How Blockchain Is Improving Micropayments Capabilities

Delton Rhodes
Delton Rhodes

How Blockchain Is Improving Micropayments Capabilities
Table of Contents
Table of Contents

Micropayments, a term for electronic transfers of very small amounts of money, are an integral part of a variety of industries in the modern digital economy. Mobile apps, subscription services, and e-commerce stores are just a few examples of business models that benefit from micropayment-enabling technologies.

While already significant, it’s evident that the role of micropayments is becoming even more prominent. Total revenue from mobile applications alone in H1 2019 reached $39.7 billion, a 15% increase from H1 2018. Nonetheless, most fiat payment processors and businesses view micropayments as inefficient due to high processing costs relative to total transaction volume.

In this article, we’ll explore the current role of fiat-based micropayments in the economy today. After that, we’ll discuss how blockchain technology could generate greater adoption of this payment type and foster growth for businesses in a variety of industries. Lastly, we’ll look at a few examples of applications that are already using cryptocurrency micropayments and the challenges to implementing these solutions at scale.

What Are Micropayments?

Micropayments, as the name suggests, are electronic transfers of money made in very small quantities. The exact amount of what is considered to be a micropayment varies. Some companies classify micropayments as anything less than $1 USD. Others say $20 or less. While the exact threshold varies, the idea remains the same: micropayments are very small payments made electronically.

While micropayments have become far more relevant in recent years, the concept is not a new one. In fact, the idea of “web micropayments” first gained popularity in the 1990s. Over the years, a number of startups emerged to lead the development and implementation of micropayments. However, most of these early fintech companies were far ahead of their time and failed to gain traction as a result.

For instance, DigiCash was founded in 1989 and offered users the ability to send fiat payments via cryptographic protocols. Despite being its innovative founding idea, the company filed for bankruptcy in 1999. DigiCash’s founder stated that the company was unsuccessful because it entered the market before e-commerce was fully integrated on the internet. In another example, BitPass launched in 2002 and integrated micropayments into an online music store for unsigned artists but ultimately cited competition as the reason for its shutdown in 2007.

Later, in the 2010s, a new generation of micropayments companies hit the market. Micropayment technology and decentralized internet infrastructure had improved drastically compared to the first generation. There were also a number of existing and truly viable use cases for business models surrounding micropayments. Nonetheless, the limitations of second-generation fiat micropayment solutions have proven difficult to overcome.

The Inefficiencies Of Fiat Currency Micropayments

Although there are plenty of companies that use micropayments in the modern economy, it is generally considered more difficult to establish a sustainable business model that relies upon these types of transactions. That’s true because sending and receiving fiat micropayments via payment processing technologies is costly and time-consuming.

High Costs For Existing Businesses

Debit and credit cards are the most popular form of online payments. At the surface, there are no fees on the consumer side of a transaction. The reality is that payment processing companies add in these costs on the merchant side of transactions.

Three percent is the standard rate for all payments, although the exact amount is sometimes higher. For instance, PayPal charges UK merchants 5% + 5p rate for micropayments of €5 or less. These fees are generally baked into the price of the product or service, making them invisible to customers but painful for businesses.

High Costs For New Startups

There are a number of new businesses that do not reach profitability due to high payment processing costs. For companies that want to develop business models around mobile apps, games, or Software-as-a-Service subscriptions, micropayments are a fundamental part of their revenue streams.

Blendle is one example. Beginning in 2014, the company offered a pay-per-article newspaper aggregation service for content written in English, Dutch, and German. However, Blendle announced in June 2019 that the company would pivot away from the micropayments model to focus on premium subscriptions. Executives cited low profitability as the main reason for this move. Looking beyond this example, it is difficult to quantify the number of potential applications that are never developed or launched to the public due to these expenses.

Long Wait Times For Completed Transactions

Fiat payments can take several days to go from customer to merchant. The original intent of “web micropayments” was the development of a web-based system where funds could be accessed much sooner than banks. This is not currently possible with legacy payment clearing technologies like ACH, SWIFT, or SEPA, which are typically used in fiat transfers.

Fiat Micropayments In The Global Digital Economy

Startups focusing exclusively on providing micropayment services face serious challenges. At the same time, there are several well-known fintech companies that have been very successful. While the minimum transfer amount varies between services, and some companies don't allow true micropayments, many companies allow transfers of less than $20 USD. For the purposes of this article, we will use $20 as the micropayment threshold.

App Stores

Although the majority of apps are free to download, those that do cost money typically range from $0.99 to $9.99. Both Apple App Store and Google Play earn 30% of all app and in-app purchases.

This means each customer purchase is actually split into two separate micropayment transactions: one for the app owner and one for the app store. It is also notable that the huge cut of revenue distributed to the app store greatly diminishes the earnings potential of any developer or startup that builds an app.

