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Ron Rivest and Silvio Micali have looked closely at micropayments, and are even involved with a startup named Peppercoin.

It's been a while since I heard Professor Rivest (of RSA fame) speak, but part of his solution was to aggregate payments across customers. In his talk he explained how buyers could be given electronic money, only a fraction of which was actually valuable to a particular vendor. Suppose 9 out of 10 "e-dimes" would not be redeemed, but the 10th entitled the vendor to a dollar from the credit card company. The vendor would break even on average, but if they could test the money themselves, would use far fewer transactions.

Making the whole system secure relies on a bunch of cryptography. Specifically, it's important to not be able to forge money, not be able to test a bunch of money to see if it's valuable to a vendor, and not be able to give the same money to multiple vendors.

I imagine the Peppercorn is currently proposing a simpler solution that integrates better with existing technology. Either way, when a payments are sufficiently large, the system could just defer to current technology, so the vendor is no worse off.

Peppercoin has already worked out a way to cheaply (i.e. transaction costs are much less than 1 cent)and securely do micropayments.

Rolling your own is begging to be owned.

Ignore people's unease, the real reason you don't want to go w/ paypal is the massive bite they take out of whatever people send you. You can't even ask people to donate a quarter because the entire quarter disappears.

Google for "amazon honor system" (minus quotes). I can't link you directly because it'll probably end up w/ a referral to me in the URL. ^^;; It might be what you're looking for.

Alternatively, for webcomic creators, Scott McCloud suggests trying BitPass, Yaga or Peppercoin...

After reading the Shirky article, and Scott McCloud's rebuttal, in which he rakes Shirky over the coals for criticizing Bitpass based on its state that the time when Shirky looked at it, I took another look at Bitpass, and also at Peppercoin.

My fellow Slashdotters, this is rubbish. There's not a single thing there that I want to buy, not for a quarter, not for a penny, not for a mill, not for a peppercorn.

Nobody forced Bitpass and Peppercoin to put up "Grand Opening" signs and hire brass bands to promote a giant warehouse store with nothing in it to buy but two magazines and three candybars at the checkout line. It makes them look really stupid. If they didn't want people to see them before they were ready, they could have waited to crank up the publicity machine until they were ready.

There's nothing to argue about here (unless you're personally invested in the systems). Bitpass and Peppercoin can prove me wrong any time they want. McCloud implies that Bitpass is the next eBay (by saying that eBay wouldn't have looked any more impressive when it was the same age Bitpass is). Fine, maybe I'll have accounts with both of them in a year. In which case I'll be glad to say I was mistaken.

But as of today, it sure smells like dot-bomb smoke to me.

PayPal made sense practically from day one. I joined PayPal because there was a guy that had a self-published book I wanted to buy--a very good book about the history of Apple--and his website offered me the choice of mailing him a check or signing up for PayPal and using a credit card. Nobody had to talk me into it. I didn't have to engage in theoretical arguments about whether PayPal was a viable system. There was something I wanted to buy. I wanted the convenience of buying by credit card from someone who didn't have a merchant account. I glanced a leery eye at PayPal's terms and conditions, shrugged, and signed up. PayPal has been continuously useful to me every since.

Peppercoin and Bitpass are a joke. Spare me articles about them until there is something worthwhile I can buy with them.

Move along, folks, there's nothing to buy here.

1. Canada style: All citizens pay a tax which goes to buy content. This can be either per-capita, fraction of income tax, or a charge added to the sale/lease of fileswapping equipment/service. The government totals up all that money, and doles it out to performers in proportion to a statistically-estimated measure of their work's popularity.
   
   We can all imagine problems with this scheme- the overwhelming financial success of pornography is the only the most cringeworthy of the drawbacks. But I can imagine a nation experimenting with this scheme, if various controls are added to keep it "clean". Of course that leads to ways for the gov to softly censor creative thought, by withholding funds on obscenity grounds...
2. US style: Taking a cue from the existing compulsory licensing of sheet-music from one performer to another, this system would permit anyone to duplicate copyrighted content, as long as he paid the author. That fee would be determined by a 3rd party, and the author would have no chance to forbid duplication by declining the fee. (Well, it's likely that works won't be subject to compulsory licensing until being published in some way. Privacy of rough-drafts won't be destroyed. But no "artist" can make a living without publication at some point)
   
   This would be the system that P2P United lobbyists will prefer, as it gives their companies a reason to get paid in the future. Somebody has to monitor what files are duplicated, and transfer the set-fee to the deserving author, and some Napster-like system could handle the job. Oddly enough, this shift responsibility for punishing unauthorized filetrading to Kazaa.com and its ilk- users are only allowed to trade through official channels, so passing files by email or floppy-disk will have to be punished!
   
