Security Notes: Loyalty vs. National Currencies: The Boundaries Blur

Gideon Samid • Gideon@BitMint.com

Baltimore Green Currency, unlike Bitcoin, is not a challenging currency. It is not competing with the U.S. dollar, but it is rather a dollar tethered to certain restrictions and terms of use. A regular gift card is the same: denominated in U.S. dollars, but effective only at a given store. One of three U.S. adults collects air miles now totaling about 10 trillion.

As more and more innovation is poured into the loyalty and reward business, we see a broader variety of terms and more accommodating restrictions. United Airlines now allows its customers to pay with air miles for non-flight merchandise offered by PayPal-accepting merchants. And then we have the government trying to ensure that welfare checks will not become game chips in Vegas.

With the variety, volume rises too, and as more value is carried by the various tethered dollars, the more of a target they become for would-be thieves. At the same time, it’s only natural to treat air miles and hotel reward points with less security attention than what is paid to a purely financial account.

In fact, a discerning eye will readily distinguish the embryonic stage of a payment revolution where value is no longer predominantly carried by the national currency, but more and more by tethered dollars—restricted in one way or another, and branded as food stamps, gift cards, club rewards, membership points, etc.

As this trend swells, we need to rethink our security solutions. In the near future the same security devices used to keep electronic money safe should be applied to keeping coupons, points, miles, and all sorts of loyalty currency safe as they increase in popularity and volume. The fundamental solution to this challenge is to unify the payment framework for the two types of flow. Both store of value and transmission of value should be of the same pattern regardless of whether we store or pay dollars or loyalty currency.

For example, many security efforts are being dedicated to the new platform of smart-phone payments. We are bombarded with electronic wallets and payment applets, all vying for dominance and to become the standard. Oftentimes the dazzling effect takes precedence over security, and robustness. This growing vulnerability brings about a serious dedicated effort to provide the necessary security for mobile-phone money.

Why not extend the same security measures, and the same design features, to loyalty value? Especially now that we see more merchants offering an ever growing variety of tethered money: “Your phone tells us that you are in the mall. If you walk over to our store in the next two hours, you could redeem the attached $25 coupon—otherwise it is lost!” The store would offer such a discount to a familiar customer who habitually buys for hundreds of dollars. But a cyber thief can steal the coupon and buy $25 worth of merchandise for free. And if this coupon is not properly secured, then the thief will readily mint fake coupons, and clean the store out before the fraud is even suspected.

The monetary framework that is most fitting for a unified treatment of regular money and loyalty currency is digital currency. Digital coins issued by Bitcoin or by BitMint can readily be cryptographically fused to any logical terms of redemption. When the coins represent loyalty currency they will flow around with their restrictions inexorably tied in. By using the same pattern of bit string device to represent fiat currency and loyalty currency, we insure the same protection against counterfeiting and abuse. When the coins represent plain dollars they may be untethered, or tethered to a particular owner. In that case they will function like the old familiar travelers’ checks, which in turn will render our smart phone to a safe box. This unified regimen will allow us to use the same hardware and software, the same security tools, for “pay-anywhere” money and “pay-limited” money.

Come to think about it, any payment that is not paid against an equal amount of service or merchandise may be tethered to some restriction of use (e.g. credit, loans, grants). Loyalty currency, large as it is, and larger as it becomes, is only a subset of the tethered realm, which makes it ever more pressing to unify the payment platforms and score a win in the Unending Cyber War.