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In the early days of the web, internet architects contemplated incorporating a native framework for payments that would create a direct connection and make online commerce possible; those plans were never realized. The absence of a ubiquitous payments infrastructure resulted in the creation of payment facilitators as a business, such as PayPal, Stripe and Square. I believe payment facilitators today, with costs per transaction and high percentage fees, limit how businesses can package, price and sell their goods and services. It’s left me asking: Can’t we do better to unlock more value?
A clear example is the world of online media. To read an article online or watch an episode of your favorite TV show, consumers often sign up for monthly or year-long subscriptions. This paywall model works for a few favorite media providers, but in my opinion, a business’s ability to capture a wider range of audiences is limited. For example, in 2017, The New York Times generated over 20% of its revenue on digital-only subscriptions. Smaller publishers are struggling as consumers hesitate to purchase news subscriptions. BuzzFeed and Vice Media are among the media outlets that have announced significant job cuts in an effort to stay afloat and find business models that work.
Another model driving immense revenue is the advertising model of Facebook, Google and other digital giants. Facebook’s revenue was a whopping $16.91 billion in its December quarter in 2018. But consumers are growing increasingly wary of tech companies that depend on selling data in exchange for advertising dollars at the expense of privacy and personal data control.
From my perspective, today’s business models were not designed to protect consumers. They are the result of businesses being required to adopt a payment facilitator or circumvent them entirely. How can we facilitate flexible pricing and packaging options for online businesses, while placing privacy back in the hands of the end users?
I’ve observed that some companies, my own included, are beginning to explore the idea of “micropayments.” Micropayments are a unit of currency less than one dollar — and sometimes fractions of a penny — that I believe could be another alternative to traditional subscription models. They allow organizations and individuals to monetize digital goods or services without a dependence on advertising and the sale of personal data to drive revenue.
The concept of micropayments is not new. The term was coined in the 1960s by Dr. Ted Nelson, a visionary of the internet. But previous attempts have failed because of ineffective cost structures, delayed transactions and overall poor user experience. The fee structure must be cost effective enough to move values less than a dollar (e.g., 1/100 of a penny) between parties.
We can see that in order for micropayments to succeed, they must:
• Transfer very small increments of value, with even smaller transaction fees.
• Occur instantaneously with no latency for “on-demand” transactions.
• Become ad-hoc and require no setup or prior relationship between parties.
Even the most cost-effective online payment facilitators, such as Stripe, charge $0.30 plus roughly 3% of the transaction. But I believe it doesn’t make economic sense for an end user to pay pennies for each article consumed when the transaction itself costs $0.30.
Distributed ledgers with associated cryptocurrency services and decentralized computational power offer public validation of payment transactions, which enables trust and removes the need for expensive and slow payment intermediaries. DLTs reduce friction around payment life cycles, thus eliminating issues experienced around payment collections and flow.
Mozilla’s open source Brave browser is already testing cryptocurrency micropayments functionality. With Brave, and its built-in browser wallet, consumers can choose to pay per article viewed from a variety of mainstream publications. Soon consumers will even be able to monetize themselves by getting paid for watching advertising through the browser.
We’re just now embarking into a world where businesses can transact online with immediacy, on an ad-hoc basis and with a flexibility that allows for new, unique revenue models.
As with any emerging technology, micropayments will have their challenges in being adopted. We learned this ourselves when we recently conducted a community testing program, which allowed users to earn and use cryptocurrency for reading articles on a test website. Ours was a single site accepting a single kind of micropayment, which made it much more manageable to control the environment and user experience. But it also highlighted for us that a much larger ecosystem of peripheral services and software must be built to alleviate the user interface and user experience challenges that prevent broad micropayment usage and adoption today.
For example, an end user attempting to use the Brave web browser to view a news article in exchange for a micropayment must first create a cryptocurrency wallet and fill it with Bitcoin, Ethereum, Litecoin or BAT (Brave’s basic attention token), which they purchase from a cryptocurrency exchange unassociated with Brave. Essentially, you can’t just buy cryptocurrency directly from Brave. The user must then transfer that cryptocurrency from their wallet to a Brave browser wallet. Only then, after finding an online news publication that supports micropayments, can they seamlessly pay micropayments to view an article. Meanwhile, the value of the cryptocurrency being bought, held and used for micropayments might fluctuate over the course of only a few minutes.
Developers utilizing distributed ledgers to build decentralized business applications face a similar set of challenges — their focus should be on one thing: creating an application that solves the needs of their end users. However, a significant amount of time today might be spent managing aspects of the distributed ledger, such as managing wallets, public and private keys or calculating and reporting the cryptocurrency spending of their application transacting on the network.
As the distributed ledger ecosystem continues to develop, so will our ability to overcome mainstream adoption hurdles. Platforms, protocols and supporting services will all arise to obfuscate today’s cumbersome experience of using this technology. We might not all be paying micropayments to view an article tomorrow, but I predict we could see this technology making its way into our everyday lives over the next decade.
April 25, 2019 at 08:37AM
Forbes – Entrepreneurs