Why micropayment systems can build better societies

Micropayment systems hold untapped potential to reshape some of modern society's biggest challenges in the Internet Age.

techy world over circuit board, dollar bills entering Web 3.0, micropayment economy

Micropayment systems are key to a better future.

Over the last two decades, Americans and other populations around the world have developed a dangerous addiction to free products and services. Apps, media, content, entertainment – all are widely available for free. That is, there is no direct monetary charge for their consumption.

But that does not mean there is no cost. In fact, the cost has been so monumental, it would be impossible to accurately quantify. Had a viable, micropayment-based business model emerged earlier in the Internet Age, society as we know it would almost certainly look entirely differently – and would likely be significantly more equitable than it is today.

“If it’s free, you’re the product”

Today, some of the largest, wealthiest companies in the world – Facebook, Google, CNN, CNBC, Fidelity, Chase, etc. – offer their products or services for free.

Big tech

For example, it’s free to set up a Gmail account. Google provides Gmail accounts with access to storage on their servers, security servicing by teams of engineers, web developers who manage the user interface and experiment with new functionalities, all of which is free of charge.

Facebook also runs an extensive operation, with an extensive payroll packed with well-paid employees. Yet, users can create an account on Facebook for free.

CNBC is a media outlet that posts most of its content online for free. They have writers, editors, expensive equipment, researchers, account managers – yet they don’t charge for the end product, the content they put out.

Consumers can even manage finances online, mostly free of charge (given that the consumer doesn’t overdraft or use credit). Financial products in particular require intensive security efforts to save off cyberattacks.

Not only do these companies and many others offer these products for free, they provide ongoing, high-quality servicing for their offerings.

Of course, the leaders and employees of these companies aren’t simply doing all this for karma points, nor should they be expected to. Despite offering their core products to millions of people free of charge, these companies are among the highest valued in the world.

In most of these cases, the users are not the customer. The customer in any business is the source of revenue. By extension, a business’s loyalty is always with customer, the revenue source.

In the case of companies like Google and Facebook, the source of revenue is advertisers who pay to promote to their audiences or companies who pay for access to the vast amount of data they have about their users’ interests, affiliations, and behaviors. That data has been leveraged in less-than-ethical ways. Facebook, for example, has had its fair share of run-ins with the pillars of democracy. Data collected by megalith companies has guided elections, empowered lobbyists to more effectively push corporate agendas (often at the expense of most Americans), and exacerbated wealth inequality to historic levels.


In the case of Fidelity and other stock brokers, the users’ stock and account holdings essentially become part of Fidelity’s portfolio. Fidelity can move the users’ investments around without the user knowing, nor sharing any gains made from these investments.

In other words, the user’s investments assume risk, but brokerages keep the reward.

Brokers also often lend out to short sellers for revenue. More often than not, the customer gets no potential benefit from this arrangement. On the contrary, the actual shareholders only stand to lose.

Despite the obvious conflicts of interest, stock lending is a major source of revenue for many brokers. In fact, some brokers do not allow their users (not their customers) to opt out of stock lending programs, even when account holders specifically request it or try to direct register. In other words, shareholders have watered-down rights, secondary to that of their broker.

Not exactly a great trade off for using their user interface for free.

Media and information organizations

Perhaps most of all, the “freemium” model has cost consumers at large in the rhelm of information quality. Major media outlets offer 24-hour, 7-day a week content creation for free. Despite not monetizing what, at face value, appears to be their product (content), these outlets are able to hire top-tier writers, editors, designers, and web developers.

That makes it hard for other news and media outlets to compete. Running media operations isn’t free. Journalists, writers, and content producers need to be paid. The news industry is a high churn business: The shelf life of stories is short. While income from advertisers can partially offset operational costs, most media outlets struggle to stay solvent independently. Additionally, it is the advertisers – not the audience – that become the media source’s customer, i.e., their revenue source.

With the rise of the freemium and programmatic ad model, news and media outlets from around the country have dwindled in numbers. Even award-winning news organizations that had significant audience bases and wide-scale brand recognition, like the Pulitzer Prize-winning Denver Post, struggled to make profits.

However, media outlets that can afford to operate at low profits, or even at a loss, have an obvious advantage over those struggling to stay in the black in terms of audience acquisition.

Of course, there are entities with vested interest in running media operations, and are willing to pay for them. Unsurprisingly, those entities are large corporations and exceptionally wealthy people.

media organizations and the wealthy people and organizations that own them

Corporations and billionaires aren’t offsetting media operation losses out of a commitment to quality information. Media organizations are valuable assets to billionaires for their ability to influence more so than their operational profitability.