Ridesharing Services

The cost of ridesharing applications can vary depending on the city, distance, number of passengers, and other factors. In most cases, the minimum fare amount still falls within the category of micropayments. As of 2019, the minimum fare for a ride from Union Square to San Francisco International Airport (SFO) with UberX costs around $7.20.

E-Commerce Platforms

Etsy charges merchants a $0.20 listing fee for each item. Once a sale is made, Etsy charges merchants 5 percent commission plus a 3 percent +$0.25 processing fee.

Online Subscription Services

Netflix is one popular example of a subscription service that relies upon micropayments. 2019 rates for plans are $8.99 for basic, $12.99 for standard, and $15.99 for premium.

Payment Processors

PayPal considers transactions of $10 or less as micropayments. Visa says the threshold is $20 or less. Of course, by either of these standards, both PayPal and Visa process millions of micropayment transactions every day.

Crowdfunding Platforms

Kickstarter, Indiegogo, and GoFundMe all have similar crowdfunding models that rely upon microtransactions. GoFundMe takes 5 percent of donations, and its payment processor takes 2.9 percent + $0.30 per transaction. Indiegogo takes 5 percent of campaign funds, plus payment processing fees (percentage varies based on supporter’s location and local currency). Kickstarter takes 5 percent of campaign funds, and Stripe takes roughly 3 percent to 5 percent of every processed transaction.

Blockchain-Based Micropayments Are Making An Entrance

In recent years, many blockchain startups have turned their attention to improving micropayment technology using digital currencies. These solutions practically eliminate transaction costs and significantly cut down on the amount of time it takes to send micropayments from one user to another.

Cryptocurrency micropayments are also universal, meaning that earnings collected by individuals or businesses around the globe are not diminished by the high fees or minimum requirements traditionally associated with fiat currency conversions. This enables small businesses to more easily introduce micropayment-focused products and services in new markets, which can, in turn, help scale user bases more quickly.

There are dozens of blockchain use cases for applications that utilize cryptocurrency micropayments. Here are five prominent examples.


In February 2019, the Tippin browser extension for Chrome and Firefox made its debut. Tippin allows Twitter users to send Bitcoin (BTC) payments to each other via the Lightning Network. Anyone can log in to Tippin and create a BTC wallet using an existing Twitter account. The installed browser extension places a ‘lightning’ button next to each tweet, which allows Tippin users to see which other Twitter users can accept BTC via Tippin. Ripple, Nano, Brave, and other blockchain projects have created similar tipping bot programs for Twitter.

Brave Browser

Brave Browser is a decentralized internet browser that not only blocks ads and website trackers. It also gives users the option to earn micropayments. Users that opt-in to view ads are rewarded in Basic Attention Token (BAT). Ads appear as push notifications in the browser as frequently as once per 30 minutes. Estimated earnings are updated each time a user views an ad. Micropayments are distributed to users’ BAT wallets on a specified date each month.


The adoption of cryptocurrency vending machines has not reached mainstream adoption yet. Despite their lack of popularity, a number of companies already have products or prototypes available.

One prominent example is Civic, which unveiled three beer vending machines at SXSW in March 2019. Each unit costs $15,000 and can verify a user’s age as well as accept cryptocurrency payments. An estimated 150 beers were sold per day for a total of roughly 100,000 CVC – around $7,600 at the time of SXSW 2019.

This product is more expensive than a traditional vending machine, which costs roughly $1,000 to $2,500 per unit. At the same time, there appear to be two main advantages of cryptocurrency vending machines over fiat vending machines: cryptocurrency vending machines eliminate payment processing fees and do not require the time/labor involved in retrieving accumulated paper bills or metals coins.

Decentralized Games

Developers are beginning to use cryptocurrencies as the go-to form of payments in mobile and desktop video games. Decentralized applications (dApps) remove platform fees charged by app stores or online marketplaces and payment processing fees charged by companies like PayPal, Visa, and Stripe. Splinterlands, EOS Dynasty, and 0xUniverse are a few examples of dApp games that consistently rank highly in terms of transaction volume.

Social Media Apps

New social platforms have emerged as a use case for cryptocurrency micropayments. Users of social media dApps are able to reward each other directly on platforms via microtips. Crypto-based platforms generally emphasize the protection of user data and do not feature advertisements. Steemit, DTube, Belacam, and Sapien are decentralized platforms which offer user experiences comparable to Medium, YouTube, Instagram, and Reddit, respectively.

Barriers To Blockchain Micropayments Adoption

Digital currency micropayments have yet to reach the popularity of fiat micropayments. Why is this the case? Here are a few case studies to consider.


