Ron Rivest Suggests Probability-Based Micropayments 336
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."
What a strategy (Score:5, Insightful)
Nice idea but... (Score:4, Insightful)
Don't start it unless you want it. (Score:2, Insightful)
Once the means to collect it was in place.. see what happened?
Not to be the cynic? (Score:3, Insightful)
But I thought part of the problem was using PayPal is that PayPal is an external service that is not as recognized as Visa, Mastercard, or American Express (plus some others).
And this service does not seem to solve that problem for me. I thought when I started reading the article that it was going to somehow have some magic receipe for using my ALREADY accepted credit card....
Re:I must be stupid (Score:3, Insightful)
Eh? (Score:3, Insightful)
What is the point of a retailer collecting these PepperCoins, then sending them in, with 5% of them being worth $10.00, and 95% of them being worthless? If you're going to have a clearing-house, why the hell wouldn't you just have the retailers collect the PepperCoins and send them in for a guaranteed 50c each, but just not do it until you've collected at least 20 of them?? It'd have the same "avoiding credit card fees" effect, but without the stupid randomness which, even if it does balance out perfectly over lots of transactions, will completely turn off the vast majority of retailers.
obfuscation (Score:5, Insightful)
and it's based on 'patent pending technology' that is somehow acceptable by slashdotters (see here [peppercoin.com] 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.
Re:Huh? (Score:3, Insightful)
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.
My understanding... (Score:4, Insightful)
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.
some information missing from the article ... (Score:5, Insightful)
Re:Trust Peppercoin? (Score:3, Insightful)
Re:Huh? (Score:2, Insightful)
"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." You are already dealing with a 3rd party.. the Credit Card company; only you don't notice 95% of the times.
If Peppercoin succeeds in making themselves perceived as "transparent" to users, they could be succesful. Anyway, I guess that if micropayments becomes a rich business, Credit Cards companies will take the business in their hands.
Re:some information missing from the article ... (Score:2, Insightful)
Re:Trust Peppercoin? (Score:2, Insightful)
Re:Trust Peppercoin? (Score:3, Insightful)
They don't necessarily want to trust so many people. They just have to trust (some) people, or nobody will buy stuff from them.
that's exactly my question too (Score:5, Insightful)
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.
Re:Can someone explain this a bit better? (Score:4, Insightful)
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
Re:You can't copyright an algorithm (nt) (Score:3, Insightful)
Re:Why randomize? (Score:2, Insightful)
Re:Trust Peppercoin? (Score:3, Insightful)
Re:Why randomize? (Score:3, Insightful)
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.
Re:Nice idea but... (Score:2, Insightful)
Re:Nice idea but... (Score:3, Insightful)
"Most people's number skills are so poor that they probably won't understanding or trust it."
First, this is not intended as a flame.
But what people accept these days (Microsoft code and our current president come to mind) dwarfs this idea spectacularly. 999 of 1,000 people won't even bother trying to learn how it works much less chafe at its complexity.
And I'm sure that the Peppercoin people aren't going to make you take a test before you use their service. Smiling faces on a brochure go a long way.
Why Peppercoin is DOOMED (Score:4, Insightful)
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.
Solving the wrong problem (Score:3, Insightful)
The failure is summed in one word, MOMENTUM. Micropayment companies can't get any because they usually sign up one or two bigger names (those sites have to have *really* compelling content for anyone to sign up), people go elsewhere when they see their favorite little diversion now requires payment, and the micropayment start-up runs out of money before they get momentum. In addition to that, people prefer subscriptions to micropayments.
I do think there is a way to solve the problem, but Peppercoin doesn't seem to be it.
Re:Nice idea but... (Score:3, Insightful)
The customer thinks they're using their credit card in the normal way: just most of the time, the micro-transaction is discarded, sometimes it becomes a macro-transaction and is pushed through. It should average out.
The killer to this idea is that (if I read the non-technical article correctly) is that the consumer has a 9 in 10 chance of paying 0*x, but DOES have a 1 in 10 chance of 10*x. It seems to me that people may object to this gamble unless you have a pretty thorough user education program. (This bit was unclear in the Boston Globe article, but if you're going to throw transactions out, you need to make that up from somewhere.)
Also (under same may-have-missed-the-point caveat) , it seems that when the ink turns red, the incentive is there to skew the probabilities a bit. Brings a whole 'nuther meaning to "preferred partner".
But I can almost guarantee that I've missed something:
Rivest is a Bright Fellow, and will have come up with these problems and solved them. Anecdotally, when developing RSA, one guy would come up with a system that he thought worked, and the other two would devote their energies to breaking it. Repeat until success. This indicates that Rivest has adopted the competing-evolution model of invention.
Banks charging per transaction needs to END (Score:5, Insightful)
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.
These retards are solving the wrong problem (Score:3, Insightful)
I'm not gonna waste your time with my words since Clay already wrote about it in The Case Against Micropayments [openp2p.com]
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.
Re:My understanding... (Score:1, Insightful)
With this payment system, the merchant also needs to record whether they got paid or not (just like a conventional micropayment system), so when the accountant checks at the end of the month/quarter/year they can see how close it adds up. It better be close or peppercoin will quickly be lawsuit target. If most vendors come up a little bit short, they will gripe about it, and quickly discover that they aren't alone. In fact, half of the statistical outliers (the losers) are likely to gripe the loudest, and find common cause. Statistically speaking, peppercoin is almost certain to be sued, even if they're perfectly honest.
Re:What a strategy (Score:3, Insightful)
If Rivest were to use an intelligent license, a patent wouldn't pose all the large of a hurdle. Rivest could allow anyone to use the patent for free in perpetuity, except when they translate the payments into cash. All fees could be collected at banks. If Rivest guarantees the fees will never exceed a certain amount (such as the current fees on Visa cards), there should be no reason for the patent to get in the way.
I've been wondering why e-cash patent holders don't do this.
Only solves 1/2 the problem. (Score:2, Insightful)
Re:Solving the wrong problem (Score:2, Insightful)