The Secret History of Rewards

Chapter 1.0: The First 100 (ish) Years

When the concept of customer rewards was introduced in the late 19th century, it was initiated not by banks, but by businesses seeking to foster customer loyalty. Retail was booming thanks to the Industrial Revolution, which was transforming commerce at dizzying speeds. Innovations in transportation, fabrication, and communication flooded the market with new and expanded product offerings. Consumers had choices they’d never dreamed of before, and stores had competition. Enter rewards: a concept borne of and intimately tied to rapid technological innovation. 

Among other strategies, shrewd retailers developed something called “trading stamps,” issued based on the value of a consumer’s purchases – printed tokens awarded for patronage, essentially, which could be collected and later redeemed for goods in-store. In 1891, S&H (Sperry & Hutchinson) Green Stamps pioneered a third party model, distributing the stamps to retailers themselves. Supermarkets, gas stations, and department stores gave them to customers at checkout; they could then be exchanged for items in a catalogue. At one point, Sperry & Hutchinson was producing more stamps than the United States’ Postal Service. Rewards were bigger than snail mail. 

Banks took note of the innovation early on. But, as usual, financial industries were slow to get in on the trend. Very, very slow. 

It wasn’t until the introduction of credit cards in the second half of the 20th century that rewards programs (gradually) started to become a cornerstone of major issuers’ competitive strategies. Initially, the emphasis remained on the convenience of not needing to carry cash or a checkbook – and above all, on exclusivity. 

Launched in 1950, the Diners Club general-purpose charge card truly did emphasize the idea of the club. It was a skeleton key of sorts, opening the gates to elite restaurants and lounges. American Express was marketed as a luxury toolkit, too, a symbol of affluence offering high-end services and a general sense of VIP status. Travel and in-person experiences were highlighted over cash-back programs and redeemable points. Simply being able to use a card internationally was seen as a core perk of being part of the community of cardholders – a member of something special.

To understand the customer loyalty revolution, it helps to look up: points-based reward systems crystallized in the sky. When American Airlines introduced the first Frequent Flyer Program, AAdvantage, in 1979, points could suddenly be based on anything – in miles traveled, for example – not just on dollars spent. 

In the 1980s, structured rewards programs offering points, miles, and cash back finally took off in financial institutions – almost a century after the popularization of loyalty stamps. But redeeming points remained a clunky procedure. Tiny squares of paper were pasted into booklets that could then be exchanged in-store or by post; proof-of-purchase labels were cut out and saved by consumers, who received a check weeks after mailing in their clippings. Credit card companies and airlines still placed the burden of tracking points on users, who had to keep physical records of their status to reap the benefits of loyalty. 

All of which is fair enough. The slow pace of institutional adoption aside, we simply didn’t have the technology. 

That is, until we did.

Skip To: Web2

The 2000s saw the rise of digital rewards programs, as loyalty tracking transitioned from physical cards to digital accounts. The internet and mobile technology allowed retailers and banks to track customer activity in real time, offering personalized incentives based on history and preference.

As before, banks and financial services weren’t exactly on the forefront here. Initiatives like Starbucks Rewards and Amazon Prime led the redefinition of consumer loyalty with gamified experiences, offering exclusive benefits for frequent users – who were now, in some cases, not only spending money at these outlets, but also paying to participate in programs. Tailored rewards deepened relationships between brands and consumers, but also shackled subscribed customers to specific platforms and retailers. 

Of course, financial service providers continued to evolve their reward offerings, too. Travel perks, exponential points, vendor partnership discounts, and cashback offers have since become de rigueur, as effective means of getting consumers to use credit or debit cards for purchases they might easily have made in cash.

Fintech’s apps and online services at least made it easier to track and redeem rewards – creating a virtuous cycle for card providers, one imagines: seeing your points instantly accrue makes you want to continue to put charges on that account. Now that sophisticated benefits programs are commonplace, though, membership isn’t quite as special anymore. Anyone with a mobile app can join the mile high club, and they’ll get top status if they know how to work a point system. 

Along Came Crypto

The decentralized, transparent, and programmable nature of blockchain has not only created new ways to structure and distribute rewards – it has made them integral to maintaining the system. 

Onchain, rewards are more than customer incentives: they are the backbone of participation in decentralized networks. Validators, miners, and liquidity providers earn tokens as rewards for securing and maintaining blockchains, aligning financial incentives with network health. Unlike traditional loyalty programs, where rewards are a side benefit, blockchain ecosystems depend on them to drive user engagement, govern, and assure system stability. 

The concept of rewards in web3 goes back to the earliest days of blockchain and cryptocurrencies. Satoshi Nakamoto’s seminal 2008 Bitcoin white paper describes what we call proof-of-work (PoW), where miners who validate transactions and secure the network are rewarded with BTC. For the first time, rewards were explicitly linked to system maintenance. 

Bitcoin’s PoW was just the beginning. 

