- What are micro-transactions?
- The economic impact of micro-transactions:
- Current issues for successful implementation within microtransactions:
- What are micro-transactions?
Micropayments come into the category of electronic payment systems which are financial transactions that take place through an electronic medium without using paper checks or cash.
Micropayments are financial transactions involving an amount of money less than a dollar or even a fraction of a cent. Within the new information & creator economy that is occurring, the dominance of digital goods, blog posts, and digital services has unleashed a new potential for microtransactions. Micropayments provide the tools to harness the economic benefits that can be reaped from such a market.
- The economic impact of micro-transactions:
Within the world, there are currently 1B individuals that live on less than $2 per day. These individuals do not have basic access to water, food & overall base-lined necessities. This is often referred to, within an economic context as L1 (level 1). To add, L2 economies are those in which are surviving on $2, to $8 per day. This cohort contains approximately 3B individuals. Alternative levels and cohorts, including Level 3-4 has around 1B individuals living on $32 per day. We believe that micro-transactions can play a huge role within liberation of individuals who fall within certain cohorts. Whilst the majority of individuals who are within these cohorts are subject to totalitarian states, corrupt governance, and other existential issues which cannot be solely resolved with innovation. There is evidence to state that micro-transactions can play a large role within solving certain deficits the current financial system does not cater towards.
- Frictionless method towards finance: Organisations, such as PayPal, offer a fee structure, which can make it infeasible to spend, send, or receive amounts in fractions of a cent. Through the use of microtransactions, we believe there is evidence to state that this will result in majorly beneficial abilities to transfer fractions of a cent, in real time, and at no cost.
- Creation of new markets: To explain these previously mentioned points, through the use of micropayments, this can further develop the ability of market microproducts. These are markets in which products cost less than a few dollars. Areas such as the development of e-commerce, virtual goods, online games, digital advertising, social networks, and the creator economy has scaled the importance of low-fee-based, instant payments.
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- Enable financial inclusion: Currently within the world there is around 1.7B financially excluded adults. This refers to an adult in which is unable to access financial services, such as a bank, credit, or insurance agency. It can be speculated upon that through the use of financial microtransactions, there is a possibility that those within lower economic groups will have access to a means of payment for buying microproducts, sending and also receive microtransactions.
Many proponents of the blockchain state that, with scalability and low transaction costs, cryptocurrencies have the potential to be used in transactions involving goods.
- Current issues for successful implementation within microtransactions:
Current issues surrounding the utility of microtransactions points towards the underlying technological barriers for microtransactions.
Currently, L2 solutions are being proposed to enable microtransactions within the context of BTC. Due to BTCs static block-size, there is an inability to transact large volumes. This limited block-size leads to higher costs for transacting capital. Therefore, the introduction of L2 solutions have been posited forward to solve the innate flaws of the BTC protocol.
The Lightning Network is a Layer 2 payment protocol designed to be layered on top of a blockchain-based cryptocurrency such as BTC. It is intended to enable fast transactions among participating nodes and has been proposed as a solution to the BTC scalability problem.
Currently however, there is scepticism around commentators within the blockchain community as to the security, safety, scalability and longevity of these L2 solutions.
