Fortune: Bitcoin microtransations as digital tip jar

One of the most confusing things to the average person about the growth of Bitcoin is that there are currently few ways to spend it. With only a handful of major commercial websites accepting Bitcoin, it’s difficult to see the advantage over existing online payment systems like credit cards or PayPal. This view is common even with supposed experts, such as Nobel Prize winning economist Robert Shiller, who wrote recently that Bitcoin’s innovations don’t “really solve any sensible economic problem.”

Ask any Bitcoin believer, however, and you’ll likely hear that Bitcoin reduces “friction” on transaction, meaning the hassle of going through proprietary, fee-charging systems to transfer money from one account to another. This is something most consumers don’t think about, as most commercial credit card transactions mask fees in the form of higher prices. The only time most people notice those fees are when buying something with a card at a small business where there is a minimum purchase amount when using a card.

What’s less easy to see are all of the smaller purchases, both online and in the brick-and-mortar world, that don’t happen because credit card fees heavily discourage small transactions.

In today’s Fortune/CNN Money blog, writer David Z. Morris proposes that Bitcoin’s greatest selling point in the Western world might be that the “frictionless” nature of virtual currency allows for simple, easy microtransactions.

Since the mid 1990s, vendors have dreamed of being able to sell music, news, games, and other digital goods online for tiny amounts that would in theory add up to big revenue. But structural barriers including fees from payments processors have stymied the model for nearly two decades, leaving publishers to rely on meager advertising, underperforming subscription models, and expensive centralized stores from Amazon, Apple, and Google.

Morris considers two startups, Bitwall and Coinlock, which allow very low-cost access to web-based content. He argues that such systems could resurrect the long-struggling paywall concept that many media sites have turned to monetize their content. Those systems have almost universally failed, largely because of the high cost of transaction fees. I users can buy access to content directly from publishers for fractions of pennies, however, it could become a game-changer for newspapers, bloggers and other content providers.

[The micropayment] wall that the Sun-Times set up for 24 hours on Feb. 1 offered next to no resistance for readers — in fact, it was completely optional. Visitors could access the site by paying one of a few different set amounts in bitcoin, paying an amount of their own choosing, tweeting about the Sun-Times — or by clicking “Skip” to bypass the paywall. … The Sun-Times gathered 713 donations in the 24-hour window, ranging from a penny to over $1,000. 50% of users who clicked on the donation option followed through with a donation, and each tweet from the paywall generated an average of 38 clicks. … Sixty-three percent of payments during the period were 25 cents, an apparent “sweet spot” that Posada found surprisingly high. But using conventional payments options with base rates of 20 cents per transaction would make revenue at that price point inaccessible. Bitwall’s transaction costs, by contrast, are at or near zero.

As Bitcoin enters the public consciousness as a viable mechanism of exchange, it may well be through the lens of very low-cost payments and “tips,” rather than through the wildly fluctuating speculative currency that most people currently associate it with.