Pure Loyalty: Efficient and Secure Framework for NFT Loyalty Programs

Ⅰ. Introduction

Blockchain technology, known for its decentralized and transparent characteristics, has found applications beyond its initial use in cryptocurrencies, influencing various sectors significantly. In the media sector, Ethereum’s blockchain has been utilized for copyright protection, enabling decentralized music sharing and efficient licensing fee management through smart contracts. This application is demonstrated by the Hash-Based Audio Detection System (HADES)^[1]. In finance, blockchain technology facilitates the conversion of cryptocurrency into digital tokens for offline use, as seen with Pure Wallet (PW)^[2], showcasing its versatility and broad impact.

The evolution of loyalty programs, driven by the need to address issues related to trust, transparency, double-spending, and fraud inherent in traditional systems, has led to the development of Pure Loyalty. This framework employs Non-Fungible Tokens (NFTs) to enhance loyalty programs, addressing common inefficiencies and fraud. By utilizing innovative batch minting and issuing non-transferable vouchers, Pure Loyalty significantly improves security and engagement within the loyalty ecosystem. It tackles challenges such as fraudulent activities, low redemption rates, and complex program management, thereby offering substantial benefits to both businesses and consumers^[3-5].

TokenLink and other studies have identified significant limitations in current loyalty programs, such as privacy concerns, lack of interoperability, and challenges in managing loyalty points. Pure Loyalty addresses these issues by introducing a secure, transparent exchange mechanism powered by smart contracts to boost program participation and engagement. This strategy reduces fraud and inefficiency, leading to a more inclusive and interactive loyalty program landscape, thereby greatly enhancing the value and appeal of these programs ^[6,7].

Despite facing scalability and transaction cost challenges, blockchain-based loyalty programs on Ethereum benefit from decentralized security and the use of smart contracts. Features like universal earn-and-burn functionality distinguish these programs, offering transparency, security, and interoperability. By addressing issues such as low redemption rates and complex management, blockchain technology simplifies partnership complexities, enhances participant interactions, ensures privacy, and maintains competitiveness and transparency. This leads to reduced inefficiencies, lower costs, and improved customer experiences. Examples from companies like MercadoLibre, Rakuten Group, FootballNet, and Singapore Airlines highlight the benefits, including enhanced interoperability, system modernization, and better customer experiences.

Key contributions of this paper include:

· Introducing the Pure Loyalty framework, an NFT-based loyalty program system utilizing a subscription model and designed to advance loyalty programs through blockchain technology.

· Utilizing ERC721-based libraries for batch minting, along with ERC20 tokens and Soul-Bound Tokens (SBTs), and integrating these with the InterPlanetary File System (IPFS) for secure off-chain storage, significantly enhances the efficiency and engagement of the program at a reduced cost.

· Evaluation of gas usage and security analysis using static analysis tools to optimize the framework for cost-effectiveness, scalability, and to ensure reliability against vulnerabilities.

The paper is structured as follows. Related works are presented in Section II. Section III elaborates on the proposed solution. Section IV outlines the experimental setup and results. Finally, Section V summarizes the key of this paper.

Ⅱ. Related Works

Study in [8] introduced ERC721A, enabling batch minting of multiple NFTs in a single transaction and incorporating SBT for enhanced security. However, this paper lacks a detailed technical analysis of the ERC721A or SBT implementations. Research in [9] mentioned ERC721A as a more cost-effective solution for batch NFT minting in IoT device authentication and data storage, quantifying gas cost savings compared to ERC721 for various batch sizes. It is important to note that this paper did not delve into the implementation of SBTs.

Table 1 provides a detailed overview, with each study exploring different existing of blockchain loyalty programs across various categories. Study in [10] implemented of a Raft-based multi-host blockchain network using Hyperledger Fabric for performance testing, accompanied by the development of a user interface for customer inquiries about loyalty point transactions. However, security evaluation was lacking. Another study in [11] introduced a unified loyalty system for retailers and customers utilizing blockchain to reward eco-friendly purchases, enhancing interest in sustainable products. While empowering users and improving transparency, this paper did not delve into specific token standards and security evaluations.

