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."
Why randomize? (Score:5, Interesting)
Trust Peppercoin? (Score:4, Interesting)
Sounds, from reading that short article, like the merchants must trust Peppercoin? Why should they?
Re:Nice idea but... (Score:5, Interesting)
Same old, same old?
Trust is not only a matter of security (Score:2, Interesting)
So what makes Ron Rivest thinks he might be able to solve this where other failed?
A key success factor of this business is trust. But unfortunaly for non-geeks, trust is hardly based on transaction security, but merely on the wealth of the company.
Microsoft tokens won't have the same trust factor as Linux tokens (for example), and customers won't buy tokens that could well be worth less than nothing, if the market decides that way.
Would you really invest a penny (because that's what is's all about : invest money) in peppercoin?
Re:Can someone explain this a bit better? (Score:3, Interesting)
So we have *drum roll* another internet currency! Hoorah, the old ones did so well. Noone has the funds to get to critical mass now - you need a LOT of vendors to accept the currency for consumers to be interested. Not that VISA/MC would just sit there if you tried to get to this level.
See beenz.com (oh, it isn't there?) for history of such schemes.
Er... (Score:3, Interesting)
Russian roulette anyone (Score:2, Interesting)
For the Merchant
"....That's right Mr. Merchant we will allow these anonymous customers to log on to your system you give them your products, and they can pay with our tokens that are worthless 95% of the time, but you'll be ok in the long run. Um no we are not like those other dot.com companies that are not around for the long run..."
As well as that what is the advantage to the customer?
I can see how the law of averages works (or works more quickly) for the Merchant, but picture the situation that I buy one item per month for 6 or 7 months @ 50 cents a go, but due to randomness I am included in the 95% of those tokens that are thrown away. Then on the 8th month I get hit by a 10 dollar charge for something that should cost 50 cents, and even assuming I remember I have had 7 freebies, I am still out of pocket. This means I have to keeping buying, and hope that I can get 10 dollars worth of stuff, and then get out before I get hit again for another $10. This then leads to abuse/gambling, how much stuff can I get without getting charged and then get out or quit?
Or am I missing something?
It's Your Telco, stupid. (Score:2, Interesting)
Nice solution, Ron.
Can I throw away some 5%-10% less invoices?
And by the way, Your Telco has a micropayment solution since ages. Your Mobile Operator also.
It's called phone bill.
Don't know were I read it several years ago:
"The (Business) Model of a (3G) Operator is the Business Model of a bank"
chess
Re:This article misses out something ... (Score:2, Interesting)
From what I can tell, what Peppercoin does is batch the transactions so that the total of all of them goes into *their* merchant account. I couldn't find out any info on how often they would distribute the funds to member merchants, but I'm sure the frequency of payments (triggered by number of total transactions or dollar amount) would be tied to merchant membership fees.
Just my $0.02US
Lottery (Score:3, Interesting)
No, the customer get's charged.
But the term lottery is very good in this context. Let's look at the scheme from that point:
If a state organizes a lottery (at least here in Germany) it is obliged to pay out at least 50% of the money that came in from selling the lottery tickets. This payment occurs in the same random fashion like the pepper coins.
In reverse, a customer of a lottery can roughly except to win back about 50% percent of what he shells out (it depends on the time frame and how all the win money is distributed among different winning ranks).
The same holds for the merchants participating in that peppercoin scheme. Statistics is on their side. The more transactions, the smaller the error margins.
I would call the scheme a reverse lottery.
The critical point is of course the tuning of the propabilities in the win/loss one time pads that Rivest's company is likely to distribute to the client software. He can make money by having to low win probabilities.
As a participating merchant I would perhaps insist on a contractual margin - if I have N zillion transactions there should be guarantieed error margin. If my pepper coins are below that margin, I should get compensated by Rivests company, if I'm above I should pay back.
The general idea, to use statistics to neglect expensive detail, seems very good to me.
