New Backgrounder: What are Micropayments and How does Bitcoin Enable Them?

Chris Smith of BitMesh explains the advantages Bitcoin brings to micropayments and the basic structure of micropayment channels.

Coin Center has published a new backgrounder, “What are Micropayments and How does Bitcoin Enable Them?,” to break down the components of Bitcoin micropayment channels and describe how they work together to eliminate the need for trust in metering situations.

Chris Smith, Co-founder and CVO of BitMesh, explains how these types of transactions, which are unique to digital currencies like Bitcoin, offer significant opportunities to rethink how we pay for things both online and in person.

Micropayment channels can be used anywhere where metering is done:

Internet routers could charge users based on the bandwidth they consume.

  • Parking meters could simply charge the cars for as long as they stayed, reducing the need for meter maids.
  • Roads could charge cars for the time they actually spend on them, incentivizing carpooling and charging people for maintenance according to relative usage.
  • Time spent with important people, such as lawyers or therapists could be metered by the minute.
  • Micropayment channels enable all of this, greatly reducing uncertainty in whether a fair deal was achieved in all cases.

One particular use case that stands out is payment for digital content. By reducing payment friction, bitcoin micropayment channels can make it easy for consumers to pay small amounts to artists and providers directly. Users could have a digital media wallet with a cap of $5/week The wallet could automatically pay the creators of youtube videos for every second of video watched, the authors of blogs for the amount the reader scrolls down the page, and the designers of games for use of virtual assets in virtual worlds all without the need for ads or difficult credit card subscriptions.

Read the full backgrounder here.

Based in Washington, D.C., Coin Center is the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum. Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permisionless blockchain technologies.