   The funny part about this style of licensing is that once the system gets established, it'll look just like a mature, micropayment economy. Listeners download from Kazaa, Kazaa records what they took and each month prints out some cumulative paperwork: a bill for each subscriber, and a check for each musician. They'll take on exactly the business niche that micropayment middlemen want to occupy.
   

The name is derived from "peppercorn," the smallest unit of value that can be exchanged to form a contract under traditional contract law. Peppercoin was founded in late 2001 by Professors Silvio Micali and Ronald L. Rivest, co-founders of the Cryptography and Information Security Group at MIT's Laboratory for Computer Science. Rivest is known as the "R" in the RSA public-key cryptosystem and a founder of RSA Security, while Micali is the co-inventor of Zero Knowledge Proofs.

Besides, this is the only way I can get my Catapult fix.

Finally managed to remember the name of that system:

http://www.peppercoin.com/

• "Want something for negligibly cheap"
  
• "Want it now, without driving downtown to Best Buy"
  
• "Want it soon, without waiting for the publisher to get around to a New Zealand release"
  
• "Want the good songs and not the album filler"
  
• "Want the convenience of my own mix on my own media"
  
• "Prefers to rely on self or peers to judge music quality- don't want to fund advertisers and playola to influence me"
  

When reading the article and FAQs on the Peppercoin site, I kept thinking that it made no sense from the merchant's point of view to throw away most of the transactions instead of verifying them with Peppercoin.

There are 4 point-to-point transactions occurring in the Peppercoin system:

1. Customer to Peppercoin Central Servers
2. Customer to Merchant
3. Merchant to Peppercoin Central Servers
4. Peppercoin Central Servers to VISA/MC/etc

The savings appear to only occur in transaction 3. Let's compare this system to a typical stored-value system like Paypal.

Paypal transactions always have the Customer log in to the Paypal site at some point to verify their identity, as in Transaction 1. With Peppercoin, the code to authorize the transaction seems to be created by the Customer's computer. However, since the customer's account appears to be debited the exact amount of each purchase, there must be communication between the Customer to Peppercoin for each transaction. The system cannot rely on an indirect communication through the merchant for this, since the merchant throws away most ( [10-paymentvalue]/10 *100% ) of the "Peppercoins", and doesn't report them. Peppercoin's central servers must be cryptographically involved in the creation of the Peppercoins to ensure that they are reported.

Transaction 2 is more onerous than a typical Paypal payment, as it requires the Customer to invoke a custom software application to create the Peppercoin.

Transaction 3 is much easier for the merchant. With Peppercoin, on average, they only have to process one transaction for every $10 worth of value received. Using Paypal's "MassPay" system, the merchant must contact Paypal's servers to confirm each transaction.

Transaction 4 is unknown. Peppercoin is vague about the account that customers have with them. Their web site and the article mentioned both imply that the roulette-style banking will not be used here. Quote:

http://www.peppercoin.com/consumer_faq.html
"You will be billed on your credit or charge card for the amount you spend " (emphasis mine)

Not "approximately the amount you spend". This seems to imply that Customers' Peppercoin accounts are simply stored value. Peppercoin will probably make a credit card charge of $10 or so to open an account, and then put another $10 charge through again each time the balance reaches $0. This will avoid a disproportionate amount of any micropayments from being eaten by bank fees.

But to optimize transaction #4, any stored value system could use the same methods. As long as Peppercoin is billing customers for the exact amount they spend, there is nothing new here. Paypal could easily implement the same optimizations.

So the whole point of the system must be to save computational and network resources at the merchant's end for processing each transaction. But the question is why? Exactly what problem are they trying to solve here?

A server to server transaction for a merchant to verify a Paypal payment involves very little network traffic. You need to send over the transaction code, some customer details, and you receive back a result code indicating that the transaction was successful or not.

For argument's sake, take a conservative estimate of 1KB of data flying back and forth per transaction. With today's inexpensive and reliable bandwidth and computing resources, this is very cheap. Put a price of $15 per GB for the bandwidth and a similar amount to lease the CPU cycles, and this costs about 3/100ths of a cent per transaction. So if a Peppercoin merchant has one $10 token to process instead of a twenty little 50 cent transactions, they will save about half a cent, a tiny fraction of the value involved.

For this system to make any sense at all, we must be talking about much smaller micropayments. What if each micropayment was 1/100th of a cent? In this case, the merchant would collect 100,000 payments on average before needing 3/100ths of a cent of resources to connect to Peppercoin servers to redeem a $10 coin. A Paypal merchant would have to make 100,000 http calls, costing them about $30 to collect $10 worth of micropayments.