Regards,
Marc
Two algorithms... (Score:5, Interesting)
For the user, sign up for a PepperCoin account, providing your credit card number, and when you want to make a purchase:
The token is a digitally signed token with the merchants "name," the consumer's "name," the amount of the transaction, and a value of either $0 or $10 (to the merchant.) Your PepperCoin account is charged $0.50.
The merchant, upon receiving a token, sends you the product, and if the token is worth $10, keeps it for later.
At the end of the [day / week / month / quarter] send all the $10 tokens to PepperCoin. PepperCoin sends back the money for the total value of the tokens. What you'll find is that (money received) / (total number of tokens collected) is $0.50. The merchant will be charged a fee for the service, so you might see something like $0.45 per purchase (10% fee.)
Back to the consumer ... over time you'll accumulate $10 or more in purchases at which point your credit card will be charged. If, let's say, 6 months elapse, and you still haven't accumulated $10, you'll be charged your current balance.
See ... PepperCoin makes about 10% of all the purchases minus the cost of credit card transactions to the consumers (about 5%), the merchant gets $0.45 instead of $0.20 on a $0.50 purchase, and the consumer is charged dollar-for-dollar what they spent.
The problem is not micro-payment... (Score:5, Interesting)
The "market" for credit cards is skewed because the transaction charge is applied to the merchant rather than the purchaser. If the charge did come direct from the purchaser, the purchaser would choose a credit card that offered the lowest charge. As it is, the merchant has no choice (other than saying "I don't accept Amex), so competitive pressures don't apply.
Peppercoin-type operations will further mask the skewed market - we will all end up worse off; except of course for the Visas and MasterCards of this world.
Rob.
Re:So I must trust their randomness generator? (Score:2, Interesting)
- Alice sends the encrypted result of a coin toss
- Bob sends the answer they're hoping for encrypted
- Alice sends Bob the key that was used to encrypt the toss result. Bob sends the key that was used to encrypt his bet.
(note: both messages are send with some kind of pre-agreed nonce)
Neither party can cheat... theoretically.
Misconceptions? (Score:4, Interesting)
My guess is this system was likely not designed for use by run-of-the-mill merchants with transaction volume below the millions (and conceivably billions). Like many have pointed out, your typical store merchant would laugh at the prospect of roulette-based revenue.
This system was designed to solve the problem of handling billing and payment collection for A LOT of transactions per unit time. Think NASDAQ. Think VisaNet. Think McDonald's-years. Think pay per wireless packet, a concept routinely floated by Rivest's MIT colleagues including Dr. David Clark [chiefexecutive.net].
Coupled with a computationally efficient token verification scheme, I could see how this system could turn standard billing practice/procedures on its head, provided the big corporations have enough smart people in their stables to say, "Rivest is right." For instance, if my statistics memory serves, this system should effectively enable stepless billing (without increments or round-off issues) - in other words, finest-grain discrete-time pro-rating for services provided, tunable per application to some arbitrary epsilon.
I think music downloads are a red herring. It's entirely possible that PepperCoin will never see the light of day as a consumer payment service. But I'm very curious to see what the world's largest accounts receivable departments have to say about it.
Biggest problems still not fixed (Score:2, Interesting)
Credit cards are also competitive (Score:2, Interesting)
Visa/MC competitive?
Courts will ultimately decide this one:
antitrust suit info [inrevisach...gation.com]
Re:Nice idea but... (Score:1, Interesting)
It's more likely that PepperCoin simply waits until you've accumulated a large enough balance and then processes it on your credit card. So you, the consumer, won't notice a difference. So the real hurdle for them is to get enough merchants using it that I will spend more than $5 overall.
Re:Banks charging per transaction needs to END (Score:1, Interesting)
If it's the first I'm truly and utterly apalled. None of those costs exist in the Netherlands. In fact, they don't even exist in Europe anymore for dutch people as all that's been harmonized (long live Bolkie). The only costs there are for consumers is the one day gap in received interest on your money when transferring from one account to the other. And stores pay something like $0.15 per debit-card transaction. But that seems to be it, and still banks here are making millions...
Are banks over there simply even better at cheating people out of their money?