How Bitcoin Could Make Micropayments Possible

Paying tiny amounts online just got a lot easier

One of the biggest problems for people buying and selling things online is the size of the transactions that they’re allowed to make. Conventional payment methods allow for people to make relatively large transactions with each other, but it is very difficult to send tiny amounts of money in exchange for goods and services.

Smaller Online Payments

This concept of charging a tiny amount is known as micropayments, and it could revolutionize business for whoever gets it right.

Many people might not want to spend $25 a month on a newspaper subscription, for example, but they might be prepared to pay, say, 10 cents to read a newspaper article online. 

People might want to use a wireless access point just long enough to collect their email, without paying for a whole hour, or perhaps to pay for participation in online games by the minute. Micropayments would make these kinds of transactions possible.

Technical Limitations

It’s a nice idea, but thus far, the online payments infrastructure has made it difficult. With many people using credit cards to pay for things, it becomes difficult to charge less than a certain amount for an online product or service, because credit card companies typically charge a variety of fees, including base fees on their transactions.

Some larger companies can negotiate fees for smaller purchases with the banks, while other systems involve you charging up an account with an online retailer using your credit card, and then depleting that account with each transaction.

For smaller, independent retailers who want to charge a small amount, the options are limited.

Paypal offers a micropayments service, but it still charges a significant enough fee (5% plus 5p per transaction in the UK, for example) that it wouldn’t be suitable for very small transactions. That’s where bitcoin comes in.

Bitcoin’s transaction fees are vanishingly small, and the minimum amount that you can send amounts to a tiny fraction of a cent, making it a technically interesting alternative for micropayments.

Clicking on a newspaper article in a bitcoin-enabled world might present you with a fee, and ask you to hit ‘confirm’ to pay. Your bitcoin wallet could then be programmed to send a tiny amount to the site in question, to unlock the article. This could happen repeatedly, with you only spending exactly what you need to spend to get only what you need, rather than paying a monthly subscription for all the other content in the paper that you’ll never read.

Tools and Services

There are some bitcoin micropayment products and services appearing. Paytoshi is a Bitcoin wallet designed especially for micropayments, which records tiny amounts of bitcoin sent over several transactions, allowing a recipient to collect them when they total a certain amount.

This wallet is designed to facilitate ultra-small transactions, measured in satoshis, which are tiny fractions of a bitcoin. Normally, these transactions would incur a large enough bitcoin transaction fee to make then untenable, but collating the tiny transactions and paying them out in larger lumps reduces this burden.

Another service, SyndiCoin, targets content producers and allows them to charge micropayments for content on their websites. They can include its code on their web pages and make an instant micropayment firewall.

Some companies have been experimenting with taking micropayments. The Chicago-Sun Times rolled out a bitcoin micropayments paywall and found that 25 cents was the most popular price for reading a newspaper article.

Sites like ChangeTip and Tippercoin have also developed, enabling people to send money quickly in bitcoin using a simple Tweet. The idea is that people can tip people for something insightful that they said, or for a useful piece of information that they posted.

Micropayments promise to be a useful vehicle for shaking up existing payment models online but to be truly successful, it will need a more mainstream bitcoin user base.

That’s likely to take a while, though, if it happens at all. In the meantime, people will continue experimenting with models that enable them to pay for products and services in new and interesting ways.