Blockchain technology can make micropayments finally work



I recently came across the work of Marc Andreessen item from 2014 on Bitcoin (BTC). In many ways, he’s visionary (no surprise). I’ve been in the industry for four years now, and my primary focus is on the social impact of blockchain. It’s amazing to me that in 2014, before there was an institutional presence in Bitcoin – or, in fact, a popular understanding of this new technology – Andreessen was able to describe its potential economic and social impact for it. to come up.

Almost eight years after writing his words, I would like to touch on one of the topics of his article: micropayments. I will explore how blockchain could help transform micropayments and thus not only enable the monetization of certain aspects of businesses that need a solution, but could also help the most vulnerable in society.

Micropayments

Micropayments are not a new concept. Since the mid-1990s, micropayments have experienced varying degrees of popularity. By definition, micropayments are transactions whose value is below a certain threshold. It is important to note that below this threshold, the transaction costs incurred become a significant part of the total value of the transaction and, therefore, are not economical. Another important aspect is that due to the tiny monetary amounts, micropayments only refer to digital transactions of non-tangible goods. Any additional cost of handling and shipping can result in a hundredfold increase in the value of the original transaction, making it totally irrelevant.

Credit card companies offer merchants different types of pricing plans for the fees they charge. These plans typically include a lump sum billed per transaction and a percentage taken out of it. Not surprisingly, this information is not openly available from the card companies themselves, but is instead published by others who compare these tariffs as a service for traders. In this context, let’s take a look at what fees a merchant would be charged for a micropayment.

We assume the following:

● The lowest fee we found was 1.29% of the trade value, and no flat fee was charged.

● Since the smallest element of (most) fiat currencies is 1/100 of the set – that is, $ 0.01 – this would be the minimum fee charged by the card company credit, even if they are above 1.29%.

By plotting the proportion of transaction fees according to the value of the transaction, we get the graph below. For example, a transaction of $ 0.01 incurs a fee of 100%, while a transaction fee of $ 0.10 is “only” 10%. Naturally, this shows the irrationality of carrying out micropayment transactions under these payment platforms.

Blockchain has a solution

However, there is now an alternative. Blockchain technology provides the perfect solution for micropayments, for many reasons. It provides the infrastructure for digital payments which are accelerating day by day, and most importantly, the minimum payment unit of Bitcoin and Ether (ETH) is incredibly small, as shown in the table below:

Moreover, crypto wallets easily integrate into any digital device, be it a mobile phone, laptop or any Internet of Things device. And while fees can vary widely across various networks and on different occasions, fees aren’t an issue with many protocols and can reach as low as fractions of a cent.

Last, but not the least, is user privacy. Due to the asymmetric encryption of the blockchain, the payer only exposes his Public address during checkout, which hardly provides any information for someone looking to hack their wallet. Unfortunately, the same is not true for a credit card transaction, which requires the payer to share their full credit card number and hope that the payment platform is properly secured.

Related: The crypto industry royally messed up privacy

Real use cases for micropayments

Now that the technology aspect is covered, only one question remains: can I get something for a millionth of a dollar? Well I’m not sure what the millionth is, but there are many use cases for micropayments. Below are a few:

Alternative to the subscription model: No need to recall the economic logic of the subscription model for consuming online content and its success in recent years, whether it is video content, music, newspapers, etc. While this model has multiple advantages, it is far from perfect. and still has some caveats. For example, what if someone wants to purchase a single item rather than committing to a subscription? Suppose Alice subscribes to two ezines when she finds an interesting article on a third. She will not be opting for a third subscription, although she is willing to pay only for this item. From the magazine’s perspective, the article is already there, so why not charge someone for it? Micropayments allow Alice and the magazine to maximize their economic utility.

Digital copyrights, royalties and references: As in the previous case, there is no need to explain what copyright, royalties, or cross references are. Micropayments offer a relatively simple mechanism for the immediate settlements involved, with virtually no minimum limit to the amount charged for each, unlike the complicated solutions that exist today.

IoT Transactions: This use case is very visionary, although it will probably become as mundane and trivial as a switch, sooner rather than later. To date, the IoT has barely reached a fraction of its vast potential. One possible reason for this delay is the lack of a simple and easy-to-implement monetization model. Micropayments on the blockchain could be the answer. Think about all the data that can be collected by your car, from road conditions to traffic and more. Sharing data collected by mass users in real time could be invaluable for traffic planning and road maintenance. And as such, why not pay it? The added value of blockchain is an improved mechanism to anonymize data and protect user privacy – again, a winning combination. Naturally, it could work with any other IoT device, from smart meters to home appliances and more.

Social impact: This is the easiest use case on this list (and, obviously, my favorite). Micropayments on the blockchain can be revolutionary in two ways. The first is that donation recipients could easily create accounts to receive funds, which will allow donations to be made. directly to them, eliminating all middlemen and overheads. That said, it’s critical to note that this feature is a double-edged sword that could prove to be its biggest pitfall. It would be just as easy for fraudsters to open fake accounts, to attract donors. There will be a need for evaluation and auditing, similar to current online services that assess charities on multiple criteria (e.g. Charity Navigator, Smart Giving, Council of Nonprofits and others) in order to ensure and provide better visibility to donors. In addition, since a minimum donation amount will no longer be a problem, we can see donations of micro-amounts. The World Bank categorized a country with a gross national income per capita less than $ 1,025 as “low income”. In other words, it means a daily salary of less than $ 3. From 2020 The data, there are 27 low-income countries. Micropayments could be an excellent mechanism, which needs to be carefully vetted to detect fraud, to donate funds to those in need in those countries. I think you can see how this, if managed well, could lead to more effective giving and more direct impact.

Related: Digitization of charity: we can do better to do good

In recent years, micropayments have lost some of their initial prestige. While the concept was ahead of its time, technology lagged behind and prevented it from materializing. Andreessen was right and revolutionary in pointing out the ability of blockchain to transform micropayments. Here, I’ve barely scratched the surface in terms of use cases and potential.

Businesses may become more efficient and be able to further monetize their offerings. Entire communities could be transformed or lifted out of economic depression by direct and personal assistance without intermediaries. Kudos to Andreessen for his vision eight years ago – blockchain could be the breath of fresh air the world has been waiting for.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research before making a decision.

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

Netta Korin is co-founder of the Orbs et Hexa Foundation. Prior to Orbs, Netta was Senior Advisor to General Mordechai Hod on Special Projects at the Israeli Defense Ministry and Senior Advisor to Deputy Minister of Diplomacy Michael Oren in the Prime Minister’s Office. Netta started her career on Wall Street as an investment banker and then went on to become a hedge fund manager. She has extensive experience in philanthropy and, for over 15 years, has served on several boards of directors in Israel and the United States, holding senior positions on executive committees.


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