Tuesday , April 7, 2020

Digital Money And the IoT

Payments power our society. Fair payment for goods and services is the mechanism that allows for the division of labor and the operation of a modern community. But what happens when payment is not fair? Commerce is choked by overpricing, while underpricing sends the seller to compensate himself in alternative ways, which may be obscure and harmful. So where we see payment unfairness, we ought to fix the situation to keep society humming.

Let us focus on one common example of subtle unfairness that needs correction: subscription. If you are like me, barely watching the news on television,  we subsidize those who spend their days in front of the tube. That’s the nature of subscription pay. Same for Internet connectivity, health-club membership, etc. Subscription is accounting-easy, yet inherently unfair. But to replace it with a pay-as-you -go modality would bring on a prohibitive accounting load. Not a practical option.

Until now. Attention-free, direct payment technology is coming on. Wearable electronic chips will pay for your health-club access as you walk in, or pay for the stationary bikes as you turn the pedals.

It’s called the Internet of Things—many little “things” attached to your body, your car, your dog, and storing money and paying for services rendered and products bought without any need for you to fiddle with a payment card, count change, or surrender personal information.

Think about it. Today, when you charge $4 for a cup of coffee, you activate a sequence that involves a payor, a payee, a processor, two banks (at least), and a network, all to pass on four bucks. Account-free digital cash will get rid of this overhead. But the bigger revolution will be at the micro level, with nano-payments.

When you ask your phone to show the temperature outside, you get a “free” answer. But it should not be free. Someone invested in the setup that provides the useful information you have asked for. You get your queries answered for “free” because the value of this info may be less than a penny. And with today’s payment technology, such payment is not feasible. But unbeknownst to you, you pay by submitting personal data to the info provider. Google laughs all the way to the bank with its deal to offer us free mail service for the price of reading our emails and building an authentic profile of us to sell off.

The big promise of the IoT and digital money is the ability to charge at microscopic amounts, serving the cause of fair payment to all. Imagine paying for a “free” Google search. “Why should I?” you ask, “Free is better.” Really? “Free” is polluted by serving a powerful opinion maker that pays Google for bending the outcome. And since you pay nothing, you have no grounds for complaint. Had you paid a penny for the search result, you could demand fairness.

The biggest payoff of this payment regimen lies in the ability of digital money to be tethered, which in part means that it may identify its payor instantly (without involving several banks and a network). And why is that important? Accountability!

Example: One of the pesky unanswered cybersecurity challenges today is denial of service. There is no effective solution because any public port on the Internet must remain open for surfers to log in. The port must process the incoming bits to decide what to do with them. But even if it quickly decides to ignore, say, a malicious query, it can’t do so without investing computer time. Hence, by flooding the port with countless malicious queries, the perpetrators exhaust the port attention span and bona fide queries are ignored.

This happens because we don’t pay for data transport. Someone invested in setting up all these crisscrossing communication lines, so it stands to reason that we should pay for using them. It’s only fair! The reason we don’t pay now is that it would be too complex. Like I said, payment today is ridiculously complicated, especially for tiny sums.

But the merging technologies of IoT and digital money will enable even sub-cent payments: quick, automated, unimposing on human attention. And if those malicious queries cost money, they wouldn’t be so numerous to begin with. More important, the perpetrator would be forced to pay tethered money, which identifies the payor.

Read more about this in my book, “Tethered Money,” published last year by Elsevier.

— Gideon Samid • Gideon@BitMint.com

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