When we first created Divi, we thought of it as Bitcoin 2.0 and wanted to fix any of the problems we saw with older cryptocurrencies. Bitcoin had been caught up in politics that could prevent it from achieving Satoshi Nakamoto’s dream of a universal payment system. One of the areas in which Bitcoin and most cryptocurrencies fail is with microtransactions.
What are Microtransactions?
Microtransactions or micropayments are those small one or two cent transactions (or less) that nobody uses in the old world of cash, except to buy gumballs. However, there are dozens of scenarios in which small payments make sense in a digital world. A few of these:
Pay by Use
Imagine an app that bills you in small amounts while you use it. It could be by the minute or by the hour.
Pay by Views
Whether its songs, videos, searches, or anything else, micropayments could be used by apps or websites to bill each time a specific action occurs, and royalties paid out instantly to content owners.
IoT (Internet of Things)
Thousands of companies around the world are building devices that communicate to each other, and a system of micropayments is needed for them to buy and sell services to each other automatically.
Imagine a website like Medium where instead of clapping for an article you like, you can easily tip a few pennies. Well, then you have Steemit, a cryptocurrency and social media site that has pioneered the use of microtransactions used in this way.
The Death of Banner Ads and the Rise of Micropayments
Every year, people are getting better at ignoring ads. Companies like Google and Facebook keep serving us more of them, in more obtrusive ways to try to keep their profit margins. Many people think they’ll hit a limit, and they’re searching for new models to generate revenue. Micropayments are one of the best solutions. The challenge is that most types of electronic money, whether it’s crypto or not, don’t work well or at all, for small payments.
In general, micropayment systems offer all kinds of ways for content producers to charge for their services in new, creative ways.
How Divi Processes Micropayments
The way we made micropayments work is to charge primarily based on the value of the transaction, rather than the size (in bytes) that each transaction takes up on the blockchain. You can read about our algorithm, how it works, and how it’s different from others here: Divi Transaction Fees. The real catch is that our fees, and the minimum fee, is meager, so that means that transaction cost scales down very well for us.
Why Isn’t Everyone Doing This?
You may wonder why Bitcoin and others don’t just solve this problem by just charging much less. The reason is that they can’t because miners get to keep all the fees when they fill the blocks with their transactions, and they don’t want them to be lower. A 100% PoS system like Divi relies on a different payment mechanism, with staking and masternodes. Fees are burned to counter that and keep inflation in check.
Microtransactions Don’t Always Scale
One thing to be clear about this that allowing microtransactions doesn’t mean we can process massive numbers on them. We’ve still got 2MB blocks at 60 seconds each. When there are enough transactions to fill the blocks, those with the smallest transaction fees get passed up by the nodes that fill the blocks, extending their confirmation time.
The result is that the current way of doing microtransactions is not a long-term solution. We don’t know what’s coming in the future, but I can imagine many use cases, especially for the IoT, that require billions of microtransactions, and while Divi doesn’t need to solve every problem and doesn’t intend to be the only cryptocurrency in use, it’s good to be flexible and prepared for whatever comes.
The Lightning Network
Bitcoin's Lightning Network begins to solve the issue of microtransactions. These transactions happen “off-chain” allowing massive scaling (in the number of small transactions) between a limited number of participants (what scales is the number of transactions, not the number of participants.) Two or more participants can open a payment channel, run thousands of transactions between them and then close their payment channel and record the resulting balances on the blockchain once.
Bitcoin’s Lightning Network is running. It needs some work, but it’s expected to bring micropayments to Bitcoin, with minimal fees. Divi’s codebase can’t run it yet, so we’ll need to upgrade it in the future. This implementation is an upgrade we can do without much drama because we don’t have anyone making money off of fees that might object to it.
In the meantime, however, we can run micropayments through our network as it is, testing use cases and maintaining platform flexibility. Meanwhile, we wait for both the Lightning Network and the cryptocurrency space, in general, to mature so we can implement this in the best possible way when it matters.