This article highlights part four of Isaac Morehouse's video series titled Tiny Payments Are a Big Deal. In the series, Isaac explores the revolutionary potential of micropayments and Nano payments and fleshes out his thoughts on the topic.

In Part 4, Isaac interviews Cyprian about payment channels and micropayments. The conversation lasts two hours, so you can watch it here or read the summary below.

When did the micropayment element of Bitcoin get Cyprian excited?

Cyprian says this was the first thing that got him excited. He bought his first bitcoin in 2012 and sold it for 60 times the profit. In 2014, Cyprian discovered that some large companies had patents on slot machine technology that hadn't changed since the 1980s. This led him to look for bitcoins to find potential solutions for the work he wanted to do.

Isaac recalls that it took him a while to realize that getting Bitcoin adopted depended on providing something that legal tender couldn't do. Cyprian agrees, recalling an early interview with Amazon founder Jeff Bezos in which he explained his reasons for starting Amazon and concluded, "If you can do something in a given way, you should do it."

Early Adoption, Complete Blocks and Losing Faith in Bitcoin

Cyprian recalls how he once put transactions on the Bitcoin blockchain for free, detailing how he created a game that uses satoshis to record dollar transactions on the blockchain for accounting purposes. In 2014, he built an application to put transactions on the blockchain at zero cost. He said it might take five blocks to work, but it was worth it. However, after about six or seven months, he noticed that the fees began to rise significantly, so the application was no longer viable.

Isaac reflects on this and laments the opportunity cost of not increasing the block size when the block is full. He likens it to Jeff Bezos limiting the number of books sold on Amazon. This means he's just doing what brick-and-mortar stores do, he'll lose his competitive edge, and Amazon will never realize its potential.

Cyprian completely agrees and says he leaves bitcoin out of the equation at this point. "People who make bad decisions rarely make just one bad decision," he said of people who decide to keep their chunk sizes small. That makes him reluctant to bet further on bitcoin and turn his attention to ethereum, as more interesting things are happening in that ecosystem.

BCH Splitting and Cointext

On the advice of a friend, Cyprian investigated BCH after a breakup. He cleaned up his old apps and tried them on BCH, and lo and behold, they worked again. This rekindled his interest in Bitcoin.

However, Cyprian still noticed that no one was paying attention to the easy-entry staff. He also found a lack of knowledge about using or working around existing regulations.

After thinking about this, he started building Cointext to solve the problem of getting bitcoins into people's hands frictionlessly. This allows people to send bitcoins to someone's phone via SMS text message. They launched the company in eight countries, with the goal of covering every country in the world. Cointext took off and was in 40 countries within a year. Cyprian expressed his appreciation for M-Pesa in Kenya to reflect his inspiration for the idea. Cointext did what Cyprian said before.

How does Cointext make money? Micro-fees. After seeking legal advice, they found that charging a percentage based on the amount of money sent might make them a money transfer business. However, a per-round fee (data metering) would make them free and clear.

Cyprian then tells the story of how Cointext was almost integrated into WhatsApp, but Facebook pulled the plug at the last minute. While he was disappointed by this, he looks back and realizes that the timing was fortunate and learned a huge lesson from it Ultimately, it was a painful lesson, but nowhere near as painful as the months of pain that followed. After that, over the course of about a year, they began shutting down Cointext. They recently sold it to another company.

Protocol is not a platform

Isaac asked Cyprian to elaborate on something he heard him say on another podcast.

Cyprian uses the analogy of an island covered with bananas. He said to imagine a family controlling all the banana imports to the store. One day, however, the family moves elsewhere and the store is short of bananas. It's a strange situation on a banana-covered island, isn't it? In Cyprian's example, the series controlling the import is a platform, and the machete is a protocol. The platform can shut down and leave you without bananas, while the machete allows you to go out and harvest them yourself.

"Every platform uses a protocol. They abstract it out and act as an intermediary, and then you pay them for using the protocol," Cyprian said. He also notes that the more people who can access the protocol, the better it is for consumers. That's because competition forces platforms to stay sharp.

Payment Channels

Going back to his original point about wanting to do what fiat currencies and credit card networks can't do, Cyprian explained that the corollary is that you also have to be able to do what they can do. One thing that no one has done very well with bitcoin yet, he said, is a payment channel.

Isaac pointed out that money usually exists in a state of purgatory, where it can go under certain conditions, but under certain conditions it can go back. Cyprian followed up by saying that there are many benefits to this intermediate state, which no one on Bitcoin has addressed yet.

What is a payment channel? It's a channel where two people hold money in trust and can make many different transactions, which will change the balance between them many times. Cyprian gave the example of video-on-demand. He envisions a scenario where people pay by the minute, but prepay the entire cost of the movie, and when the viewer stops watching, the two are resolved. This is a single transaction for a single fee, rather than a separate transaction for each minute paid. This has no impact on the user, but makes a big difference to the back-end provider.

What about the Lightning Network? It's not used as a payment channel as Cyprian describes. He explains in detail how the Lightning Network has routing problems. Rather than opening a channel between two people, the Lightning Network turns it into a complex mess that is not essentially peer-to-peer. There were other problems, such as the costs associated with opening and closing channels, which meant it didn't end up solving the problem satisfactorily.

Cyprian then described the different ways of conducting payment channels on different platforms. He explains the use of multi-signature wallets on BTC and BSV, as well as the use of other technologies on BCH, such as covenants. He also describes how to use time-locking features in payment channels to allow settlement at specific times in the future. The possibilities are endless.

Why are micropayments important?

Isaac ended an important question.

Cyprian replied that it allows us to think about the economy in a completely different way. If we could monetize data, it would change everything, open up all kinds of transactions that were previously impossible, and unlock immeasurable value. Isaac agreed and ended by comparing data to oil. We all produce it in drops, but can only sell it for $50 a barrel. Small payments allow us to sell drops. As we know, this will undoubtedly change the Internet.

Watch: CoinGeek New York Panel, The Future of Digital Asset Trading and Financial Services

New to Bitcoin? Check out CoinGeek's Bitcoin for Beginners section, the ultimate resource guide to learning more about Bitcoin (as originally envisioned by Satoshi Nakamoto) and the blockchain.