Online gaming is one of the fastest areas of entertainment growth: various forecasts indicate in excess of 5% growth into 2026 and more than USD 200bn generated revenue (MarkNtelAdvisors) . Much has to do with the amount of real money players are spending on in-app purchases. Celebrity skins, bigger weapons, exclusive levels can all be had for a couple of dollars. Payment is straightforward: simply top-up for larger amounts with a credit card, or buy pre-paid vouchers.
But this is clunkyfor today’s gamer generation - even clicking a button is inconvenient. It would be much more convenient for players to pay forwhat they use e.g. $1.49 or 89 cents at a time. Unfortunately though for Miss Gamer, credit card transaction fees erode the value to the seller when prices are so low, so the seller doesn’t offer this option. Moreover, online payment platforms, such as PayPal, charge a percentage fee plus a fixed fee of a few cents. So small payments are expensive and not realistic.
It doesn’t stop there. A whole industry of services is growing in which users are willing to pay sub-cent amounts to providers. Want fractions of GPU time for graphics rendering, billed per pixel or per frame? Mobile data access for short periods? Incentives for hotspot owners to provide internet access to passers by, or rewards for IoT users to harvest data needed by your app? How about per-face processing fees charged by the airport’s favourite biometric recognition app? All of these could be viable for fractions of, or a few, cents. So how do you pay? Cash is clearly not an option and transaction fees make traditional electronic payment methods unviable.
Enter micropayments, faciliated by blockchain. Easy then? Simply transfer part of a bitcoin? Not quite. Most cryptocurrency transactions are far from instant; BTC settlements can easily take tens of minutes and sometimes over an hour. On other tokens, gas fees add up. To solve this, several Layer 2 blockchain solutions now exist for instant micropayments. These work by funding an initial on-chain transaction and setting up a link between the sender and recipient wallets. Then, funds can be transferred off-chain near instantly at the frequency required without touching the chain and getting bogged down in network delays. The final wallet balances are then consolidated later on the chain, requiring only one set of chain validations. Clever!
The Lightning network, sitting on top of BTC, is a good example of this. “X”users now habitually use this, with a payments app called Strike, to send “tips” to other users’ accounts. In Africa, Chippercash levers Lightning so that people can pay each other small amounts that transaction fees would hitherto have made too expensive. The Chivo app in El Salvador – which famously made BTC legal tender – is Lightning compatible and therefore instantly available for micropayments between individuals (although, at time of writing, the country may be required to scale down/limit Chivo in ongoing IMF negotiations).
While Lightning isused a lot for “point of sale” transactions and moving BTC including for remittances (Nium employs Stellar for cross-border payments, to 190+ countries in minutes with fees < 1 cent), µRaiden – an Ethereum based solution – has been adopted for novel offers such as per-second video streaming, in-app tipping and in-game activity. While slightly more complex, the Ethereum base allows multi-token support, boosting agility. Bring stablecoins into the picture and volatility risk also reduces.
Great! When can I throw away my credit cards? Probably not just yet. As with all cryptocurrency innovation, micropayments have left regulators and law enforcement playing an ever lagging game of catch up. KYC compliance and anti-money laundering regulations do not map well to this tech, leaving those who want to commercialise the opportunity in legal grey areas and at risk of contravening laws. Introduce multiple jurisdictions, data privacy and constantly evolving crypto regulation and you can see why tech lawyers are getting wealthy very quickly.
Now consider the rogue state actor or powerful criminal group level. It quickly becomes apparent how illicit cross-border flows and non-dovetailing crypto regulation between nations make micropayments a potential sanction-busting piece of tech. Forget SWIFT restrictions on blackballed countries – and who would want SWIFT anyway with its high fees and multi-day delays? And move aside hackers of centralised exchanges. Micropayments, with much transaction detail off-chain and potentially executed at a mammoth scale in multiple countries, through a variety of platforms including games, apps, anonymous wallet to anonymous wallet, pose a novel way of circumventing the financial order. MordorIntelligence forecasts the mobile wallet market size exceeding USD 700bn by 2031. Digital payments expect to reach anything between USD 300bn and a few trillions in the same period, powered by IoT and micropayments. It’s easy to see why this presents an opportunity to the bad guys and a global challenge to the rest.
How to counter? With this scale of transactions and skulduggery, only computers have a chance. The blockchain, after all, is mostly transparent even if anonymous. Artificial intelligence offers some promise, but up to a point: bad actors as well as good will deploy this to hide their on-chain tracks. However, that’s another article. If you liked this one, feel free to send the $0.002 tip ;)
