Application Transactional Data Design (aka when to use points over currency)

I got the idea for this in an Irish pub. Go figure.

I recently discovered the website homeexchange.com. The concept behind it is interesting, but also incredibly effective for what they are trying to achieve. I will go into that soon, but the other concept that really fascinated me about the site was the concept of GuestPoints (GP), which - along with the enforcement of the rest of these unwritten social rules - creates an intriguing dynamic.

homeexchange.com and its GuestPoints system

Here’s how it works. You go to the website and you tell someone, “I would like to exchange house keys with you, please.” You agree on the dates and the basic rules and stuff and you’re good to go. There’s ways, of course, to make sure that you are on your best behavior with someone else’s property. There are ratings that you get by the owner of the apartment regarding how well you took care of their apartment. You essentially depend on the respectfulness of strangers, but it turns out that this is a powerful force. Additionally, the temptation of a free vacation home does keep people in check. Really fascinating stuff.

But, there are ways other than a direct exchange by which you can get properties, and this is where the GuestPoints system comes in. Every day that someone stays in your home, you get a certain amount of GuestPoints and at some point, you can exchange your GuestPoints for stays at places instead of exchanging homes. You still have to be on your best behavior because the home owners can reject your offer, but that gives you the ability to rent out your home without taking one in return and vice versa. The points system further rewards good behavior since the better you’re rated, the more likely you are to get a home you want with your points.

But that left me with the question: “What made this so effective?”. And I realized the scenarios where this is effective and when it isn’t. Let’s explore that.

C2C vs B2C or B2B systems for points

In short, points as a primary system works perfectly when it is used on a platform between individual customers (Consumers to Consumers or C2C). It’s basically a more advanced form of cavemen from different tribes bartering for goods. A handshake deal, except now there is a ledger that makes sure it is known if you don’t keep your end of the deal. This works because of the same reason social media works: likes create visibility and other benefits.

However, the reason this does not work with businesses is that businesses require collateral or the exchange of assets. Basically, to get something from a business, you must give them something that they can then use in another trade, like money. An asset can be bought and sold between businesses and consumers over and over again, sometimes even bought with a different type of currency like reward points, but that is the cycle that those assets are in. This system is not possible with home exchange because the currency you are trading with each other is essentially your reputation, and you can’t just let anyone else use that, that never benefits you.

In conclusion. when designing an application where you want people to behave with each other or at least not be mean to each other, use points as a reward, or bans as a punishment like Discord does. For any venture that is larger or more complex, use money.