A functional micropayments system, enabling instant, miniscule transactions under one US dollar, is widely regarded as the holy grail of web monetization. Micropayments have captivated internet makers for decades as they let users purchase digital content in an easy and “hassle-free” manner, spark new models for business viability, and enable a complete frame shift of what value transfer looks like on the web.
With the development of the Bitcoin Lightning Network, sidechains, and other transaction-scaling technologies for digital assets in the recent months, excitement for micropayments has exploded. As we sit on the precipice of another wave of micropayment exploration, we must look to the past to understand why micropayments implementations haven’t worked before.
The tech research community has worked on this problem over the past two decades. Numerous creative solutions emerged, business ventures launched, but a mainstream solution never surfaced. In the past, fundamental issues pertaining to usability, psychology, and economics were neglected. These issues must be solved for micropayments to succeed.
Long before the invention of the web, Ted Nelson, the “Orson Welles” of software, proposed micropayments as a potential solution to royalties:
“publishers posting documents…would be able to specify a tiny payment (a micropayment) that would be charged to anyone viewing part of the document…he hoped [there] would be a democratisation of publishing, because readers would pay only for what they read, and authors of the most popular documents would be rewarded accordingly.” 
Beyond serving as a revenue source for content providers, micropayments were hailed as the panacea for other ventures such as charging for proxy services, database lookups, and even gambling.
Out of this concept bloomed an in-depth exploration of micropayment software, occurring in two waves in the late 90s and mid-aughts.
In the 90s, the first exploration of micropayments began. Dictated by the dial-up infrastructure of the time and the relatively minimal processing power on computers, the main design goal for early micropayment systems was to minimize communication and computation costs. A popular strategy used by these systems was the account-based approach, employing a centralized transaction ledger. Systems such as CyberCoin, Mini-Pay, and NetBill tracked transactions for customers and merchants and aggregated net flow of funds in and out of the system. A centralized ledger prevented double-spending  and fraud, and the subsequent aggregation of multiple low-value payments effectively justified the processing fees incurred in moving funds between the system and banking infrastructure.
Another strategy, the crypto-token approach, used cryptographic mechanisms to mint digital tokens which were computationally infeasible to counterfeit. Customers then used these tokens to transact with merchants. Sound familiar? 
Several large companies were interested in micropayments from the start. Companies such as IBM and Compaq both started developing their own micropayment platform in 1999 in anticipation of the eventual use of micropayments for internet transactions. IBM’s launch of their micropayments service claimed to “[enable] billing servers, content providers and other merchants to profitably sell items for even a few cents. [IBM would] open up a whole new market,”. Take a look at their presentation deck — lots of their concepts and terms can be seen in crypto discussions now.
Many other companies also tried to make their own successful version of a micropayment scheme. This included BitPass, FirstVirtual, Cybercoin, Millicent, Digicash, Internet Dollar, Pay2See, Flooz, Beenz and more.
Ever heard of a 402 error?
The World Wide Web Consortium (W3C) attempted to develop a standard for micropayment implementation at the web protocol level. The W3C came close to implementing preliminary HTML standards that included tags such as price, type, duration, and expiration for micropayment systems to interface with. Pioneers Tim Berners-Lee and Marc Andreessen stood behind these efforts, but were discouraged by conservative banking regulations.
So, what came of this wave of interest? Well, not much. Payments of less than $5 generated 1% of online content sales in 2002, adding up to only $9.6 million.
Thus, all of these efforts failed. The dial-up infrastructure was slow and unreliable. The systems had poor usability and suffered from high latency. CyberCash, for example, typically took 15–20 seconds to finalize a transaction. Systems such as Mondex and CAFE also required trusted hardware. Furthermore, the business models were heavily criticized, the systems had poor interoperability, and there was low penetration among merchants.
The second wave of micropayment development, appearing in the mid 2000s, was comprised of account-based offerings in platforms such as PayPal and ClickandBuy. Users transferred funds into the system and then used the amount to make payments around the web. This approach also had a physical counterpart in prepaid cards — users purchased preloaded credit cards at shops for fixed denominations and then progressively ‘spent’ them in online transactions. So too was communication explored as a method to enable micropayments: email and mobile phones were used to validate transactions, as done in systems like Zong.
Several of these systems have survived. Reasons include good usability, intuitive design, and low latency. User adoption, though, still leaves much to be desired.
Well, what went wrong?
Poor infrastructure support, cumbersome and non-intuitive system design, and conservatism on the part of financial institutions and users killed any hope of micropayments reaching market saturation. Critics have also cited poor business cases and neglect of critical psychological factors.
The final point is the most intriguing to consider moving forward, and should be explored to understand what might happen when micropayments become mainstream.
This paper, published in 2003, summarizes the micropayments landscape, from a user-centric perspective:
“Both the user and the seller forfeit something in going to anonymous payments. The user gives up only the ability to get personalized recommendations and tailored marketing, but the seller loses both the marketing information, which is tolerable, and the right to impose detailed usage requirements, which might not be acceptable.
