The Tipping Point of Bitcoin Micropayments

Jose Pagliery
Nov 15, 2014 at 11:55 UTC
Updated Nov 16, 2014 at 17:38 UTC

Jose Pagliery writes about technology for CNNMoney. He has covered the growth of bitcoin, penning dozens of articles on digital currency, writing for the Atlanta Journal-Constitution, the Daily Business Review and the Miami Herald. He is also the author of ‘Bitcoin and the Future of Money’. In this excerpt from the book, Pagliery looks at the advantages and use cases of micropayments.

micropayment

The first major newspaper to venture into uncharted terri­tory was the Chicago Sun-Times, which erected a bitcoin pay­wall in April 2014. A careful look at the company’s decision shows that the paper is merely dipping its toes into the water. For instance, the Sun-Times partnered with the bitcoin transac­tion processer Coinbase, allowing the newspaper to vastly min­imize its risk of exposure to volatile bitcoins because it never has to actually hold them.

For a nominal fee, Coinbase con­verts the day’s bitcoin payments into dollars and sends them to the merchant every 24 hours. More relevant to our discussion, though, is that the Sun-Times has not offered pay-as-you-go micropayments. The new deal is merely that you can now pay your yearly subscription in bitcoin. Here’s what it looked like on its site:

Chicago Sun Times Paywall

Customers have the choice to either send a payment to the listed address or whip out their cell phones and scan the QR code at the left.

Still, just the fact that a recognizable entity took that step forward shows a willingness to experiment. In a corporate statement, editor-in-chief Jim Kirk said he aims to “keep the Sun-Times current and evolving with changing technology. Accepting bitcoin payments is one of many ways we are working to stay digitally focused.”

If micropayments do catch on, it will probably develop from online tipping. Some of that already exists, but it’s sparse and uncoordinated.

Occasionally, hackers (particularly those who claim to do a public service) accept bitcoins as tokens of gratitude. For example, one is a mysterious vigilante who calls himself Jester (JΞSTΞR, to be more accurate). For the sake of brevity, just think Batman for the online world.

He’s a pro-US-military type who takes down Al Qaeda-related websites, attacks servers that host them, and seeks vengeance on whistleblowers who have exposed US government secrets. On his personal site, jesterscourt.cc, he directs would-be supporters to donate to the United States’ Wounded Warrior Project or the United Kingdom’s Help for Heroes. But if they insist on sending him money directly, they can ship it to his bitcoin wallet.

Formalized bitcoin tipping services have popped up here and there, but none has become substantial. The first popu­lar one, youTipIt, was launched by a few computer program­mers as a side project in 2010. But it shut down two years later when it ran out of money and started coming under scrutiny by Germany’s finance regulator.

Another, BTCTip, appeared as a “Twitter-based microtipper”, but the beta service ran into problems after a website security breach. The latest is Tipper­coin, an automated service that lets you easily tip someone on Twitter if you like something they said. What hasn’t yet flour­ished as a system, however, is the digital currency equivalent of effortlessly dropping a coin in someone’s tip jar – no matter where you go.

Jose Pagliery

When I start thinking about it that way, my mind immedi­ately goes to musicians. Becoming a full-time composer and performer increasingly looks like a nowhere road, especially in the post-Napster age. Theft of artistic work has put financial pressure on record companies, which ultimately means more pressure on musicians themselves.

I’ve talked about this with dozens of professional musicians ranging from local bands in New York clubs to European metal rock stars. And I’ll admit that I too have received ripped mp3s from friends. We all have. But even our traditional payment systems aren’t enough to undo the damage. The prospect of surviving as an independent musician is still untenable today, even as fans pay for individual songs via iTunes and Amazon or stream free music on Pandora, which pays royalty fees through advertising.

There have already been a few cases in which artists cir­cumvent distributors, like record companies, and go directly to their fans. It worked for Radiohead in 2007, when the British band released the album In Rainbows online for free a few months before its physical release, asking fans to “pay what you wish.”

As expected, piracy went through the roof. More than 2 million copies were swapped online for free on platforms like BitTorrent in the first month of its release. And most fans got off without paying at all. But upon release of its physical disc, the 10-track album immediately topped the Billboard chart and went on to generate more sales than the band’s 2003 album Hail to the Thief. In the first year, the band sold 3 million copies in CDs, paid downloads, and special edition box sets.

What micropayments can really do, though, is add fuel to the kind of fire that’s kindled by performers like Amanda Palmer. The punk-cabaret musician is adamant about directly connect­ing to her fans and offering her music for free, with the unspo­ken agreement that if you love it, support it. She famously raised close to $1.2 million directly from fans on the crowdfunding web­site Kickstarter in 2012. In an impassioned TED talk the next year, she laid out a vision of the future, in which musicians discard with the concept of “celebrity” that keeps fans at a distance and instead connect with them directly, especially for financial con­tributions.

“I think people have been obsessed with the wrong question, which is: How do we make people pay for music?” she said during that TED talk. “What if we started asking: How do we let people pay for music?”

Lessening the difficulty to send money their way takes a big step toward making that happen.

Can it really work, though? The best example yet is the touching tale of how the Jamaican bobsled team made it to the 2014 Winter Olympics. The team had no chance of travel­ing to Sochi in Russia, because unlike their competitors from rich nations who had lucrative corporate sponsorships, they were broke. But the idealistic Internet community came to the rescue.

It was driven by nostalgia over the 1993 movie Cool Runnings, the underdog Disney film about how a real-life group of athletes living on an island where the average temperature is 85° Fahrenheit managed to compete in a sport designed specif­ically for sub-freezing climates. And it worked. In just 12 hours, users of the wacky digital currency Dogecoin raised nearly $25,000—enough to help the team make the trip.

While I’ve focused on those in creative professions, it won’t be long before politicians get wind of this as well. Just think about how often you get passionate about a certain politi­cal issue, say, school funding or gun rights. What if, during a politician’s election bid, you could send a few cents their way with a simple click?

On April 17, 2014, Texas Attorney General Greg Abbott became the first politician to accept bitcoins as contributions to his campaign for state governor. In the days that followed, most reports focused on how this Republican is catering to the free market crowd. But just beneath the surface is the hint that campaign finance could be in for a remarkable change.

If it’s easier and faster to raise lots of money in tiny donations from many people, politicians have less incentive to rely so heavily on a few, powerful donors—and more reason to raise it from the voters themselves.

Bitcoin and the Future of Money by Jose Pagliery is available via Triumph Books.

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

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