Blockchain technology is making an effort to bring forward micropayment and monetization which can perpetuate sustainability and help at risk communities.
I recently came across Mark Andreesen's article on Bitcoin (BTC) from 2014. He is visionary in many ways (no surprise. I was surprised that in 2014, prior to Bitcoin's institutional presence – or indeed widespread understanding of this new technology – Andreesen was able to decipher its potential economic and social implications for the future.
Nearly eight years after, I want to focus on one of the topics in his article: micropayments. I will explore how blockchain can help transform micropayments, not only enabling monetization of certain aspects of businesses that need solutions, but also helping the most vulnerable communities.
Micropayments are not a new concept. Micropayments have enjoyed varying degrees of popularity since the mid-1990s. Micropayments by definition are transactions with values below a certain limit. It is important that below this limit, rising transaction fees constitute a significant part of the total transaction value and are therefore uneconomical. Another important aspect is that due to the insignificant amount of money, micropayments are only related to digital transactions of intangible goods. Any additional processing and shipping fees can increase the initial value of the transaction by a factor of 100 and thus become completely irrelevant.
Credit card companies offer merchants several types of pricing plans for the fees they charge. This plan usually includes an accrued lump sum per transaction and a calculated percentage. Not surprisingly, this information is not publicly available by the card companies themselves, but is published by others comparing these rates as a service to merchants. In this context, let's look at how much a micropayment merchant charges.
These are the observations:
- The lowest fee we found was 1.29% of the transaction value and there is no one-time fee.
- Since the smallest building block of (most) fiat currency is 1/100th of the whole - which is $0.01 - this will be the minimum fee companies charge a credit card, regardless of whether it is higher than 1.29%.
To illustrate the proportion of transaction costs as a function of transaction value, we obtain the following diagram. For example, a $0.01 transaction is subject to a 100% fee, while a $0.10 transaction fee is "only" 10%. This of course shows the irrationality of micropayment transactions between these payment platforms.
But now there is an alternative. Blockchain technology offers an ideal solution for micropayments for many reasons. It provides the infrastructure for digital payments that are increasing every day, and most importantly, the minimum unit of payment for Bitcoin and Ether (ETH) is very small. Moreover, crypto wallets can be easily situated in any digital device, be it a mobile phone, laptop or other Internet of Thing’s device. And while costs can vary greatly depending on the network and on different occasions, cost is not an issue with many protocols and can run into fractions of a penny.
Last but not least, there is user privacy. Due to the asymmetric encryption of the blockchain, the payer only discloses his public address when paying, which in practice does not provide any information about someone who wants to hack his wallet. Unfortunately, this does not apply to credit card transactions where the payer has to provide his or her full credit card number and expect the payment platform to be properly secured.
Real use cases of using micropayments
Now that the tech aspect is covered, there's only one question left: do I get something for a millionth of a dollar? I'm not sure about a million, but there are many examples where micropayments are used. Below are some:
- Alternative subscription models: There is no point repeating the economic arguments of the subscription model for the consumption of online content and its success in recent years, be it video content, music, newspapers, etc. Although this model has many advantages, it is far from perfect and still has some reservations. For example, what if someone only wants to buy one item instead of committing to a subscription? For example, suppose that Alice is subscribed to two online magazines when she finds an interesting article about a third magazine. He would not take a third subscription even if he was willing to pay for this item alone. From a magazine standpoint, the article already exists, so why not ask someone for it? Micropayments allow Alice and the magazine to increase their economic benefits. Digital Copyright, Copyright and Recommendation Rights: As in the previous case, there is no need to explain what copyright, remuneration or recommendation is. Micropayments provide a relatively easy mechanism for instant billing, with virtually no minimum amount charged, unlike today's complex solutions.
- IoT Transactions: This use case is very visionary, although sooner or later it will likely become as shallow and trivial as a light switch. To date, the IoT has not yet matured to any part of its enormous potential. One possible reason for this delay is the lack of a simple and easy-to-implement monetization model. Blockchain micropayments could be the answer. Think about all the data that can be collected from your car, from road conditions to traffic and more. Sharing data collected from mass users in real time can be invaluable for traffic planning and road maintenance. And why not pay for it? The added value of blockchain is the improved mechanism to anonymize data and protect user privacy - again a winning combination. It can of course work with other IoT devices, from smart meters to home appliances and more.
- Social Impact: This is the simplest use case on this list (and my favorite, of course). Blockchain micropayments can be revolutionary in two ways. The first is that recipients of donations can easily create accounts to receive funds that allow them to donate directly, without intermediaries and additional fees. However, it is important to note that this feature is a double-edged sword that can be its main trap. Fraudsters will easily create fake accounts by attracting donors. Similar to today's online services that rate charities based on various criteria (e.g. Charity Navigator, Smart Giving, Nonprofit Boards, etc.), ratings and audits will be required to ensure better visibility for donors. Since minimal donations are no longer a problem, we can also see donations in very small amounts. The World Bank classifies countries with a gross national income per capita of less than $1,025 as "low income". In other words, that means a daily wage of less than $3. According to 2020 data, there are 27 low-income countries. Micropayments can be an excellent mechanism that should be closely monitored for fraud to donate funds to those in need in these countries. I think you can see how this, if managed properly, can lead to more effective delivery and more immediate impact.
Companies can become more efficient and can generate more revenue from more of their offerings. Entire communities can be transformed or lifted from economic depression through direct and personal assistance without intermediaries. Credit to Andreesen for his vision eight years ago - blockchain could be the breath the world has been waiting for.