Daniel buys gift cards for all his cousins during the holiday season every year. He finds gift cards convenient and a great gifting option.

This year, he bought six cards and gave them to his cousins in advance. A day later, one of his cousins sent a text saying the gift card had already been used. Daniel was shocked, and to prevent the relationship from turning sour, he apologized and told his cousin that he would exchange it for a new one.

He knew then he had become a victim of a gift card scam.

How Tokenization Can Transform the Gift Card Experience

Gift cards form a big chunk of the sales every year during the holiday season.

In the US, 40% of holiday-season buyers bought gift cards in 2023. Reciprocally,64% of the purchasers use a gift card to shop during the Christmas and holiday seasons.

The market for gift cards was valued at$534.4 billion in 2023 and is expected to grow at a CAGR of over 20% between 2024 and 2032.

Aren’t these some crazy numbers? Yet gift cards, especially physical cards, are highly vulnerable to fraud and scams. According to the latest data released by the Federal Trade Commission, card draining and other gift card-related fraud totaled $217 million in 2023.

A simple solution to add immutability and liquidity to the gift card market is tokenization. Moving gift cards on-chain as tokens can eliminate most of the inefficiencies and vulnerabilities they face.

Let’s discuss how tokenizing gift cards can benefit sellers and users in the long run. But first, let’s examine how a gift card scam occurs.

How Does a Gift Card Scam Occur?

While scammers may dupe you of your money in numerous ways, the most prevalent kind of gift card scam occurs before you even make the purchase.

A typical gift card is equal in size to a regular credit card and contains a unique code that you find after you scratch off the silver on the card. You must then enter the code along with other details to redeem the amount the gift card offers.

Scammers often shoplift gift cards in bulk from stores and shopping complexes. The thieves take the cards home, heat the package to release the seal, and take out the card from its package. They then scratch off the silver, upload the card information into some software, and again apply a new scratch-off to make the cards look as good as brand new. These scratch-offs are easily available in bulk online. Another way is for scammers to cut the top part of the card, which contains the unique code, and replace the card with the original packing.

These packets are then reverse-shoplifted to the racks where they were originally placed in the racks. Whenever a buyer purchases these cards, they get activated at the register. The software where the scammers upload the info gets activated. The cards are quickly drained off by scammers, leaving the unsuspecting buyers in distress and shock.

Physical gift cards can be placed behind the counters to avoid this kind of situation, but what if the scam is an insider job? In that case, opting for digital gift cards is a better option as the chances of getting stolen get minimized.

But even digital gift cards are not foolproof. Scammers have found multiple ways to phish their way to digital gift cards via impersonation or social engineering tactics.

How Tokenizing Gift Cards Can Help Prevent Gift Card Scams?

Gift card scams are surprisingly easy to pull off and cost the industry millions of dollars. The card infrastructure currently in practice has very low-security barriers and traceability. It is almost impossible to nab the fraudsters or legally pursue any case against them.

There is a complete lack of personally identifiable information that would prove the true ownership of the card. Commonly pursued e-scams leave digital gift cards vulnerable.

By tokenizing gift cards, we move them on-chain and bring traceability, transparency, and security. Let’s figure out how tokenizing cards would work using an example.

Suppose Daniel purchases a tokenized gift card this time. The card would be in the form of a token with a unique code embedded in the smart contracts and visible to none.

When Daniel buys the card, the ownership of the card is transferred to him, and now the card is safely placed in his web3 wallet, which is secured under private key protection and encryption. The sale of the gift card also gets immutably recorded on the blockchain. There! We have documented proof of who owns the card in real time.

There can be three case scenarios after this. Daniel may use the card for himself. In that case, the token gets burned, and the value gets redeemed. In the second scenario, he may gift it to someone. For that, he simply transfers the token to the other person’s wallet. Now, the receiver becomes the owner. For the third case scenario, Daniel may decide to sell off the card for a higher price. For that, he may sell it to any interested user on any secondary market.

Looking closely at the example, we realize tokenization removes the security risks as the transfers are safe and recorded on a blockchain. Secondary market sales provide additional liquidity, and there’s no scope for double spending or duplication left, as the token gets burned as soon as it is used.

The buying, sale, and redemption of gift cards have become a code-driven process that is efficient, fast and requires no middlemen.

TokenFi applauds gift card tokenization as a great way to kickstart tokenized loyalty programs for a better customer experience.

We are doing every bit to make the tokenization process as easy as setting up an email address.

Offerings

We are excited to unveil our upcoming RWA Tokenization Module, designed to make it seamless to tokenize real-world assets like real estate, commodities, gift cards, and more — essentially anything that doesn’t qualify as a security. TokenFi’s industrial-grade solution aims to securely and efficiently bring real-world assets onto the blockchain.

In addition to this, we’re proud to offer several user-friendly tools to simplify token creation.

TokenFi Token Launcher: Create tokens (ERC-20, ERC-721, ERC-1155) on leading blockchains in just minutes, without the need for any coding skills.

QuickLaunch Bot: For those who prefer convenience, our bot enables token creation directly via Telegram and Discord, making tokenization just a few clicks away.