Small Transactions with Sustainable Incentives

Abstract

The design of a successful distributed system for enabling payments and small transactions among Internet users has long been a major challenge in applied computer science. Bitcoin, the first cryptocurrency having reached world-wide popularity, suffers from sustainability problems such as inefficient energy expenditure for its network operation and from perverse incentives that foster speculative hoarding behavior. We propose a digital transfer system based on a variant of the Bitcoin ledger that is meant to support deterministic small payments with enforced proportional transaction fees: to achieve this property, we renounce the persistence of balances expected of a cryptocurrency, thus mitigating currency hoarding. We introduce at the same time a novel external incentive mechanism based on a verifiable third party with the goal of promoting long-term sustainability, adjusting the margins of profitability for contributors to the proof-of-work scheme without stifling the transaction rate.