In paper [12], a blockchain-based loyalty program using NFTs to boost brand loyalty in agribusiness was proposed. Leveraging the Ethereum network, ERC721 standard, and IPFS, this research established a secure and transparent customer reward system. Santos et al.^[13] addressed the integration of multiple loyalty programs of different types on a single platform, introducing meta-transactions for enhanced privacy. Nevertheless, these papers lacked detailed gas and security evaluations. Finally, Hinarejos et al.^[14] introduced a multi-merchant blockchain-based promotional point scheme, allowing for point transfers among customers while upholding privacy and data confidentiality. Although the paper included a gas evaluation, a security assessment was notably absent.

Based on the mentioned related studies above, this study enhances the existing blockchain-based loyalty programs, particularly by implementing batch minting and a subscription model. By incorporating batch minting, the efficiency and scalability of token generation are significantly improved, allowing for the creation of large quantities of voucher tokens with reduced gas costs. Additionally, the introduction of a subscription model adds versatility to the loyalty program, enabling users to select from various tiers based on their preferences and usage patterns. Furthermore, this study conducts a comprehensive security evaluation, addressing potential vulnerabilities and ensuring robust protection against threats such as reentrancy attack, double spending, and unauthorized access.

Ⅲ. Proposed System

3.1 Architecture

The proposed system architecture illustrated in Fig. 1 is structured with a dual-layered approach, encompassing the app and business logic layer and the infrastructure layer, to establish a resilient and scalable foundation for blockchain-based loyalty programs. In the app and business logic layer, the smart contract component serves as the core engine, implementing the ERC721 standard and featuring functionalities crucial for loyalty programs, such as efficient batch minting for simultaneous token creation, integration of SBTs for enhanced security, and support for interactive subscription models.

Fig. 1.

The Proposed System Architecture

The subscription component promotes user engagement, while the NFT module manages the lifecycle of loyalty tokens, including efficient batch minting. A dedicated security module ensures the integrity of transactions and safeguards user data with assesment tool slither, while the tokenization module facilitates the representation of loyalty rewards as tokens for broader blockchain integration. Seamless wallet integration enables users to manage their loyalty rewards effortlessly.

In the infrastructure layer, the blockchain component forms the decentralized backbone, employing the ERC721 standard and potentially integrating ERC20 tokens for additional utility. Consensus mechanisms secure transaction validity, providing a reliable and secure environment. Robust security measures are embedded at the blockchain level, following best practices to protect against potential threats. The integration of the IPFS enhances data storage, ensuring decentralization and accessibility for off-chain loyalty reward data.

3.2 ERC721 Optimization for Batch Minting

Batch minting, the simultaneous creation of multiple tokens in a single transaction, is pivotal to the system, optimizing the minting process for scalability and cost-effectiveness. This approach reflects a commitment to a resource-efficient loyalty ecosystem, reducing gas consumption and associated fees for improved user experiences.

In the implementation, ERC721A by Azuki addresses high gas spent during NFT minting^[15]. It employs strategic optimizations such as storage efficiency, batch minting, consistent gas costs, low transaction fees, delayed ownership assignment, and prioritized gas savings. ERC721A stands out as a thoughtful approach, delivering streamlined minting and a cost-efficient user experience.

Similarly, ERC721G by 0xInuarashi prioritizes reducing gas costs and improving efficiency in NFT operations^[16]. This implementation introduces structural optimizations, SSTORE optimization, batch minting efficiency, and a single-contract batch mint and stake approach. ERC721G focuses on minimizing gas impact and efficiently handling various actions within a single transaction.

Finally, ERC721Psi, a custom implementation, optimizes batch minting and addresses scalability challenges in token transfers and metadata querying^[17]. Inspired by ERC721A, ERC721Psi emphasizes batch minting efficiency, storage optimization, gas savings in token transfer, on-chain metadata querying, tamper-proof randomness, gas efficiency comparisons, scalability enhancement, and contribution to metaverse development. ERC721Psi strives to provide substantial gas savings, aligning with the broader goal of facilitating the development of the future metaverse.

