Are you tired of being charged a significant commission for a very small payment you receive from your customers or have you ever had a case where you needed a really minor change request for your project, yet billed for at least half a day by your provider? If you suffer from one of these problems or can relate with anything similar and if neither, yet you’re simply interested in discovering what blockchain and cryptocurrencies may offer to improve your daily life, then you came to the right place and may keep scrolling down.
Both in induvial or business payments, the current systems rarely favor your side when it comes to micro payments. One way or another, it always round up or down in the opposite direction to your interest. It’s either the payment provider makes a huge commission income from your low in amount, high in need transaction or the service/product delivery never takes place, if the seller is not a giant who makes a fortune from the economies of scale. One thing is clear that no one is willing to send 15 Dollars cross-border payment and pay double that amount in fees to multiple intermediaries, who make the transaction possible. Nevertheless, neither SWIFT (The Society for Worldwide Interbank Financial Telecommunication) nor credit card providers reduce the transaction fees enough to allow you sending cents cross-border or receive payments for products/services that you’re willing to provide for 10 cents.
Apart from the size of a payment, there are many other issues in the current payment systems. Let me tell you what two of these problems are with an example. There is a bar in my city, where you’re given a card to load with the amount of money you would like. Then you walk around the beer taps, put your card and fill your glass as much as you want, which will dynamically reduce the balance in your card, proportional to the amount you fill. Even though I need to make the payment in advance to top-up my card, I get to set the frequency of the payment while transferring the ownership of money to the bar. Eventually, if I don’t finish the topped-up amount, I get to receive non-transferred amount back from the bar. This example is just one of the many use cases where the frequency of the payments require continuous transfer rather than few batched transactions. Normally, the usual way of receiving payments is to divide it in 2–3 batches to get them before or after the work is done. However, the more batches will only increase your costs and eat up all your profits. The second problem that is hidden in this example is the need for tailored pricing. In the world of price and product customization, offering people beers with 33, 50, 75 ccs is no longer customized enough. If the customer needs to drink 42,3 cc of a beer, this is the way to give them a 42,3 cc beer and charge them precisely parallel to the amount they’ve received.
Here at this point, you may be bored of the background story and telling yourself “OK, but what this is all to do with cryptocurrencies?”. Just wait a second, I am coming there. I’ll explain this with another concrete business case to make sure we cover all the grounds:
Time tracking based charging for freelancers is far from precise. The transition from monthly rates to hourly rates have been adopted widely, yet the micro tasks should be priced not on hourly rates but minute rates. The payment should start flowing from the pipe once the hired freelancers work on it and the pipe should switch in a blink of eye, once you start working on another client’s task, which should activate the pipe from that other client’s side. This means more fair payment, better tracking and more transparent transaction and valuation between the parties.
Now coming to cryptocurrencies, have you ever heard of Lightning Network? In a very brief definition, Lightning Network is a second layer technology for bitcoin that uses micropayment channels to scale its blockchain’s capability to conduct transactions (Investopedia, 2019). It’s mainly launched as an alternative scalability solution to Bitcoin’s exponentially growing transaction volume, yet it offers so much more. You can basically open a channel between two parties with a certain amount of money and move this money bi-directionally until both parties are happy with the amount on their wallet to agree on closing the channel (resembles the card in my bar, isn’t it?). Opening and closing the channel comes with a very low fee but moving the money inside your channel is totally free. So you can make your payment in 1, 2, 3 batches or 1000 batches if you like with no additional cost. Also if you’re “A” who has a lightning channel with “B” but you would like to make a payment to “C”. If “B” and “C” has a channel between each other, then you don’t really need to open a separate channel with “C” and can leverage the existing channels to send your money to “C”. Luckily, it’s not just “A”, B, and a few individuals who collectively creates the network of approximately 4750 nodes and 31750 channels (Acinq, 2020). In the screenshot below, you may find all the active nodes and channels forming this network.
Lightning Network is not the only second layer solution that allows to create a channel between two parties. It’s also possible to create a smart contract in the Ethereum blockchain that locks the full amount in escrow and releases the micro payments from one side to another, each time a micro service is delivered. The pros and cons of one network over the other is not the topic of this article. Therefore, I mostly want to spread the awareness for the possibilities layer 2 blockchain scaling brings. Its potential benefits on micro payments, payment frequency and tailored pricing are truly remarkable, yet the technology is still pre-mature and its killer app may not have been discovered yet.
This piece is originally published at: https://medium.com/@furkansaatcioglu/3-potential-benefits-of-layer-2-blockchain-scaling-on-the-gig-economy-9c24f77489c1
Disclaimer: This article is provided for informational or educational purposes only and is not any form of individualized advice. Use this information at your own risk.