A multi-billionaire will gladly spend $100 million a year to offset media operational expenses if it sways public favor towards legislation that will land them a multi-billion dollar contract. That $100 million is simply the cost of doing business.

It should be no surprise then, that the top 10 “news” organizations by monthly traffic volume are all privately owned by billionaires.

The hidden costs of “free” products and services

In other words, these free services have come at the cost of a meaningful democracy, a massive rise in wealth inequality, omnipresent surveillance by various private companies (many of whom have close relationships with the government thanks to privatized government contracts), shareholder rights of small-scale investors, worker protections and benefits, among a host of other consequences at large.

These dynamics have been years in the making. However, the pandemic has dragged the mangled interests of corporations and the wealthy versus those of everyday consumers into the spotlight.

Freemium models are inherently anti-competitive

Offering products and services for free, then monetizing from third-parties, is an inherently anti-competitive strategy.

By default, the entrepreneurs that can afford to develop products or services for free, then give them away must be able to run operations at a loss for a sustained period of time before the business can really be self sufficient.

Unfortunately for modern-day entrepreneurs, society has become deeply conditioned to expect products and services for free. That extends the period during which new businesses must operate at a loss, requiring even more capital to gain footing in a landscape dominated – and defended – by mega companies.

In essence, only those with deep enough pockets to withstand the financial risk of entrepreneurship can maintain autonomy over their enterprises.

The other option is to forfeit some degree of equity to the wealthy and powerful in exchange for investment. The net effect is that big players are able to obtain ownership in up-and-coming companies early on, maintaining and even expanding their dominance via would-be competitors.

Thus, the biggest benefactors of freemium business models are not the entrepreneurs, the potential customers, or society at large. The freemium model is an express advantage of the wealthy and powerful. At this point, consumers have been so conditioned to expect high-quality products and services for free, a company hoping to gain footing with paying customers in a market where there are similar products or services offered for free is up against tremendous odds of failure.

The freemium model is a strategy that’s been finessed by the wealthy to raise the barrier of entry to some of the most lucrative and influential industries. The playbook: Operate at a substantial loss by offering the service or product for free or significantly under market rate to gain market share from competitors. Once competition has been sufficiently priced out, raise rates to similar levels.

Jeff Bezos’s Amazon famously operated at a loss for years in order to gain market share. Uber and Lyft offered commuters much better rates than yellow cab drivers, putting many out of business. Uber and Lyft then turned around and raised ride prices while at the same time, spent hundreds of millions lobbying against providing drivers with benefits yellow cab drivers once had. In this way, the freemium model was a direct catalyst for drivers losing employer-provided benefits.

Short-term savings have produced long-term consequences for contract workers across the nation as employers effectively wiggled out of employer commitments to employees by leveraging the freemium and market undercut models, a strategy exclusively available to the wealthy.

The micropayment solution

A possible solution to these societal challenges is the rise of a micropayment-based economy.

The strategy is to make the consumer the source of revenue so that the interests of the company and the user are not at odds.

A micropayment economy makes the consumer the revenue source.

If the consumer is the revenue source, the business’s loyalty will follow suit. It will have vested interest in acting in good faith toward the users – not of a third-party revenue stream with conflicting interests.

Micropayments were considered in the early days of consumer internet adoption

The freemium model, one that asymmetrically benefits the wealthy, rose to prominence with the rise of the internet.

However, early internet pioneers considered micropayments in an effort to curtail adverse third-party interference with what the internet had to offer.

The 90s were the decade in which personal computers started entering American households at scale. In 1990, less than 16% of households had personal computers; by 1997, almost 35% did.

In 1992, a fleshed out whitepaper published by computer scientists Cynthia Dwork and Moni Naor outlined a form of micropayment system for emails.

They proposed introducing what amounted to a micropayment per email. If the sender was on the recipient’s list of contacts, they could bypass the computational processing fee. However, a per-email cost would significantly curtail spam senders and put financial incentive behind being thoughtful about who was sending what.

Importantly, these per-email processing fees would be manageable to almost all users for personal use, therefore, not be financially restrictive in nature.

“…we propose a system that imposes another type of cost on transmissions. These costs will deter junk mail but will not interfere with other uses of the system. The main idea is for the mail system to require the sender to compute some moderately expensive, but not intractable, function of the message and some additional information. Such a function is called a pricing function.

Though the paper made its rounds in computer engineering circles, ultimately, the proposal was left on the shelf.

A few years later, in 1997, cryptographer Adam Back sent an email with a similar theme: By adding a computational processing requirement (another form of micropayment, as computational power carried expenses) to digital communications, they would put “….spammers out of business overnight, as 1,000,000 x 20 = 100 MIP years which is going to be more compute than they’ve got.”

