Fundamental problems of the gift card industry
Gift cards have two fundamental problems that have been plaguing customers and can’t seem to be helped by the industry going digital — Fraud and Unredeemed cards.
Gift card fraud currently costs the industry an exorbitant amount every year and is surprisingly easy for fraudsters to pull off. Card security is so low that balance theft is rarely reported or legally pursued due to the lack of personally identifiable attributes proving ownership of a card. By transitioning to online services, e-gift cards have been additionally exposed to the fraud mechanics that all digital goods are inherently vulnerable to. This has led to them having an even higher percentage of fraud attempts than traditional plastic gift cards.
The other major problem is that an estimated 10% of all gift cards are never redeemed. Gift cards are considered to be a safe bet on getting a person what he truly wants for holidays, celebrations or even increasingly as employee benefits, but often it turns out that these cards go unused for a variety of reasons. When that happens, reselling the card is the only option to get some value out of the otherwise unusable gift. However, even in the digital age of e-gift cards, reselling a gift card proves to be a difficult task, with the process taking a long time and the result often being uncertain. It relies on trusting third party services to handle customers’ information which is never a good thing.
Blockchain differences from traditional software solutions
The gift card industry is a perfect use case for the blockchain technology. Security has always been a problem of paramount importance and when it comes to software applications, the battle for creating tamper-proof solutions has always been ongoing and is often lost. The very nature of blockchain architecture brings benefits to the table that fundamentally change how we look at software solutions and make it obvious that even service providers who hold and secure the data are no longer necessary
The two major pillars of blockchain security are Decentralization and Immutability.
Data stored on the blockchain is not owned by anyone and therefore there is no single point of attack that would compromise sensitive information. This is all thanks to the principle of storing information in blocks that are chained together and timestamped (hence the name Blockchain). This chain of blocks is stored in a distributed ledger, which by definition means that all participants in the blockchain have the same information at all times and attempted changes to any previous block are doomed to fail as they are quickly overthrown by the consensus mechanism at play.
In practice this basically means that data stored on the blockchain is immutable and is not controlled by a centralized provider. This fact alone is a major change in the mindset of the customers and service providers of tomorrow. So much so, that the term ’decentralized applications’ is used to describe and differentiate software applications developed for blockchain from the traditional centralized apps that we are used to.