Papers Relating to Bitcoin and Related Topics in Law: Part V

by James · May 1, 2023

This article was first published on Dr. Craig Wright’s blogand we republished with permission from the author. Read Part 1, Part 2, Part 3 and Part 4.

The Bitcoin White Paper (Wright, 2008, p. 1) refers to a system that provides “small random payments,” allowing the spread of transactions across the Internet. To understand both micropayments and the nature of sending small random payments over the internet, it is necessary to describe and analyze micropayments and refer to Bitcoin and blockchain technology in the same context. In this analysis, the term micropayments will be used to describe transactions that can be done efficiently – for less than 50 US cents. In such a functional specification, the costs of systems, including M-Pesa (Mbiti & Weil, 2013), will be demonstrated as too large to be incorporated into the use of micropayment solutions.

Alternatively, the deployment of digital token systems such as the BTC and Ethereum networks, as offshoots or derivatives of the original Bitcoin concept, will also be documented as not feasible for a micropayment function. Creating a descriptive framework that documents the requirements for micropayments and the terminology behind them will be necessary to provide businesses with factually sound information and enable them to understand the systems that offer digital cash and electronic token payment systems and how they scale and interact in the global economy .

Annotated bibliography

Karsen, M., Chandra, YU, & Juwitasary, H. (2019). Technological factors in mobile payment: A systematic literature review. Procedia informatics, 157489-498. https://doi.org/10.1016/j.procs.2019.09.004

In this paper, the authors present a literature review related to developments in the mobile payment industry covering the decade following the launch of Bitcoin. The article also explores the various ecosystems from regulators to manufacturers, software developers, financial institutions and retail customers. Finally, the paper explores the research question “What are the most important technological factors in the use of mobile payment?” In this, the authors have conducted a literature review spanning 54 articles and have noted 17 important technological advances required for mobile payment systems.

The assignment briefly addresses the topic of micropayments, regarding payments using mobile devices. Despite the various use cases that have been advanced in relation to micropayments over the years, the authors see mobile payment as a direct cash-based system of person-to-person payments using mobile devices. Such an approach is discounted, ignoring the benefits of global trade to small random values and the opportunity for international trade to be differentiated through the sale of data and information. In the same way, such treatment can be dis-intermediated without requiring large aggregation sites for integrators.

The research presented in this paper demonstrates the fundamental link between the global financial industry, the mobile payment industry and the original concept of micropayments over the internet. Such an approach fails to integrate the benefits of micropayments and inform the lack of research and development in the micropayments area. Similarly, the papers examined fail to appreciate the benefits that can be gained through small-scale computing and sales across geographically dispersed distances.

Rathee, G., Gupta, S. D., & Jaglan, N. (2020). A review of Blockchain and its necessity in Industrial IoT. In HS Saini, R. Sayal, R. Buyya and G. Aliseri (eds.), Innovations in Computer Science and Engineering: Proceedings of 7th ICICSE (pp. 207–214). Springer. https://doi.org/10.1007/978-981-15-2043-3_25

Rathee et al. review the integration of blockchain technology with industrial IoT (IIoT) devices. The authors note how cloud infrastructure remains expensive and limits the scope of many potential IoT applications. In particular, the ability to pay for small amounts of bandwidth and storage and to correlate and scrutinize data on an ad hoc basis remains outside the province of current technology due to the necessity of integrating payments across a large number of machines to do financial services from cloud operators profitable.

The literature review in the article covers a variety of techniques, including those that apply to distributed file systems (DFS) such as IPFS. In this analysis, Filecoin is presented as an example system that uses micropayments for data storage. The process includes a micropayment system that allows a token to be exchanged for a guaranteed purchase where intermediary costs are limited. In addition, the file provider may have a reputation-based system that provides proof of access, or an integrated escrow methodology may be developed that only allows payment upon completion of the storage contract.

The development of IIoT systems is known to extend to supply chain management and to provide a methodology for disintermediation of complex exchanges and tracking of components. Each step in the logistics process requires the exchange of documents. With logistics systems that are complex and sometimes have many steps, the cost of storing and exchanging contracts can be high unless the process is managed at the micro-payment level. The primary use of micropayments explained in this document refers to the exchange of tokens for small-scale services such as file storage and processing, but it may extend to logistics-based applications.

Youssef, S.B.H., & Boudriga, N. (2021). A robust micropayment infrastructure: An approach based on blockchain technology. Kuwait Journal of Science, 49(1). https://doi.org/10.48129/kjs.v49i1.10578

Youssef and Boudriga argue for the criticality of developing resilient micropayment systems. The authors present an alternative approach to Bitcoin. Instead of creating a system based on the distribution of hash headers and blocks using a distributed auditing system, the paper presents a risk-averse approach based on the concept that “decentralization” is the main purpose of a blockchain, rather than a blockchain using a decentralized approach to deliver micropayments and reduced fees.

The paper approaches the development of an alternative to Bitcoin based on the block size of transactions, creating an assumption that trust requires small blocks and a system that is beyond regulatory control. Although such an argument is often used in the “cryptocurrency” industry, the creation of blocks is not provided at the user level, and nodes are limited in scope to a small number of systems that create blocks. The research is based on the false concept that trust is only valid if users personally verify all network transactions. As people use Visa and Mastercard without this level of validation for larger value transfers, the claim that users must validate everything for smaller value transactions fails and must be rejected.

Finally, the article demonstrates a disconnect with regard to the purpose of Bitcoin by arguing that the system was designed to “be decentralized”, rather than having used an approach based on the delivery of “small informal payments” (Wright, 2008). The distinction is significant, and the goal of creating a system that is outside the law, which is based on providing “censorship-resistant” transactions beyond the reach of law enforcement, is not the same as creating and delivering a system that can be enforced by regulators and authorities, but has a main objective of minimizing fees or costs for the users of the system.

Additional references
Mbiti, I., & Weil, DN (2013). The home economics of e-money: speed, cash management and discount rates for M-Pesa users. American Economic Review, 103(3), 369–374. https://doi.org/10.1257/aer.103.3.369
Wright, C.S. (2008). Bitcoin: A peer-to-peer electronic cash system. SSRN electronic journal. https://doi.org/10.2139/ssrn.3440802

This article has been lightly edited for clarity.

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