Blockchain technology can make micropayments finally work


I recently encountered Mark Anderson article Since 2014 Bitcoin (Bitcoin). In many ways, it is far-sighted (not surprising). I have been working in this industry for four years, and most of my attention has been focused on the social impact of blockchain. What surprises me is that in 2014, before any institution existed in Bitcoin—or in fact, before a general understanding of this new technology—Anderson was able to outline its potential economic and social impact in the future.

Nearly eight years after he wrote these words, I want to talk about a topic in his article: micropayments. I will explore how blockchain can help change micropayments, so as not only to monetize certain aspects of businesses that need solutions, but also to help the most disadvantaged groups in society.

Micropayment

Micropayment is not a new concept. Since the mid-1990s, micropayments have experienced varying degrees of popularity. By definition, micropayments are transactions whose value is less than a certain threshold. The important thing is that, below this threshold, the transaction costs incurred will become an important part of the total transaction value, so it is not economical. Another important aspect is that due to the small amount of money, micropayments only refer to digital transactions of non-tangible goods. Any additional processing and shipping costs could mean a one-hundred-fold increase in the original transaction value, making it completely irrelevant.

Credit card companies provide various types of price plans for the fees charged by merchants. These plans usually include a lump-sum payment for each transaction and the percentage to be collected from it.Not surprisingly, this information will not be publicly obtained from the card company itself, but published by others compared to These rates are a service of the merchant. In this case, let’s examine how much the merchant will charge for small payments.

We assume the following:

● The lowest fee we found is 1.29% of the transaction amount, and there is no one-time fee.

● Since the smallest component of (most) fiat currencies is 1/100 of the whole—that is, $0.01—this will be the minimum fee charged by the credit card company, regardless of whether it is higher than 1.29%.

Plotting the ratio of transaction fees as a function of transaction value, we get the following figure. For example, a $0.01 transaction incurs a 100% fee, while a $0.10 transaction has a fee of “only” 10%. Naturally, this explains the irrationality of micropayment transactions under these payment platforms.

Blockchain has a solution

However, there are now alternatives. For many reasons, blockchain technology provides a perfect solution for micropayments. It provides the infrastructure for increasingly fast digital payments. Importantly, it provides the smallest payment unit of Bitcoin and Ether (Ethereum) Is very small, as shown in the following table:

In addition, the encrypted wallet can be easily embedded in any digital device, whether it is a mobile phone, a laptop or any other IoT device. Although the cost may vary greatly in different networks and on different occasions, the cost is not a problem for many protocols, and may be as low as a fraction.

Last but not least is user privacy.Due to the asymmetric encryption of the blockchain, payers only disclose their people The address at the time of payment, which does not actually provide any information for the person who wants to hack the wallet. Unfortunately, this is not the case for credit card transactions, which requires the payer to share their complete credit card number and hope that the payment platform is properly protected.

related: The encryption industry completely screwed up privacy

Real-world use cases for micropayments

Now that the technical aspects are covered, there is only one question left: Can I get anything for a millionth of a dollar? Well, I’m not sure about one part per million, but there are many use cases for micropayments. Here are some:

Alternatives to the subscription model: Whether it is video content, music, newspapers, etc., whether it is video content, music, newspapers, etc., there is no need to repeat the economic reasons behind the subscription model of online content consumption and its success in recent years. Although this model has multiple advantages, it is far from perfect. And there are still some warnings. For example, what if someone only wants to buy a product instead of subscribing? Suppose Alice subscribed to two online magazines when she discovered an interesting article about the third online magazine. She will not subscribe for the third time, although she is willing to pay only for that article. From the perspective of the magazine, the article already exists, why not charge it? Micropayments allow Alice and the magazine to maximize their economic utility.

Digital rights, royalties and referrals: As in the previous case, there is no need to explain what copyrights, royalties or referrals are. Unlike today’s complex solutions, micropayments provide a relatively simple mechanism for the instant settlement involved, with almost no minimum limit on the amount charged per transaction.

Internet of Things transactions: This use case is very far-sighted, although sooner or later it may become as mundane and trivial as a light switch. So far, the Internet of Things has hardly matured to a small part of its huge potential. One possible reason for this delay is the lack of a simple, easy-to-implement monetization model. Micropayments on the blockchain may be the answer. Think about all the data your car might collect, from road conditions to traffic conditions and so on. Sharing the data collected in real time by a large number of users is very valuable for traffic planning and road maintenance. That being the case, why not pay? The added value of the blockchain is an improved data anonymization and user privacy protection mechanism-also a successful combination. Of course, this can be used with any other IoT device, from smart meters to household appliances and more.

social influence: This is the most straightforward use case on this list (and obviously, my favorite). Micropayments on the blockchain can be revolutionary in two ways.One is that the recipient can easily set up a collection account so that they can make donations directly For them, cut all intermediary and indirect costs. Having said that, it is important to note that this feature is a double-edged sword and may become its main trap. It is equally easy for fraudsters to open fake accounts to attract donors. Ratings and audits will be required, similar to current online services that rate charities based on multiple criteria (eg, charity navigator, smart donation, non-profit organization committee, etc.) to ensure donors and provide them with better visibility sex. In addition, since the minimum donation amount is no longer an issue, we may see small donations.World Bank Classification “Low-income” countries with a per capita gross national income of less than US$1,025. In other words, this means that the daily salary is less than $3.As of 2020 data, There are 27 low-income countries. Micropayments can provide an excellent mechanism. Fraud must be carefully monitored to donate funds to those in need in these countries. I think you can see how this can lead to more effective donations and more direct impact if managed properly.

related: Digital philanthropy: we can do better

In the past few years, micropayments have lost some of their initial reputation. Although this concept is advanced, backward technology prevents its realization. Andreessen is correct and revolutionary in emphasizing the ability of blockchain to change micropayments. Here, I barely touched on the use cases and potential.

Companies can become more efficient and can monetize more products. Through direct and personal assistance, without an intermediary, the entire community can transform or escape economic depression. Thanks to Andreessen for his vision eight years ago-blockchain may be the fresh air the world is waiting for.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.

The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Neta Colin He is the co-founder of Orbs and Hexa Foundation. Before joining Orbs, Netta served as a senior adviser to General Mordechai Hod on special projects of the Israeli Ministry of Defense, and as a senior adviser to Michael Oren, the Deputy Foreign Minister in the Prime Minister’s Office. Netta started his career as an investment banker on Wall Street and later became a hedge fund manager. She has extensive experience in philanthropy and has served on multiple boards of directors in Israel and the United States for more than 15 years, and held senior positions on the executive committee.