At present, the online entertainment industry’s major thrust is to maintain detailed control over its information’s use and transfer. Just as Microsoft insists that it licenses rather than sells its software, vendors of online music and videos will argue that they are not using the book model but a seat-reservation-by-name model. Instead of selling an object you can use, pass on, resell at a flea market, or whatever, they want to sell you the right to see or hear the object in some limited place or time, imposing a further transaction to adjust those limits. Even if customers would like an anonymous micropayments model, sellers will resist.”
Is there a market for micropayments for information that can’t use full scale rights management systems (e.x. independent music, blogs, or content creators)? Sounds of caution, again:
“…if the only users are marginal, not enough people will use the system to gain acceptance. Finding a seller with a big enough market to make micropayments popular and a small enough market to be willing to use them is a tough problem.” 
In an influential paper on the topic, Nick Szabo  also contends that as prices go down, mental costs tend to dominate over technological costs — they set the effective lower bound on pricing of goods. Pricing models, as evidenced above, will play a key role in the adoption of micropayments systems.
“people resent being cheated, and it’s too hard to figure out whether you’re being overcharged in a micropayment world.”
These criticisms need to be considered as we move forward.
Peppercoin and Positivism
Have you heard of Peppercoin? In the second wave of micropayment exploration, an anonymous micropayments system was proposed from a professor at MIT, enabling functionality via a procedure known as “cryptographic selection.” The Peppercoin paper echoes some of the positivist micropayment perspectives, and even heralds some of the solutions implemented in the Bitcoin protocol, released seven years later.
As we enter the third cycle of micropayments with cryptographic protocols as the backbone, this perspective is more and more relevant.
“We view the introduction of efficient micropayments into the world of internet e-commerce as potentially as significant as the invention of metal coins by the Lydians in 640 B.C. Coins turned out to be a significant market enabler — the first retail markets evolved soon thereafter. Today, it is clear that small electronic payments will soon become commonplace. Not only to pay for music downloads (note the recent success of Apple’s iTunes), but also for other digital downloads and other digital goods and services. Small electronic payments will begin to replace metal coins and small paper bills for real-world purchases as well.”
This positivism now concentrated in micropayment enabling protocols like Lightning. The cognitive load of micropayments has effectively been neglected via platforms like Spotify and Apple Music.
Plus, the current advertising-based web publishing model is in crisis. Web ads are intrusive. They degrade user experience and increase data consumption, a particular concern for mobile users. Users are also concerned about privacy and third party tracking, especially in the wake of recent revelations.
Collectively, these factors have given rise to the ‘ad-wars’ phenomenon: globally, some 198 million people deploy adblocking software, leading to a staggering $22 billion in lost revenues.
There’s been an overwhelming cultural shift and change in user attitudes since the 90s. Due to the advent of online banking and popular online marketplaces such as Amazon, and the dominance of media platforms selling personal data, there’s never been a better time to implement a micropayments system.
The proliferation of platforms like Patreon, OpenCollective, and BountySource signal that there is latent demand to pay content creators. Over $100m has been paid to creators since the inception of Patreon — with micropayments, that could dramatically increase, enabling a resurgence of media and the arts.
What remains, as we enter this golden age of opportunity for micropayments, are the echoes of caution from the previous two innovation cycles. Despite the overwhelming opportunity this time around (and the right timing), we have to learn from history: addressing critical non-technical concerns such as usability issues, ethical and legal concerns, poor business cases, and ineffective deployment strategies is paramount.
Regarding mass deployment of micropayments system, there are certain desirable properties a system should have. For instance, a micropayments solution should be operable across a wide range of merchants and integrate with existing payment infrastructures. Not only does this give consumers more opportunities to use the solution, but it will also open up new sources of revenue for merchants.
Standardization is an essential step in that direction, and has been recognized by the W3C who has renewed their efforts in this direction with the recent launch of the Web Payments Working Group. An alternative proposal is to interconnect different micropayments systems using payments gateways, allowing conversion, collaboration and interoperability.
Unfortunately there has been very little research done on mental models for micropayments systems to date. This is a widely neglected area that could use input from the fields of psychology, human-computer interaction, and behavioral economics. Understanding the psychology behind micropayments will not only improve system usability but also assist in crafting appropriate business models and successful deployment strategies.
 IETF Micropayments Protocol Draft (1995–11–12) by Phillip Baker email@example.com https://tools.ietf.org/pdf/draft-hallam-micropayment-00.pdf
 Toward a Click and Pay Standard, WIRED 1999 https://www.wired.com/1999/11/toward-a-click-and-pay-standard/
 IBM Micropayments https://web.archive.org/web/19990203132612/http://www.hrl.il.ibm.com/mpay/
 The Babbage of the Web https://outline.com/BVVX7V
 The Mental Accounting Barrier to Micropayments http://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/micropayments.html
 Micropayments: An Idea Whose Time Has Passed Twice? https://drive.google.com/file/d/1h2WTRstGnsmb50mhheR3RoA9E5ZJIKLl/view?usp=sharing
 The Case Against Micropayments https://web.archive.org/web/20180222082156/http://www.openp2p.com/pub/a/p2p/2000/12/19/micropayments.html
 The Nuts and Bolts of Micropayments: A Survey https://arxiv.org/abs/1710.02964