Real-World ERC1155 Use Case – Loyalty Program (Detailed Guide)

Even though ERC1155 was invented to serve blockchain-based games, there are other means of use for this token standard that offers fungible and non-fungible tokens under one smart contract. Its fungible token feature enables us to mint tokens similar to ERC20 tokens that are widely used in cryptocurrency on the Ethereum network. And the non-fungible aspect offers typical NFTs for us to create digital assets. So, let’s expand our horizons and think out of the box to examine what lies beyond GameFi.

What Is ERC1155 Loyalty Program

ERC1155 is like a marriage between ERC20 fungible token standard and ERC721 non-fungible version. It was meant to fuel the rise of GameFi sector where game developers often need to create in-game currency (such as gold or credits) as well as game items (like shields, swords or spells). So, instead of managing two smart contracts where each issue a different type of token, we can combine both via an ERC1155 contract.

This brings us to our topic – the ERC1155 loyalty program. Also known as a rewards program, you could conveniently manage a loyalty program that exploits the benefits of ERC1155 by offering fungible and non-fungible assets such as points and coupons under one Web3 roof. A retail enterprise could adopt this Web3 use case without incurring heavy capital expenditure since Web3 infrastructure is already built and accessible by anyone. In fact, there are 22 Ethereum-compatible blockchains that you could launch a reward program without the hefty gas fees of Ethereum. Thus, there’s no need to invest in loyalty management software and hardware.

How Does it Work?

Here’s how it could work. You need to deploy a single ERC1155 smart contract. The reward points can be represented by fungible tokens and these points, or tokens, can be burned during redemption. Points can be rewarded via POS (Point of Sales) system. This means each POS cashier could issue points to loyal customers by verifying that the customers are members via their wallet addresses. Verification can be conducted via a quick wallet ownership verification process.

The store owner could also control who is allowed to dispense points via the smart contract access control feature and conveniently track when, who, and how many points they allocated to – via a block explorer. During points redemption, the smart contract code can be modified (via Solidity modifier) to only allow certain roles (such as cashiers) to burn tokens that are redeemed.

Here’s the kicker. With ERC1155, you could distribute fraud-proof digital coupons and control who can use them. With NFT minting in ERC1155 contract, the store owner could mint exclusive NFT coupons such as buy-1-free-1 offers for members only, and make these coupons non-transferable to anyone else via the NFT’s soulbound feature. Soulbound tokens (SBT) are a hybrid NFT that disallows a holder of an NFT to transfer their NFT to other wallet addresses. In other words, they are bounded to your soul.

To redeem the coupon, the coupon holder only needs to verify that they own the coupon via their wallet address that holds the coupon. Again, via the simple wallet verification tool mentioned above, the cashier could perform this verification process to prevent any attempts to create counterfeit coupons (especially fake screenshot coupons inside a mobile wallet). If verification is successful, the cashier just needs to burn the coupon from existence once redeemed.

Customers’ Privacy Can Be Maintained At Anonymity

Since each customer’s detail is represented by a wallet address, customers have little to worry about privacy invasion. An enterprise could over distinctive privacy choices – one with customer’s information in exchange for better rewards and engagement, or one without any customer’s details and only with rewards.

Every Bit Can Be Managed and Traced Without The Cost

All in all, every activity can be tracked on the blockchain, making the management of this Web3 loyalty program much easier than a traditional reward system. ERC1155 smart contract owners could control if they allow or disallow points or coupon transfers between members, and who could mint or burn tokens.

Concern over gas fees can be alleviated by using a low-gas Ethereum-compatible (EVM) chain. The store itself could in fact deploy its own blockchain node and cap the capex cost to a minimum since Ethereum is open source. Furthermore, you own the infrastructure and shall have no concern over dependence on vendors.

Perhaps the hidden beauty of this all is that your reward points may fetch some value that members begin to trade in on an exchange.

We, at Mintnite, are working on a full set of user interface tools to enable the creation and management of ERC1155 loyalty program, all without programming. Please stay tuned.