Over the weekend, in a personal twitter thread Visa’s head of Cryptocurrency Cuy Sheffield made a case for using cryptocurrencies and Bitcoin in particular for blockchain micropayments.
Nick Szabo, the inventor of the term “smart contracts” wrote about the problem of micropayments and mental transaction costs. He classified the problems as “uncertain cash flows, incomplete and costly observation of product attributes, and incomplete and costly decision making”.
In his tweet thread, Sheffield addresses this in part. He argues that the problem is currently systems don’t allow for a fraction of a cent, whereas Bitcoin does with Satoshis (sats), which represent one hundred millionth of a Bitcoin.
Because one cent is generally seen as a lower bound if people paid a cent for every ‘like’ on a social media network, that will quickly add up, and before they know it, they could be spending $15 or $30 a month. And because of that fear, people think before they click. It encourages mental transaction costs.
However, if the amount were a tiny fraction of a cent, then Sheffield asserts that people will no longer bother with the mental arithmetic because the total cost will only be cents at most. Even the inherent volatility in Bitcoin would not concern people because that too will only cost cents.
Others responded, claiming that there are betters tools such as using XRP, a digital dollar or the US dollar stablecoin, the Dai.
Sheffield responded to this latter point by asking what one ten-thousandth of a Dai is called. His point is that to be consumer-friendly, he believes micro units need a name, like a Satoshi, as opposed to $0.0001.
I’d argue that it’s a better consumer experience to have a unique micro unit of account name and familiarity to remove mental transaction costs than using more decimals than ppl are used to.
An item priced at 1 sat is small enough I don’t even care about conversion vs $0.0001— Cuy Sheffield (@cuysheffield) February 16, 2020
Sheffield’s tweets were in response to a thread from Coinbase founder and CEO Brian Armstrong in which he demonstrated how reducing costs impacts behavior. For example, with SMS at $0.20 a day, people might send a few messages a day. But when WhatsApp drove the price down to zero, message volume skyrocketed.
What will happen when the cost of a payment falls to SMS levels? What about free?
What will happen when all payments are inherently global? — Brian Armstrong (@brian_armstrong) February 6, 2020