3.3 SoulBound Token, IPFS, and Subscription Model

In the design of the loyalty program, SBTs play a crucial role in maintaining the integrity of memberships, serving as non-transferable NFTs that prevent unauthorized transfers and address challenges associated with traditional verification methods. These tokens, integrated strategically into the loyalty program, leverage blockchain technology to enforce non-transferability, binding each token unequivocally to its rightful owner. By leveraging the decentralized and immutable characteristics of blockchain, SBTs mitigate the risk of fraudulent activities and enhance the program’s integrity, providing a transparent and secure verification process for both users and administrators^[18].

Complementing the secure framework provided by SBTs, IPFS assumes a crucial role in decentralizing and efficiently storing the program’s data components. As a distributed file system, IPFS hosts exclusive artwork for subscription badges, critical for differentiating memberships within the loyalty program. This strategic choice of off-chain storage addresses redundancy and scalability challenges. This dual approach, integrating SBTs for secure, non-transferable memberships and IPFS for efficient, decentralized data storage, underscores a commitment to leveraging advanced technologies to improve the loyalty program landscape, fortifying security and trust while enhancing scalability and user engagement^[7].

Moving forward, the subscription model within the proposed system introduces a comprehensive scheme designed to elevate user engagement and loyalty through a multi-faceted approach (see Fig. 2). Initiated by users through purchase or reception, the smart contract orchestrates the seamless transfer of subscription costs using ERC20 tokens. Simultaneously, the smart contract engages the voucher component to batch mint redeemable vouchers, enhancing the benefits associated with the loyalty program. These vouchers serve as a mechanism to boost user participation and satisfaction within the loyalty ecosystem. Upon successful subscription, users receive the subscription badge and redeemable vouchers.

During the usage phase, users interact with the smart contract to utilize vouchers and subscription benefits. The contract, utilizing SBT, verifies active membership, monitors voucher status, and facilitates claiming for unclaimed vouchers while preventing duplicate claims.

Fig. 2.

Scheme of The Proposed System

3.4 Security Review Method

To ensure the integrity and robustness of the proposed loyalty program’s smart contracts, we employ a comprehensive security evaluation strategy. This strategy combines manual assessment and with the help of an automated tools, notably Slither. Manual review involves a detailed examination of the smart contract code, identifying potential vulnerabilities and ensuring compliance with established best practices.

Slither is a state-of-the-art static analysis tool tailored for Ethereum smart contracts^[19] that is able to detect common coding pitfalls, security weaknesses, and areas for optimization. Through the integration of manual review and Slither analysis, the security of the loyalty program’s smart contracts is strengthened, guaranteeing robustness and compliance.

Ⅳ. Experimental Setup and Results

4.1 Experimental Setup

The blockchain setup utilized Ethereum technology, with a smart contract written in Solidity. Subsequently, the contracts were deployed onto the Sepolia public test network. Gas consumption was directly acquired from the Sepolia test network explorer to measure the contract efficiency. Lastly, a smart contract vulnerability analysis was conducted using the static analyzer Slither to evaluate potential security risks and weaknesses.

4.2 Gas Evaluation

Table 2 provides a detailed breakdown of gas spending associated with key functions within the proposed system, specifically focusing on the batch minting libraries: ERC721A, ERC721G, and ERC721Psi. The gas usage data were extracted from each cycle scenario outlined in Fig. 2. Within the table, various functions are detailed, including contract deployment, approve(), register () (using Bronze tier), and spendVoucher (), each associated with its respective gas values.

