Educational Byte: What are Micropayments in Crypto?

As the name may suggest, micropayments refer to financial transactions involving tiny amounts of funds. They’re often used to pay for digital goods, like articles, songs, or in-app purchases; but two or more parties could agree to exchange micropayments for any reason. This type of payment exists outside the crypto world, but, as you may imagine, it hasn’t been very practical when fees in traditional systems and currencies are considered.

PayPal, for instance, could treat transactions of less than $12 as micropayments, but they apply fees of 5% + $0.05 each time. This means it won’t be practical to send a few cents, because you’re going to pay more than that in fees only. On the contrary, several cryptocurrencies have such tiny transaction fees that sending those few cents is more practical. In Obyte, for example, the fees are barely $0.00001 per transaction.

Additionally, beyond the main crypto infrastructure, some systems have been developed to fulfill this very purpose. Let’s check more of it ahead.

Some Use Cases

Cryptocurrency micropayments enable new ways to pay for services and goods and could support various industries. In gaming and entertainment, they allow for more dynamic payment models, such as paying only for what you consume, like per-minute streaming or tipping content creators. Gamers could also be rewarded with crypto for achieving specific milestones or unlocking new levels, creating a seamless flow of small, frequent transactions that enhance user engagement.

Another potential application lies in the management and sale of surplus electricity from renewable sources. For instance, individuals with solar panels could sell their extra energy in tiny amounts, generating micropayments as their electricity feeds into the grid. Though challenges like maintaining grid stability exist, this model promises to turn renewable energy into a more direct and independent source of income for producers.

In traditional models, individuals with renewable energy sources, like solar panels, might only receive compensation through mechanisms like energy credits, fixed rates, or long-term contracts with utility companies. Therefore, the income might be less frequent, dependent on centralized parties, and less directly tied to the actual energy being produced. Micropayments with crypto could offer a better alternative in most of these cases.

They also show promise in the world of machine-to-machine transactions. Devices could autonomously handle payments for services like charging an electric vehicle or accessing online data through paid APIs. This reduces friction by automating the exchange of small payments between IoT devices without requiring user involvement. Besides, micropayments can apply to self-generated data from devices like electric cars and smartwatches, which could sell traffic, parking, or health information in exchange for crypto, further broadening their utility across different sectors.\

Payment Channels & Micropayments

Remember what we mentioned above about systems specially built to make micropayments? Those are payment channels, available in several networks. A payment channel is a way for two parties to send multiple small transactions, or micropayments, between each other without immediately recording every transaction on the main chain.

Instead, these transactions are first settled off-chain, directly between the parties, which helps reduce fees, increase privacy, and speed up the process. Once all the small payments are done (as mutually agreed by the parties), only the final balance is added to the main chain, making it an efficient method for handling many micropayments without clogging the network.

Known examples of payment channels in crypto are Lightning Network (for Bitcoin and Litecoin), and Raiden Network (for Ethereum). They both use their own kind of complex smart contracts to work as intended. In Obyte, infrastructure for payment channels is based on Autonomous Agents (AAs), which are automatic programs designed as digital vending machines, free from human intervention.

In an Obyte-based payment channel, an AA temporarily locks funds while the channel is active. Transactions within the channel are conducted off-chain, making them free, instant, and private. During this time, small payments shift the locked funds from the buyer to the seller. Once the service is completed, the channel is closed, and the total amount is settled in a single transaction recorded on the native DAG chain.

Since transaction fees on the Obyte main chain are already very small, it’s possible to send and receive micropayments in plain transactions, without extra steps —although they won’t be as instant or private. To add those features to the mix, detailed instructions and a software library for building Obyte-based payment channels for any purpose are available for everyone on GitHub.

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