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Ron Rivest Suggests Probability-Based Micropayments
Karl J. Smith writes "Rivest has solved the micropayments problem with encryption and statistics. You throw away some transactions so that you don't have to pay bank fees, and process the rest. Hiawatha Bray has written an article and Rivest's new company is PepperCoin."
Yes, that is the way to make micropayments take off: patent them.
Most people's number skills are so poor that they probably won't understanding or trust it.
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.
fear is the mind killer
The impression I get is that this is effectively PayPal. The user loads, say, $10 into their account via a credit card. Pepper coin then pay the transaction fee (maybe $.25 or something).
Then basically Pepercoin, I assume, keeps a tally of how many items a given site sells. On every N-th transaction, they hand over $N to the retailer. This way the retailer only effectively needs to pay the $.25 (+ Pepercoin's markup of course) per 20 transactions of whatever.
So, to sum up, this seems basically like Paypal but reworded. You still can't use your credit card to make micropayments and you still need to have an account with Pepercoin, and for the retailer to accept Pepercoin, before you can make a transaction.
Unless I'm missing something this seems pretty useless. I thought the major factor with services with Paypal etc. was that users don't want to have to sign up with a 3rd party - it's just too much hassel.
Okay.. from the merchant's side.. he does not wanna mess with trying to account for a 5 cent sale.. so lets calculate the a 0.005 probability ( thats 5 cents out of 10 dollars ) and assign that probability to a ten dollar token, that the token is any good. So, in effect, the merchant is gambling he is going to get paid - in this case, for the sum of 5 cents, he accepts a 0.005 probability he gets $10. Basically, its just like gambling, where PepperCoin is the "house". But over millions of transactions, statistics would approximate the same return to the merchant as if he tallied all the micropayments.. but the merchant does not have to worry with millions of tiny payments, he works with thousands of larger consistent payments. And is willing to accept the accounting simplicity as tradeoff against any probability error, as well as the overhead of the "house cut". This technique allows the processing of billions of payments without keeping detailed records on each... the only thing going through is the statistical averages of who gets paid what.
Well anyway, thats my *understanding* of how this thing works...
One neat thing is that it appears any identifying information to the purchaser would be lost in the "noise". comments invited.
"Prove all things; hold fast that which is good." [KJV: I Thessalonians 5:21]
I have only read it quickly, but there seems to be no mention of the way PepperCoin will charge the customers. Since the PepperCoins' value is transferred from PepperCoin to the merchant and this transaction is "optimized", the other transaction (PepperCoin <=> customer) is important. It seems to me that this would only(?) work with a pre-paid amount (otherwise the customer would have to purchase frequently enough to be charged for several transactions at once), so the claim from the article: Letting consumers buy hit music recordings for a buck or less, without charging $10 a month in subscription fees, could be just the thing to ignite the micropayment market. is questionable.
"I love my job, but I hate talking to people like you" (Freddie Mercury)
They don't necessarily want to trust so many people. They just have to trust (some) people, or nobody will buy stuff from them.
2 dashes and a space, or just 2 dashes?
I think if you randomize you will get a chance to fudge some data; I mean, if in the end your average price of item turns out to be like 49.68 cents averaged over long term, you will have a very unlikely chance of noticing this discrepency. especially most (ALL?) financial software rounds to the cent.
At the same time, the above is assuming that EVERYTHING is 50 cents. Now, imaging there are things costing different amounts of money, and calculating if papercoin is ripping you off that 0.3% becomes difficult if not impossible.
Now, of course, I can't quite figure out how does papercoin charges the consumer. That's really weird because THEY can't be hit with the 25c charge everytime either or they will go under; so they will either have to
1) act like a bank / paypal and have you keep a balance.
2) wait until your "sum" is large enough and charge it all at once.
both have serious problem.
Of course - this entire thing is really a credit card system problem, that can really only be solved by the credit card companies - but they seem to have no incentive to do so, so... we might be stuck here for a while.