Back’s 2002 follow up paper describes further applications of “CPU cost-functions,” which he called hashcash. Interestingly, the ideas in Back’s hashcash whitepaper were later cited in Satoshi Nakamoto’s Bitcoin whitepaper. The computational processing cost function is the underlying mechanism for how Bitcoin is mined.

Back is widely considered on the short list of possible answers to the question: “Who is Satoshi Nakamoto?” He was one of the early developers to work on setting up the Bitcoin blockchain, one of the first people to receive a responses from Satoshi Nakamoto via email, and currently serves as the CEO of Blockstream, a blockchain technology company.

Additionally, Back is British. The Bitcoin whitepaper contains numerous British word and spelling variations, leading to theories that Satoshi Nakamoto was from the U.K.

While Dwork, Naor, and Back were looking to solve different challenges, there was incredible wisdom and foresight in their thinking. Introducing small, direct costs-per-use may have greatly curtailed spam – and created companies that had vested interest in protecting their customers: The users.

Ultimately, their proposals weren’t adopted as the internet hit mass public scale throughout the 90s. Instead, email service providers like Yahoo!, AOL, and Netscape began offering email accounts for free, finding alternate revenue sources and laying the groundwork for the freemium model on which the majority of Web 2.0 companies are predicated.

Past attempts at developing micropayment systems

The development of micropayment systems has been attempted in earnest many times before. In the 90s, major companies like IBM and Compaq attempted to develop micropayment systems that could handle payments down to $0.01.

Yet, nothing really came of these efforts.

In the 2010s, interests in micropayments caught a second wind. But once again, they would fail to find a workable model and micropayments failed to catch footing, though the reasons why aren’t exactly clear.

While attempts at micropayment development may have not bore fruit, the fact that there have been repeated attempts by numerous organizations, from industry giants like IBM, to mid-scale operations, to computer scientists at MIT and Stanford University, the potential of micropayments to shape modern society has occurred to many brilliant minds before.

Blockchain, micropayment systems, and Web 3.0

In 2011, Stanford University published an overview of micropayments and past attempts to make them viable. Interestingly, and perhaps not-so-coincidentally, blockchains and the cryptocurrency space is heavily focused on addressing these exact challenges.

Case in point, reducing transaction fees (such as Ethereum’s gas fees), and avoiding entrusting one, centralized entity with too much power and cash flow (the core ethos behind the cryptocurrency space).

Imagining a micropayment world

It’s hard to imagine a world in which these proposals had been adopted in the early days of public adoption of the internet, considering the impact of the convoluted freemium model.

Perhaps attaching microcosts to different internet use cases would have made the internet bill itself larger, but fashioned a society in which companies primarily monetize their users directly. By extension, they would be financially motivated to deliver the best product and service while protecting their customer base from the third-parties that have instead assumed the role of customer in the freemium model.

Would the top 10 news organizations all be owned by billionaires if, instead of signing users up for subscriptions, users had the option to pay-per-article-view directly to news outlets? Perhaps then, media organizations wouldn’t have to devote a large proportion of their resources to servicing parties other than their readers and compete for ad revenue within a complicated frenemy dynamic with the duopoly, Google and Facebook.

If Facebook had charged $5/month out of the gate, would they have focused so much of their research and development resources on perfecting their data-mining advertising platform instead of protecting their users’ privacy? Would the social media giant play a pivotal role in deciding elections and lobbying for favorable legislation?

If brokers charged a per-trade fee, would they routinely and willingly act against their account holders’ best interests by lending their holdings to parties with direct interest in eroding those holdings’ value?

Would the economy have consolidated into the hands of a few elite as it is today?

Blockchain, Web 3.0, and the future of micropayment systems

Certainly, other challenges would have arisen if history had gone a different way. But it stands to reason that when a company’s consumer base is also their revenue source, the conflict of interests that plague modern society would have been at least partially mitigated.

As innovators and creators from both the tech and the finance industries move into the blockchain and crypto space, society may have another chance at realigning business interests with that of consumers through the implementation of micropayment systems.

Web 3.0 continues to gain interest and talent under the common goal of building a better internet, economy, and society.

And perhaps this time around, the promise of micropayment systems will be given the chance it deserves.


  • Tanja Fijalkowski

    Tanja Fijalkowski is an award-winning writer, editor, and designer. A North Bay Area native, she has written for various financial, business, history, and science publications. She's a deep-dive researcher with a strong command of data analysis and simplifying complex concepts.

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