Contract deployment incurs varying gas cost across the ERC721 libraries. Specifically, Pure Loyalty with ERC721A as its voucher contract required 3,921,217 gas, ERC721G used 4,275,572 gas, and ERC721Psi spent 4,390,506 gas. The approve() function, which is ERC20 token approval for purchasing the subscription token, consistently requires 46,394 gas across all three libraries. The register () function for subscribing with bronze tier, exhibits differences in gas consumption, with the lowest gas usage is ERC721G at 336,757 gas, followed by ERC721Psi at 421,766 gas and ERC721A at 487,064 gas. These variations may stem from the unique features and optimizations implemented in each ERC721 library. Lastly, the spendVoucher () function, associated with redeeming vouchers, demonstrates relatively consistent gas used across ERC721A, ERC721G, and ERC721Psi, with 60,710, 60,733, and 60,710 gas, respectively.

4.3 Comparison of Batch Minting Libraries

Table 3 provides a comparison of gas used for different batch minting libraries within the proposed system; ERC721A, ERC721G, and ERC721Psi. Higher tiers entail greater benefits, represented by more vouchers. In this scenario, the Bronze tier creates five vouchers, while silver, gold, and platinum generate ten, fifteen, and twenty vouchers, respectively.

The comparison highlights significant variations in gas expenditure across different subscription tiers and among various ERC721 libraries. In the Bronze tier, ERC721G spends 336,757 gas, significantly less than ERC721Psi and ERC721A, which spend 487,064 and 421,766 gas, respectively. This trend persists across higher subscription levels, with ERC721G’s efficiency becoming particularly evident in the Platinum tier, where it registers a gas expenditure of 709,512. In contrast, ERC721Psi and ERC721A record gas expenditures of 1,163,911 and 1,226,524, respectively. Notably, ERC721G consistently demonstrates superior cost-effectiveness, exhibiting the lowest gas expenditure across all subscription tiers, while ERC721A consistently shows the highest. This consistent performance underscores ERC721G’s effectiveness in economically facilitating large batch minting operations, particularly as the demands of subscription scenarios increase.

4.4 Security Assessment

Table 4 presents the security evaluation of the smart contracts within the proposed system, focusing solely on the codebase of Pure Loyalty and excluding external contracts such as Open Zeppelin and the batch minting libraries. The assessment revealed only low and informational issues. Notably, concerns arise in the timestamp comparison within voucher contracts, particularly in the redeemVoucher () function. However, these comparisons are aimed at verifying whether the provided voucher ID has expired.

The warning concerning the “Void Constructor in PureLoyaltyPsi” appears to arise from the absence of explicit code within the constructor function. While Slither may prompt an issue, this approach is a recognized practice for contract deployment. Therefore, despite the warning, the implementation likely adheres to established best practices, rendering the flagged issue a false positive.

Additionally, Slither detected an issue regarding costly operations within loops during the execution of the batchMint() function, which is triggered when users register for the Pure Loyalty system. This function is deliberately designed to record the number of vouchers already minted and their respective owners based on the voucher ID. While Slither’s warning pertains to the potential inefficiency of operations within loops, it aligns with the intended functionality in the batchMint().

Ⅴ. Conclusion

This research provides a thorough exploration of integrating ERC721 and ERC20 libraries into loyalty program frameworks, showcasing the transformative potential of blockchain technology in addressing traditional challenges. The comparative analysis highlights ERC721G’s consistent cost-effectiveness, establishing it as a superior choice for handling batch minting across various subscription tiers. The incorporation of SBTs and the use of IPFS for off-chain storage enhance security and flexibility in loyalty program implementations.

Future works will focus on practically implementing the proposed loyalty program architecture, with deployment on the Ethereum mainnet as a central goal. Additionally, the development of a userfriendly DApp aims to offer a seamless interface for user engagement with the loyalty program. Prioritizing further smart contract optimization and user experience enhancements, ongoing efforts aim to refine the system’s efficiency for successful integration into live loyalty programs. This forward-looking strategy aligns with the broader goal of translating theoretical advancements into practical, impactful solutions within the dynamic landscape of blockchain-based loyalty programs. This approach ensures the longterm viability and scalability of loyalty programs powered by blockchain technology.