TipJar announced it will end its service for microtips on April 10, 2020, due to a lack of users. TipJar was built to be compatible with Reddit, a platform which has over 330 million users. This raises some questions about why the microtipping service failed to gain adoption.

One possible reason could be the fact that there are a number of other cryptocurrency microtipping services available. Another reason could be that microtips simply work better on other social media platforms like Twitter or YouTube, where user accounts are generally tied to a known personality rather than an anonymous one.

E-Commerce Platforms

Generally speaking, building a user base on a new platform is difficult. Getting users to move from a popular platform to one that has fewer users is even harder to accomplish.

Let’s take moving from Etsy to OpenBazaar as an example. For consumers and merchants, switching to a crypto-based platform could bring several benefits. Merchants could receive payments quicker. Combined fees could be reduced from 8% per transaction to at or close to 0%. This would make prices cheaper for consumers and/or increase the revenues of merchants.

However, the powerful network effect of platforms like Etsy is a major factor in its continued success and slower adoption of crypto-based alternatives.

Payment Channels

Digital currency micropayments, unlike fiat currency micropayments, do have the potential to be extremely cheap and fast. However, most blockchain networks face scalability challenges that deter mass adoption. Scaling from dozens of transactions per second to thousands per second is a technical challenge that must be solved before the mass adoption of cryptocurrency micropayments is possible.

Lightning Network, for example, is a Layer 2 scaling solution that allows users to transact and settle Bitcoin (BTC) payments off-blockchain. Although this was touted as the ultimate solution for increasing scalability, two issues in Lightning’s design present known problems.

First, there is a possibility that the dependence on a select few lightning nodes could lead to the centralization of the Bitcoin blockchain. This means that networks could become closer to the current economic system, where banks and financial institutions act as intermediaries.

Second, security issues are common on the Lightning Network because of its design. Funds must be stored in hot wallets at all times. This has already led to one notable incident. On March 20, 2018, Lightning Network nodes faced a Distributed Denial of Service (DDoS) attack that sent 180 nodes offline, dropping the total from around 1,050 to 870.

Areas Of Improvement For Blockchain Micropayments

While there are many ways in which crypto-based micropayments could improve, two general areas include accessibility of solutions by end-users and inherent capabilities of the underlying technologies. These two examples show what improvements we might expect to see at some point in the future.


Automated payment solutions for cryptocurrency micropayments are available but still limited in use. Joule, for example, is a browser extension available for Chrome, Firefox, Opera, and Brave that handles automated cryptocurrency payments and invoices. Although the interface is user-friendly, Joule currently only offers support for Lightning node operators. By expanding availability to non-technical users, the project could improve the possibilities of large-scale adoption of BTC micropayments.

Technical Improvements

Researchers are looking at new methods for optimizing the capabilities of payment channel networks (PCNs). Many of these solutions have not been implemented in real-world networks but demonstrate promising early results. They could potentially offer solutions that are more scalable and secure than PCNs currently being used (i.e. Lightning Network or Raiden Network).

For instance, an academic paper released in October 2019 by researchers at MIT, Carnegie Mellon, and the University of Illinois proposes a routing solution called “Spider.” It packetizes transactions and uses a multi-path transport protocol to achieve high-throughput routing in PCNs.

Simulations show that Spider requires less than 25% of the funds needed by state-of-the-art approaches to successfully route over 95% of the transactions on balanced traffic demands. Only one on-chain transaction for every 10,000 transactions routed is needed to achieve full throughput on imbalanced demands.

Komodo’s Micropayments Blockchain Solution

Komodo is a multi-chain platform that offers composable blockchain solutions to all third-party projects. Komodo provides each project with its own sovereign Smart Chain. After that, they can activate the desired modules, choosing from options like tokens, trustless oracles, a quantum-secure blockchain module, and a micropayments blockchain module.

The Channels module allows developers to build payment channel networks that facilitate instant, feeless micropayments for digital currencies in a trustless environment. Channels are backed by Komodo’s delayed Proof of Work (dPoW) security mechanism, which provides Bitcoin-level protection. Once a payment channel transaction enters the mempool, the odds that funds can be withdrawn or attacked decrease to almost zero.

Developers who have installed Komodo can execute commands on their CLIs and interact directly with payment channels. This module includes code snippets for important functions, including opening and closing payment channels as well as sending and refunding payments.

Developers who want to test Channels can build the Komodo daemon in test mode, which speeds up transaction completion time by reducing the required number of confirmations from 100 to 2. More info on Komodo’s research and development on payment channel iterations can be found on GitHub.

If you're a developer, you can get started by reading our documentation. If you're a business wanting to launch your own smart chain, reach out to our us by filling out the form on our business page.

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