With Vitalik Buterin’s Ethereum white paper in 2013 and the subsequent launch of Ethereum in 2015, the concept of rewards expanded beyond mining. Smart contracts made it possible to create programmable rewards systems, enabling decentralized applications (dApps) and decentralized finance (DeFi) to incentivize users to perform tasks or provide liquidity.  

Providing an alternative to PoW, proof-of-stake (PoS) consensus mechanisms reward participants for staking their tokens to validate transactions, reducing the energy required for proof-of-work and democratizing rewards by allowing token holders to earn based on their stake – not their computing power.

By 2020, we were yield farming, earning rewards for providing liquidity to DeFi protocols. We were also minting NFTs: digital assets with the power to grant exclusive access and privileges to their owners. Social tokens and NFTs alike rewarded creators and community members for their engagement and participation in their corners of web3. That feeling of club membership, in other words, came back. 

When it comes to belonging to something, there are synergies in web3 that echo the early days of American Express or Diners’ Club. Membership passes issued as exclusive access tokens or minted as NFTs to unlock rewards are already being used to boost engagement and distinguish projects. But unlike a black AmEx, NFTs are investments themselves, and can increase in value while they chill in your wallet. Credit cards just expire and get chopped up and thrown away. 

It’s sort of crazy to think about, isn’t it? This new reward paradigm transforms users into stakeholders, empowering them to own, govern, and actively contribute to the programs they interact with. Imagine frequent flyer miles that you could exchange for company shares in the airline, or a say in the flight path.

Total Fusion – Or, The Best of All Worlds

Onchain, loyalty, participation, and earning attain levels of transparency, flexibility, and agency that were impossible within the traditional systems that gave us the “rewards” model in the first place. 

The innate interoperability of the web3 space takes rewards to new levels of access and potential. When rewards are tokenized, in exchange for engaging with platforms or services, participants receive assets that can be traded on exchanges, held in personal wallets, deployed as collateral in DeFi protocols, or used for truly any imaginable purpose within a given ecosystem. 

Picture it: you’re cheering on your favorite eSports team, earning rewards for the props, and instantly swapping them for merch and collectibles. Even crazier? With a few more tokens you’re eligible to buy a stake in the team’s virtual arena – granting you a cut of future ticket sales. Now, thanks to your real estate, you’ve got collateral to borrow in a DeFi protocol. Plus, your team merch is a hot commodity on the secondary market. Everywhere you look, your portfolio is growing.  

Massive airdrops appear in your wallet – and the earlier you adopt, the more tokens you get. Referrals are rewarded, just like they are in traditional finance, but here, users also get more for posting about the project on X or touting it in their Discord communities. Leaderboards let you compare your points, and questing resources aggregate the most anticipated and lucrative drops. The rewards and the experience are one and the same. 

In this space, partnerships between several entities can multiply the benefits. (To see this in action, sign in to check out Coinshift’s partnership with Turtle Club and Paxos International, where holding yield-bearing USDL qualifies users for points across all platforms.) 

Traditional rewards schemes made it hard to redeem points, though the fintech revolution helped with that: integrated mobile apps made for seamless tracking and easy, instant redemption. Onchain, however, issuance and redemption are verifiable and immutable. Sure, banks and credit card companies can leverage data analytics to tailor rewards to individual customer preferences. But in web3, individuals are in complete control of their own experiences. Your rewards, and how you use them, are entirely up to you. (Hi, Mercle.)

Plus, traditional concepts such as interest benefit the user – not the credit card issuers or financial service companies. At Coinshift, it’s what we call the quadruple “win.”

TL; DR

The history of rewards programs has, obviously, been shaped by technological advances. Before loyalty points and perks appeared in our banking apps, they were printed stamps pasted in scrap books. Their core objective remained the same across mediums: to deepen the connection between consumers and the particular brands and institutions they frequent. 

Rewards programs tend to take on the same forms in which information is consumed. First they were printed, then they were digitized – just as newspapers and magazines were. In a way, they are fundamentally about communication: a means of getting in touch, of creating a dialogue. Technology has consistently enabled these dialogues to become more sophisticated over time. 

In other words, the evolution of consumer rewards programs holds a mirror to the broader technological advancements that have only accelerated since the Industrial Revolution. From punch cards to digital loyalty programs, each leap in technology has reshaped how businesses connect with customers – and how value is defined and exchanged. 

Traditionally, rewards have also kept loyal users within a closed circuit, designed to make customers constantly circle back to the same place. Onchain, though, you get additional rewards for branching out, making connections and exchanges between entities, tokens, even ecosystems. 

Onchain, rewards completely transcend their original role. They are no longer purely about perks or business strategy, but an integral part of the system – a contract that is crucial to ensuring that decentralized networks can operate without traditional intermediaries. The middle man is gone. Users, not centralized entities, are the pulse of network growth and governance. And because of their essential contribution, they are rewarded exponentially.

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