For Peppercoin to work, the other transactions need to be limited as well. There's no point in saving the Merchant $30 of bandwidth and CPU resources if it cost Peppercoin $30 of resources in transaction #1, Customer to Peppercoin.

Transaction #1, Customer to Peppercoin could be scaled down by allowing some value to be stored on the Customer's system directly. If they could download $10 worth of Peppercoin into their local app, a network transaction would not be necessary for each micropayment. Previous, now-defunct systems have worked out the necessary cryptography to ensure that stored values can only be spent once.

Based on their FAQ:
[...] launch the PepperPanel viewer and sign in with your user name and password [...]

At least Paypal do not need an applet and is usable whatever browser you use.
I only hope this applet will be Java based and not an IE-specific stuff.

...Ron find an use for his "Hot Geeks of Course 6" collection.

The white paper describing how they actually track when to fire off a "token payment" should be interesting to read, as far as how far RSA techonology is involved with the solution.

...Ron find an use for his "Hot Geeks of Course 6" collection.

The white paper describing how they actually track when to fire off a "token payment" should be interesting to read, as far as how far RSA techonology is involved with the solution.

...Ron find an use for his "Hot Geeks of Course 6" collection.

The white paper describing how they actually track when to fire off a "token payment" should be interesting to read, as far as how far RSA techonology is involved with the solution.

...Ron find an use for his "Hot Geeks of Course 6" collection.

The white paper describing how they actually track when to fire off a "token payment" should be interesting to read, as far as how far RSA techonology is involved with the solution.

...Ron find an use for his "Hot Geeks of Course 6" collection.

The white paper describing how they actually track when to fire off a "token payment" should be interesting to read, as far as how far RSA techonology is involved with the solution.

The consumer FAQ says that the actual payment is consumer-initiated through the PepperPanel, so that invalidates my cheating scheme described in the parent.

However, I'm sceptical of how popular this can be if it requires the user to install external software to handle the payments with.

what's up with all the hot women on the peppercoin page? it's like i'm supposed to be able to buy them with peppercoins.

you mean like this one?

or a little buddha-devil maybe?

i get the feeling both merchants and consumers are going to root around in the hype for a while and then just turn their backs on this.

slashdotters will hate them anyway because they obviously use windows in the office.

what's up with all the hot women on the peppercoin page? it's like i'm supposed to be able to buy them with peppercoins.

you mean like this one?

or a little buddha-devil maybe?

i get the feeling both merchants and consumers are going to root around in the hype for a while and then just turn their backs on this.

slashdotters will hate them anyway because they obviously use windows in the office.

what's up with all the hot women on the peppercoin page? it's like i'm supposed to be able to buy them with peppercoins.

you mean like this one?

or a little buddha-devil maybe?

i get the feeling both merchants and consumers are going to root around in the hype for a while and then just turn their backs on this.

slashdotters will hate them anyway because they obviously use windows in the office.

what's up with all the hot women on the peppercoin page? it's like i'm supposed to be able to buy them with peppercoins.

you mean like this one?

or a little buddha-devil maybe?

i get the feeling both merchants and consumers are going to root around in the hype for a while and then just turn their backs on this.

slashdotters will hate them anyway because they obviously use windows in the office.

BTW, I agree with you here, makes no sense at all.

The 'angle' here is that, by reducing the number of transactions required for the merchant to collect payment, they're making it more profitable for merchants. At the moment, merchants can't flog things for 50c each using Visa, because the Visa transaction charges mean they actually make a loss on each purchase.

Thing I don't understand - Peppercoin claim if you only buy one MP3, you'll only be charged 50c.

"You will be billed on your credit or charge card for the amount you spend, and the merchants will be paid legal tender for the content they sell." [from the Peppercoin Consumer FAQ]

So how can Peppercoin charge 50c to my Visa card without putting themselves out of pocket due to transaction charges? Or are they hoping I'll be an insignificant minority and that everyone's gonna use this thing so much that the transaction payments will become insignificant?

OK, Rivest's a smart guy and micropayment is a hard problem, but this just sounds like so much BS right now...

this looks like hidden advertising to me but i won't argue that point....

and it's based on 'patent pending technology' that is somehow acceptable by slashdotters (see here for more info)

this sounds like a lot of marketing hype. why not just have a company that processes micropayments in mass -- if i buy 10 songs for $1.00 each from 10 record labels during 3 months i should be charged $10 as soon as it is profitable to charge me, possibly at the end of the three months, possibly after my tab is at $5.00. i think this is basically what happens with peppercoin but in a more complex, mathematically obtuse way.

finally, what's up with all the hot women on the peppercoin page? it's like i'm supposed to be able to buy them with peppercoins.