Micropayments were all the rage in the 1990s. The idea of allowing customers to pay tiny fees for physical or online products was thrilling and received a lot of attention. However, early micropayment models failed to solve the problem of incurring large costs on processing tiny transactions. This is why micropayments haven’t taken off, years later after the idea was conceived.
But Bitcoin may offer — finally! — a workable model for micropayments for businesses and customers. We’ll explore how Bitcoin facilitates microtransactions and what benefits this technology offers.
A Brief Introduction To Micropayments
Micropayments typically refer to transfers below a specific value threshold. Think of a micropayment as a really small transaction or payment — like the $1.20 you pay for a cup of coffee.
Micropayments have received considerable attention from companies and researchers, and for good reason: Micropayments have the potential to unlock new income streams for businesses and increase value for customers.
Let’s imagine you visit Billy’s shop downtown for a cup of coffee, which costs $3.20. You don’t have any cash on you, so paying with a credit card looks like the best option. But there’s a slight problem: Billy won’t accept transactions below $5 because the payments provider often charges a base fee in addition to a percentage of the full cost for processing payments. For Billy to break even, the value of the transaction must be higher than the processing cost. Paying a fee on your meager purchase would simply be economic suicide. The transaction breaks down, with both sides losing out on benefits. You can’t get your caffeine fix and Billy loses potential income. The latter point may seem trivial until 10-15 customers face similar issues and walk away empty-handed.
Micropayments represent a new opportunity for businesses and customers to maximize their utility. Businesses can provide low-value services to customers without incurring losses. The concept also affords customers more freedom of choice and reduces barriers to purchasing items.
Having understood the value of micropayments, let’s see how Bitcoin fits into the picture.
Why Use Bitcoin For Micropayments?
The idea of micropayments has been around for as long as the internet itself, as articles like this one shows. Microsoft was one of the firms working on enabling micropayments until it scrapped its plans.