Micro payments with off-chain transactions

[ilpirata79]

Hi all,

I have been thinking about a possible solution to both the handling of micro payments and the scalability problem of Bitcoin.

Here what I thought. Sorry if it was already proposed and discussed.

I think that every guy that wants to make micro payments or accept micro payments should trust a third party, like coinbase, bitpay, and so on. [trust not really necessary, one could use a contract towards the third party].

When I want to buy something, at the supermarket for instance, I would load in advance, through the blockchain, a certain amount of bitcoins into the service I decide to trust (let's say coinbase).

When I go to the supermarket they don't have to use the same service as I am using to accept micropayments. They could be leveraging Bitpay for instance.

This is how a payment would work. The cashier would show me an address that identifies the order just made (just a code associated with the order, e.g. order 0 at supermarket A at bitpay). I would scan this code with a phone and send the payment by asking the society I am leveraging (coinbase) to make the payment of that order. To make sure I am entitled to do that I could be using one of the private keys that I used to load the money on the service.

After that the coinbase and bitpay society would clear the transaction, off the blockchain, by using a modified version of the micropayment protocol (for instance each of them could open a payment channel to the other). The transaction is complete when the merchant receives the ok from bitpay (so instantly).  At the end of the day then the amount due by one service to the other is registered into the block chain.


The interesting thing in this solution is that the buyer and the merchant does not have to use the same service. Everyone use the service he/she likes, maybe more than one. The risk is low as the amount of money passed to the service is as high as one feels it should. After all, even now any of us has to trust some of these service when it buys or sells bitcoins.

I think this could be acceptable and fast as such micro transactions would go through just the services involved. The blockchain, however, would not be hit by a lot of transactions, because it will have to contain just the transactions made when the channels among services are closed.

What do you think? Are there different/better solutions?

Best regards,
ilpirata79

[markjamrobin]

That was what inputs.io was... before the "hack". It has been done before, and will be done again.

[Come-from-Beyond]

What do you think? Are there different/better solutions?

U could always keep these coins in 3rd party services... And call such services "banks"...

[ilpirata79]

What do you think? Are there different/better solutions?

U could always keep these coins in 3rd party services... And call such services "banks"...

Mmm... you won't use those services to store your savings but just as intermidiaries. With bitpay, for instance, you can get directly bitcoins into your wallet.
So they are not really "banks"...

Best regards,
ilpirata79

[Come-from-Beyond]

What do you think? Are there different/better solutions?

U could always keep these coins in 3rd party services... And call such services "banks"...

Mmm... you won't use those services to store your savings but just as intermidiaries. With bitpay, for instance, you can get directly bitcoins into your wallet.
So they are not really "banks"...

Best regards,
ilpirata79

Ppl r lazy. I bet most of us will never move the coins outside services.

[ilpirata79]

Just as a note, now everyone has to trust Paypal/Visa/mastercard or whatever to perform their transactions.

With the method I described there would be many different societies that interoperate on the basis of a protocol (e.g. the micro-payment channel). They would fight to lower the fees and attract customers.

Unfortunately trusting 3rd parties, at least temporarily and for small amounts, is the only thing you can do to make off-chain transactions.

Otherwise you can decide to make blocks 1G big so everything can happen in the block chain. Doing so, unfortunately, would still result in you having to trust a few entities, the ones that can manage such a big block chain and have such a high bandwidth.

Best regards,
ilpirata79

[d'aniel]

A network of micropayment channels * seems to me like a good way to go.  Though as Mike Hearn said somewhere on the forum, it's a lot of work, and they're still working on getting single micropayment channels right.

* https://bitcointalk.org/index.php?topic=244656.0

[ilpirata79]

That was what inputs.io was... before the "hack". It has been done before, and will be done again.

The problem of trust to such 3parties could be worked out by requiring the transactions among them to be co-signed by the original owners of bitcoins and we could even use contracts so the money loaded into the services gets back to the owners should they disappear.

Such services could be called payment gateways.

Best regards,
ilpirata79

[ilpirata79]

A network of micropayment channels * seems to me like a good way to go.  Though as Mike Hearn said somewhere on the forum, it's a lot of work, and they're still working on getting single micropayment channels right.

* https://bitcointalk.org/index.php?topic=244656.0

I think the handling of such off-the-blockchain micro-payments is the last missing piece to make bitcoin globally accepted.

Once the micro payment channel is done (I don't think it will take a lot), it just remains to do the implementation of the interface between the consumers/merchants and the payment gateways. Off course also the payment gateway service needs to be implemented, but it is just a small layer on top of the micro payment channels. It is not a lot of work in my opinion.

I would do it myself if I had time. A good idea would be that someone willing to work on that make a step forward and other people can support him/her through donations.

What do you think?

Best regards,
ilpirata79

[Mike Hearn]

Much of the work is already done. I'm hoping in the next couple of months we can release an end-user usable app that does micropayments