With a micropayments channel, a Bitcoin user can setup a trustless environment with a server that allows them to send multiple payments without broadcasting each transaction on the Bitcoin network. This leads to much lower transaction fees overall, and it also makes nanotransactions a practical means of payment. Payment channels are not necessarily a new idea. In fact, the concept was implemented in bitcoinj last summer.
Although there are already a few methods for handling nanotransactions right now, the currently available solutions use a centralized model. For example, a user of Coinbase can send bitcoins to other Coinbase users without a fee. The same concept applies to ChangeTip where you can tip someone as little as a single satoshi over the Internet. The main problem with these services is that they don’t follow the same decentralized principles found in Bitcoin. In fact, they are more like traditional payment options, such as PayPal or banking institutions, than Bitcoin itself. Micropayment channels solve this issue by creating a trustless environment where the client and server create a mutli-sig agreement rather than giving the server complete control over the user’s account balance.
So where would people actually use this kind of micropayment channel?
I reached out to James Poole on Twitter after seeing his demo video, and he talked about building a platform, MicroTrx, for various applications to use as a micropayment gateway. Poole noted, “My end goal is to build a micropayment gateway to allow any third party to integrate [trustless microtransactions] and also provide tools for anyone [who needs assistance].”
On the topic of removing trust from the equation entirely, I pointed out that centralized entities still had to be trusted to eventually deliver the bitcoins to the correct party. Poole pointed out that it’s not just the centralized servers that you have to trust to deliver the microtransactions. Poole agreed, and he explained, “They are open to many attack vectors: MtGox style, hackers rerouting payments, employee theft, loss of coins, etc.”
Having said that, this is still a move in the right direction when it comes to removing trust from micropayment servers. Perhaps we’ll have to wait for Monetas or a decentralized micropayments application built on top of Bitcloud to enjoy the “Holy Grail” solution, but this option can definitely help us with sending tiny amounts of bitcoin across the globe right now.
Images from Shutterstock.
Last modified (UTC): September 27, 2014 22:57