Blockchain technology can finally make micropayments work – News Couple
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Blockchain technology can finally make micropayments work


I recently found Marc Andreessen’s article from 2014 on Bitcoin (BTC). In many ways, it’s visionary (no surprise). I’ve been in this field for four years, with my focus on the social impact of blockchain technology. It’s amazing to me that in 2014, before there was any institutional presence in Bitcoin – or, indeed, a common understanding of this new technology – Andreessen was able to quantify its potential economic and social impact in the future.

Nearly eight years after he signed his words, I’d like to touch on one of the topics from his article: micropayments. I will explore how blockchain can help transform micropayments and thus enable not only monetization of certain aspects of the business that need a solution but can also help the most vulnerable in society.

micropayments

Micro payments is not a new concept. Since the mid-1990s, micropayments have experienced varying degrees of popularity. By definition, micropayments are transactions with a value below a certain threshold. Importantly, below this limit, the transaction fee incurred becomes a large part of the total transaction value and, therefore, does not become economical. Another important aspect is that due to the small amount of cash, micropayments refer only to digital transactions of intangible goods. Any additional handling and shipping cost could mean a hundredfold increase in the value of the original transaction, making it completely irrelevant.

Credit card companies offer merchants different types of rate plans for the fees they charge. These plans typically include a lump sum charged for each transaction and a percentage charged for it. Not surprisingly, this information is not publicly available from the card companies themselves, but rather is published by others who compare these rates as a service to merchants. In this context, let’s examine the fees a merchant will charge for a micropayment.

We assume the following:

● The lowest fee we detected was 1.29% of the transaction value, and no lump sum fee was charged.

● Since the smallest building block (most) of banknotes is 1/100th of a whole – that’s $0.01 – this will be the minimum fee charged by the credit card company, regardless of whether it is above 1.29%.

By plotting the transaction fee percentage as a function of the transaction value, we get the graph below. For example, a $0.01 transaction has a 100% fee, while a $0.10 transaction fee is “only” 10%. Naturally, this demonstrates 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 micro payments for many reasons. It provides a digital payments infrastructure that is getting faster day by day, and most importantly, the minimum payment unit for both Bitcoin and Ether (ETH) is incredibly small, as shown in the table below:

In addition, cryptocurrency wallets can be easily embedded in any digital device, be it a mobile phone, laptop or any other IoT device. And while fees can vary greatly in different networks and on different occasions, fees are not an issue with many protocols and may run into fractions of a cent.

Last but not least, user privacy. Due to the asymmetric encryption of the blockchain, the payer exposes files general Address at checkout, which provides virtually no information for someone looking to hack their wallets. Unfortunately, the same does not apply to a credit card transaction, which requires the card payer to share the entire credit card number in the hope that the payment platform will be properly secured.

Related: The crypto industry has spoiled privacy royally

Real use cases for micropayments

Now that the technology aspect is covered, only one question remains: Can I get anything for a fraction of a million dollars? Well, I’m not sure about the ppm, but there are many use cases for micropayments. Here are a few:

Alternative to the subscription form: There is no point in repeating the economic logic behind the subscription model for consuming online content and its success in recent years, be it video content, music, newspapers, etc. While this model has multiple advantages, it is far from perfect. There are still some caveats. For example, what if someone wanted to buy just one item instead of committing to a subscription? Let’s say Alice subscribes to two online magazines when she discovers an interesting article in a third. She won’t go for the third subscription, though she’s only willing to pay for this article. From the magazine’s point of view, the article is already there, so why not charge someone for it? Micropayments allow both Alice and the magazine to maximize their economic benefit.

Digital copyrights, royalties and referrals: As with the previous case, there is no need to explain copyrights, royalties, or referrals. Micropayments provide a relatively simple mechanism for the direct settlements involved, with virtually no minimum amount charged for each, unlike the complex solutions that exist today.

Internet of Things Transactions: This use case is highly visible, although it will likely become as banal and trivial as a light switch, sooner rather than later. So far, the Internet of Things has hardly matured into a small part of its enormous potential. One possible reason for this delay is the lack of a simple and easy-to-implement monetization model. Micropayments on the blockchain may be the answer. Think of all the data your car might collect, from road conditions to traffic and more. Sharing data collected by a large number of users in real time can be invaluable for traffic planning and road maintenance. And as such, why not pay for it? The added value of the blockchain is an improved mechanism for anonymizing data and protecting user privacy – again, a successful combination. Naturally, this can work with any other IoT device, from smart meters to home appliances and more.

Social Impact: This is the most obvious use case on this list (and obviously my favorite). Micropayments on the blockchain can be revolutionary in two ways. The first is that recipients of donations can easily create accounts to receive funds, which will allow donation directly To them, dispense with all intermediaries and overhead costs. Having said that, it is important to note that this feature is a double-edged sword that may turn out to be its main predicament. It will be easy for scammers to create fake accounts, to attract donors. Ranking and auditing, similar to existing online services that rate charities against multiple criteria (eg, Charity Navigator, Smart Giving, Council of Nonprofits, etc.) will be required in order to ensure better donor visibility. Additionally, since the minimum donation amount is no longer an issue, we may see donations of smaller amounts. The World Bank classifies a country with a per capita GNI of less than $1,025 as “low income.” In other words, this means that the daily salary is less than $3. As of 2020, there are 27 low-income countries. Small payments can provide an excellent mechanism, which must be carefully monitored for fraud, to donate money to people in need in those countries. I think you can see how that, if managed well, can lead to more effective giving and a more direct impact.

Related: Digitizing Philanthropy: We Can Do Better at Doing Good

Over the past few years, micropayments have lost some of their initial prestige. While the concept was ahead of its time, technology lagged behind and prevented it from emerging. Andreessen was right and revolutionary in highlighting the ability of blockchain to transform micro-payments. Here, I have barely scratched the surface in terms of use cases and capabilities.

Companies can become more efficient and be able to monetize more of their offerings. Entire societies can be transformed or pulled out of economic depression by direct and personal assistance without an intermediary. Kudos to Andreessen for his vision eight years ago – blockchain can 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 risks, and readers should do their own research when making a decision.

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

neta koren He is a co-founder of the Orbs and Hexa Foundation. Prior to Orbs, Neta worked as a senior advisor to General Mordechai Hod on special projects in the Israeli Ministry of Defense and as a senior advisor to Deputy Minister of Diplomacy Michael Oren in the Prime Minister’s Office. Nita started her career on Wall Street as an investment banker and later became a hedge fund manager. She has extensive experience in philanthropy and for more than 15 years she has served on multiple boards of directors in Israel and America, and held high-level positions on executive committees.