Re: Micropayments: myth?

[szabo@netcom.com (Nick Szabo)]

A general limitation of level and rate gauges is that they apply
only to fungible commodities.  One gallon of gas is roughly as
good as any other, and one dollar is as good as any other(*),
so that the a gas pump gauge reflects the information important to the 
gas buyer.  Where variety in quality or features is important, or 
different products and services need to be purchased, the graphical
display of levels and rates does not reflect that information.

For this reason, most Internet commerce purchases are made by filling
out forms, the user selecting various features to be included in the
shipped product.  Such information cannot be reflected in a gauge,
and interaction by filling out forms is far too expensive for
micropayment transactions.  Incomparable transactions lumped
into a summary lose important information, while mathematically
comparable transactions so summarized do not (as long as the
summary display properly reflects the mathematical relationship).
Incomparable purchases must be looked at separately to
determine whether one was charged a fair rate, or whether the
transaction will be or was desirable.

There are some potentially fungible Internet commodities: bandwidth,
disk space, CPU time, memory, etc.  Such transactions can be summarized
losslessly, and comparability also facilitates agents automation,
so these areas provide a potential niche for micropayments.  However,
before such commodities can be traded they must be somehow be unbundled
from each other and related factors which may (availability, 
response time) or may not (human support) themselves be fungible.
Keeping track of a wide variety of unbundled services is itself
a big transaction cost.

Nick Szabo
szabo@netcom.com
http://www.best.com/~szabo/

(*) In general, currencies are linearly comparable via exchange
rates, so that currency exchange can be accurately summarized via 
gauges.  More sophisticated financial transactions require more
sophisticated interfaces.  Many of these relationships can 
in principal still be graphed continuously and even monotonically, 
but there are a wide variety of such relationships, so our work 
is cut out for us here.