My life in the land of the rising sun.
Peppercoin will not pay the merchants 100% of the money that they took from customers.
It will pay out 100% minus the fee for the real transaction costs minus a win margin for them.
The benefit is, that if e.g. only 5% of the transactions will result in a credit card fee, this scheme gives a 95% cost reduction in real transfer fees - a big big improvement.
Ok, the merchant needs many transactions to get reasonable statistical error margins. But like with insurances on could imagine different peppercoin fees for different risk levels.
The scheme is elegant, but it makes peppercoin a mix of a bank and a lottery, areas typically keen defended by state monopolies. So guess it will be more a legal/political issue than a technical/economic one.
Regards,
Marc
I too think the proposed scheme seems to have some flaws, as described in that article anyway.
If the vendor can know the value of your token, then he can refuse to take ones with no value.
What do you do when the vendor says "I'm sorry sir, but there seems to be a problem with your token, are you sure it's not a forged one?". Do you give him a different one?
Also, how are we supposed to know that the ratio of tokens with values is exactly 1/20. It's in peppercoin's favour if only 1/25 have a value. Surely we (or merchants) have to trust them, yet they're financially involved. Why should we trust them to not rip us off?
$0.50 for every token would mean no possibility to rip anyone off.
Introducing a third party that someone has to trust means that there are now _6_ trust relations rather than _2_. That's _worse_ than the status quo, IMHO.
Won't catch on. I bet you $10 on that (or maybe $0, you'll find out later).
YAW.
Your head of state is a corrupt weasel, I hope you're happy.
BUT, not anytime soon, and you've identified the exact reason why: peppercoin patent monopoly. No reasonable merchant nor consumer should bet on a scheme that locks you into one vendor, especially for something as vital as your very revenue source. We like money because it is 100% transferable -- I can get it from anyone willing to trade with me. Credit cards are also competitive -- if I don't like Visa, I can try AmEx or Discover or MasterCard, and most vendor's have a single machine that can take any of the above. If I don't like peppercoin, there's no alternative I can switch out for -- the system is closed, patented, and sealed. Sure, there are other micropayment schemes that have lived and died, but if I wanted to start a peppercoin-compatible service, tough luck; it'll be at least 17 years before we get a legal shot at that.
Explain to me, o banks, why it costs you $2 to give me money from my own accout? Why it costs you $10 to wire transfer some money from one account to the other? Why it costs $1 to give me a balance statement? Why it's 75c to use your ATM card at anywhere but a supermarket? These are just the costs for consumer-visible transactions; the costs of using a credit card or ATM to the business owner must be similarly padded.
These are database transactions. They happen almost instantly and they consume resources at a tiny fraction of the cost we're being charged. It's electricity being sent over a wire; the marginal cost is so close to zero you need calculus to describe it. This is why micropayments don't work yet, and elaborate schemes like this randomization are even necessary at all. PayPal and similar systems have eliminated these costs, but "real" banks refuse to, because they make an assload of money off of charging for the movement of electrons.
It's rare that you're presented with a knob whose only two positions are Make History and Flee Your Glorious Destiny.
There are issues of user approval that need to be solved to get this working and Peppercoin (man what a lousy name) is not even close to any of them.
I'm not gonna waste your time with my words since Clay already wrote about it in The Case Against Micropayments
The main problem is that users hate micropayments:
"Why does it matter that users hate micropayments? Because users are the ones with the money, and micropayments do not take user preferences into account.
In particular, users want predictable and simple pricing. Micropayments, meanwhile, waste the users' mental effort in order to conserve cheap resources, by creating many tiny, unpredictable transactions. Micropayments thus create in the mind of the user both anxiety and confusion, characteristics that users have not heretofore been known to actively seek out."
Go ahead and read the article. It explains the problem in better detail and it clearly shows why the problem is conceptual and not technical. Then you can happily get on with your life, without Peppercoin and without micropayments. Cheers.