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Author Topic: Will BTC still be useful for micropayments in the future?  (Read 563 times)
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July 17, 2012, 01:43:40 PM
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One commonly listed advantage of BTC is the potential usefulness for micropayments.

Let's say BTC becomes significantly more popular. The no. of transactions per day will increase significantly. There will be far more big transactions. These will probably include high transaction fees in order to get processed, raising the average amount of fees used per transaction. Miners will try to prioritize these transactions, for economic reasons. But afaik the amount of allowed transactions included per block is limited. That means that micro-transactions will either not get processed. Or they will need to include an unreasonably high amount of fees, probably making up a large percentage of the total sum, thus making micropayments unattractive.

I have a habit of being wrong, please explain where and why I am erring this time.

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July 17, 2012, 01:52:15 PM
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But afaik the amount of allowed transactions included per block is limited.
Nope, it's not.

So miners won't prioritize high fee transactions. It's in their best (economic) interest to include ALL transactions.

In theory, there's no difference between theory and practice. In practice, there is.
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July 17, 2012, 01:56:47 PM
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So miners won't prioritize high fee transactions. It's in their best (economic) interest to include ALL transactions.

Then why do we have fee requirements? Surely we should all pay a 1 Satsohi fee per transaction and miners will keep including our transaction's.

Busy ATM.
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July 17, 2012, 02:05:55 PM
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... the amount of allowed transactions included per block is limited. That means that micro-transactions will either not get processed. Or they will need to include an unreasonably high amount of fees
If and when the fees get too high for micropayments to be efficiently handled in the block chain, they can be handled in some kind of sub-ledger. Eventually I think we will see not just micropayments, but also nanopayments - very tiny payments attached to things as small as a single API call.

For now, micropayments and nanopayments can be tested on the block chain, then hived off into a sub-ledger in the future as and when required.
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July 17, 2012, 02:21:13 PM
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Nobody can say for sure however there are a variety of potential solutions and ultimately the future may involve more than one.

The first thing to consider is "what is a micro transaction".  The term is vauge and means a lot of different things to different people.  Payments in the $1 to $5 range are inefficient for credit cards and Bitcoin competes well here.   Payments in the $0.10 to $1.00 range are more challenging for Bitcoin and may require some alternative thinking.  Payments in the $0.10 or smaller range likely are a bad fit for Bitcoin as the processing costs for a $0.10 tx is the same as a $1 mil tx.

Some back of napkin ideas for handling micro transactions.

1) It is likely that micro payments will be accepted as 0-confirm.  The value of double spending them is negigible compared to the effort & cost.   While these transactions will be lower priority a smart vendor could operate under a business model where they get paid "eventually".  There will always be blocks that have extra space during off peak hours.

2) For some types of high frequency micro transactions there is the possibility of random payment.  i.e. instead of paying 1 bitcent per action you pay 1% chance of 1 BTC per action.  This reduces the number of transactions (and thus cost and thus fees) by a factor of 100.

3) It is very likely that over time higher level functionality will use bitcoin as a foundation.  Much like you don't use the FedNet national banking network directly applications you use do give you access to it indirectly.  Some will cry "centralization" but they seem to forget Bitcoin is about freedom (as in free speech not free beer).  Unlike the current banking network where gaining a seat at the table is essentially impossible the open access of the network will create potential for real competition among providers of indirect services.

4) This is an area for an alt-chain to shine.  No not LTC (which is simply a copy of BTC with all the same limitations).  An alt chain built from the ground up to handle micropayments would be an ideal "side kick" to Bitcoin.   In theory there are lots of exciting ideas which could be explored.  A very short block time (say 30 seconds) introduces problems of chain fragmentation but that is less of a danger in a network designed for low value transactions.  Using a periodic ledger to compress all prior tx data into current ledger of values (which is only used once hundreds of blocks deep) would reduce the storage costs of the chain.  It may even be possible to design an alt chain with no independent currency.  A chain that for example required destroying Bitcoins to fund (i.e. destroy 1 BTC  to generate 1000 microCoins in the altchain).  To date alt-chain have been disappointing pump and dump copies but if there is market demand I would expect to see some micro-transaction alt-chain take off
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