty scaling up their decentralized loyalty programs as customer numbers increase. Additionally, blockchain technology requires a certain level of technical expertise, which may be difficult for some businesses to acquire. Finally, the cost of implementing a decentralized loyalty program may be higher than that of a centralized loyalty program, as businesses will need to pay for the infrastructure and development of the system.

In order to solve those issues, FADO Go Loyalty tries to provide the best blockchain loyalty solutions at a more affordable cost. Our product focuses on simplifying the blockchain terms for brands and making the process of accessing this technology easier for businesses that have no technical expertise. Despite the fact that the cost of running a blockchain loyalty is higher than a traditional one, we still manage to reduce it. Moreover, with the advances of the blockchain industry, more and more advanced protocols will emerge and bring down the gas fee per transaction. Though considering the benefits of a blockchain loyalty program in improving customer experience, the question is whether it is worth it for the company. Starbucks, Budweiser, and Amazon and many other brands have all implemented blockchain-based loyalty programs as their answers.

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