I recently came across Marc Andreessen’s article about Bitcoin (BTC) from 2014. It’s visionary in many ways (no surprise). I’ve been in the industry for four years and my main focus is on the social impact of blockchain. I find it surprising that in 2014, before there was an institutional presence in Bitcoin – or actually a popular understanding of this new technology – ???? Andreessen was able to outline its potential economic and social implications for the future.
Almost eight years after you wrote your words, I want to address one of the topics of your article: micropayments. I will explore how Blockchain could help transform micropayments, not only enabling the monetization of certain aspects of the business that need a solution, but it could also help the most vulnerable in society.
Micropayments are not a new concept. Micropayments have enjoyed varying degrees of popularity since the mid-1990s. By definition, Micropayments are transactions with a value below a certain threshold. It is important to remember that below this threshold the transaction fee incurred becomes a significant part of the total value of the transaction and is therefore uneconomical. Another important aspect is that due to the tiny amounts of money, micropayments only relate to digital transactions of intangible goods. Any additional handling and shipping costs can multiply the original value of the transaction by the hundred, making it completely irrelevant..
Credit card companies offer merchants several types of pricing plans for the fees they charge. These plans usually consist of a total amount charged per transaction and a percentage calculated on it.. Unsurprisingly, this information is not openly available by the card companies themselves, but published by others who compare these fees as a service to merchants. With that in mind, let’s examine what price a merchant would be charged for a micropayment.
Suppose the following:
to???? The lowest rate we found was 1.29% of the transaction value and no balloon fee was charged.
to???? Since the smallest building block of (most) fiat currencies is 1/100 of the whole number, i.e. $ 0.01, this would be the minimum commission of the credit card company, regardless of whether it is higher than 1.29%.
If you represent the proportion of commission per transaction as a function of its value, you get the following graphic. For example, a transaction of $ 0.01 has a commission of 100%, while the commission for a transaction of $ 0.10 is “only” 10%. This, of course, shows the irrationality of performing micropayment transactions among these payment platforms..
Blockchain has a solution
But now there is an alternative. Blockchain technology offers the perfect solution for micro payments for many reasons. It provides the infrastructure for ever faster digital payments and, above all, the minimum payment unit for both Bitcoin and Ether (ETH) is incredibly small, as the following table shows:
What’s more Cryptocurrency wallets can be easily integrated into any digital devicebe it a cell phone, laptop or other Internet of Things device. AND Although charges can vary widely across networks and at different times, charges are not a problem with many protocols and can be a fraction of a cent..
Last but not least, it is User privacy. Due to the asymmetrical blockchain encryption, the payer only reveals his address publicly at the checkout that offers practically no information for someone looking to hack their wallets. Unfortunately, this is not the case with a credit card transaction where the payer has to provide the full number of their credit card and hope that the payment platform is well protected.
Real use cases of micro payments
Now that the technical side is covered, there is only one question left: can I get something for a millionth of a dollar? I’m not sure about a millionth part, but There are many use cases for micro payments. Here are some:
Alternative to the subscription model: There is no point in reiterating the economic rationale behind the subscription model for online content consumption and its success in recent years, be it video, music, newspaper content, etc. Although this model has several advantages, it is nowhere near perfect and still has some caveats. For example, What if someone wants to buy a single item instead of committing to a subscription? Suppose Alicia is subscribing to two online magazines when she discovers an interesting article in a third. You will not be subscribing to a third party service provider even though you are willing to pay for this item only. From the magazine’s point of view, the item is already there, so why not ask someone for it? Micropayments allow Alice and the magazine to maximize their financial returns.
Digital copyrights, royalties and references: As in the previous case, there is no need to explain what copyrights, royalties, or referrals are. Micropayments provide a relatively simple mechanism for the instant settlements associated with them, with virtually no limit on the amount each of them charges, in contrast to the complicated solutions that exist today.
IoT transactions: This use case is very visionary, although sooner or later it will likely become as banal and trivial as turning the light switch on or off. To date, the IoT has only matured to a fraction 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 could be the answer. Think about all the data your car can collect, from road conditions to traffic, among other things. Exchanging data gathered from mass users in real time could be invaluable for traffic planning and road maintenance. Then why not pay for it? The added value of the blockchain is an improved mechanism for anonymizing data and protecting user privacy: I insist it’s a winning combination. This could of course work with any other IoT device, from smart meters to devices and more.
Social influence: 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 Donors can easily create accounts to receive funds so they can donate direct to them, eliminating all intermediaries and overheads. However, it is important to note that this feature is a double-edged sword that could become your main obstacle. It would be just as easy for fraudsters to create fake accounts and attract donors. Qualification and an audit are required, similar to current online services that rate charities on multiple criteria (e.g. Charity Navigator, Smart Giving, Council of Nonprofits, and others) to ensure and provide better visibility for donors. What’s more since I no longer require a minimum donation amount, we can see micro donations. The World Bank calls a country “low income” a country with a gross national income per capita of less than US $ 1,025. In other words, this means a daily wage of less than $ 3. As of 2020 data, there are 27 low-income countries. Micropayments could constitute an excellent mechanism that needs to be carefully monitored to avoid fraudto donate money to people in need in these countries. I think you can see how this, if managed well, could lead to more efficient donations and more direct impact.
Companies could be more efficient and monetize their offers to a greater extent. Whole communities could be transformed through direct and personal help without intermediaries or emerge from the economic depression. Congratulations to Andreessen for his vision from eight years ago: Blockchain could be the breath of fresh air the world is waiting for.
This article does not provide investment advice or recommendations. All investing and trading involves risk and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed are those of the author only and do not necessarily reflect the views and opinions of Cointelegraph.
TO Netta Korin is a co-founder of Orbs and the Hexa Foundation. Prior to joining Orbs, Netta was General Mordechai Hod’s Senior Advisor on Special Projects at the Israel Defense Ministry and Senior Advisor to Deputy Minister of Defense Michael Oren in the Prime Minister’s Office. Netta began her career on Wall Street as an investment banker and later became a hedge fund manager. He has extensive philanthropy experience and has served on multiple boards of directors in Israel and the United States and held senior positions on executive committees for more than 15 years.