There are different opinions about new developing business models for mobile and online commerce. Some of them are micropayments enthusiasts, who believe micropayments is the element of future, and some see it as an unreliable system.
For example, new media models could charge a user only 10 cents for an article to read. However, credit companies are going to impose a fee for each transaction made, which is going to cost a customer additional 10 cents. Coinbase CEO Brian Armstrong tells blog post on Monday, his company has permitted Bitcoin- based micro- transactions that are with zero fees. The key to success of this issue is to work around the traditional Bitcoin system.
Off the blockchain
Bitcoin transactions add up in blocks and are called “blockchains”. Blockchain can be compared to recording system of all the transactions, so that there are no mistakes made, by bitcoins spending twice. Also a process called “mining”, which is the mechanism which connects and checks these blocks, lets new bitcoins join the ecosystem. “Miners” are also not free of charge, which means they have to impose a “miner fee”, usually between 1-5 cents. Coinbase usually pay off these fees themselves for the costumers.
Obviously that method is not a solution with micropayments, therefore Coinbase came up with an off- block system, where rather small transactions are not going to be chained in block. These transactions are going to be possible between two Coinbase accounts, so it is not going to bother the main Bitcoin system. Once the payment receiver has collected a minimum of 0.01, which is roughly 1 $ through micropayments, then it can be sent to the main blockchain.
“Traditional display ads that worked so well on desktop/laptop displays don’t have enough screen real estate on mobile devices and haven’t worked as well. Paid content (entertainment, games, apps, and in-app purchases) seems to be the business model that will win, but these are almost all micro-transactions with expensive fee structures. This is part of the reason you see such high % fees (in the 30% range) on in app purchases across iOS, Android, Facebook, and other platforms.”- explains Armstrong. “Bitcoin has the potential to help this problem by generally lowering fees. But things get really powerful with off blockchain transaction like we launched today, because it literally brings the fees down to zero.”
“Off- block” is a good idea, since the blockchain is almost 9 GB is size and there is an anti- flooding algorithm built into it, which is not very suitable for small amount transactions. Coinbase is not the only operation to work on these problems. Java- based Bitcoin client project Bitcoinj has also introduced a new protocol for micropayment channels.
Bitcoin is a crypto- currency, which is one of the great things about it, although it is also amusing how Bitcoin is developing and growing around the world, spreading virtual currency and disintegrating the traditional financial system. Banks impose significant fees on international transactions, while virtual currencies cuts down that amount severely. Virtual currencies can also deal with micropayments, whereas card companies hold back on that. This proves Bitcoin’s value.