Here’s an idea for a (possibly) novel form of payment, inspired by the crypto/Web3 world, specifically to support performers, artists, and creators. I call it Stake Patronage.
Perhaps this already exists! In which case let me know.
Some background before I get to the mechanism…
Why I’m interested in Web3:
The cryptocurrency world is troubling because of (a) carbon cost, and (b) scams. BUT in the midst of this are fascinating hints of emerging new infrastructure for the web.
The consumer web over the past decade has become centred on vast attention aggregators resting on adtech and a small number of cloud computing providers, and the economics, incentives, and who-owns-what is at this point locked in. It’s not great.
With Web3 we may find our way to a new settlement between users and corporations. Here and there are glimpses of new ways of storing files, new ways of owning and providing access to data, new ways of asserting identity, new forms of payments – and from all of this, there may be a route to upend the status quo.
Is finding the way worth the carbon and the scams? I’m sceptical about whether crypto will eventually mean (as its boosters promise) a newly egalitarian economy or breaking up of monopolies or net increase in personal freedom and agency. Honestly I lack the imagination/faith to imagine a future so totally transformed. But these new capabilities are tantalising… so I keep a personal running list of what I find interesting in the Web3 gold rush, in the hope of spotting something useful in its fundamentals that has immediate applicability.
Why I’m interested in novel payment formats:
New payment formats mean new behaviours.
For example, we’ve got:
- One-off payments
- Subscriptions
(Of course it’s more fine-grained than that.)
And you can see what the effects of these being “standard” allows in the digital space:
- One-off payments unlocks Amazon’s one-click purchasing and e-commerce generally
- Subscriptions unlocks “sticky” recurring payments, which means that vendors will invest in upfront marketing and also can provide an ongoing service (like a publication, or SaaS in the business world) with confidence that they’ll have ongoing revenue.
Then there are a couple of novel-but-now-accepted payment formats:
- Micropayments: small, semi-automatic, and low-friction payments – which never quite found the universality that everyone imagined when they were invented, but which unlocked the $70bn+/yr “free-to-play” mobile games market (which itself underpins the smartphone ecosystem)
- Conditional/pledge payments: Kickstarter was initially enabled by payments that were conditional on a threshold of pledges (you only pay if X other people do too). While Kickstarter has had “only” approx $5bn through the books, you could argue that it was an early proof for the much larger crowdfunding sector, where (say) an individual will put down cash for fractional ownership of new real estate.
What makes a payment format work? Trust. Trust from the consumer that the vendor won’t run off with their money. Trust from the vendor that the money will eventually find its way to them.
Deep down, payment formats are implemented as “payment rails:”
“Rails” are payment jargon for the technological and financial links between various entities which allow money movement. Visa provides rails, debit card networks provide rails, etc etc.
That quote is from this fantastic edition of Patrick McKenzie a.k.a. patio11’s series Bits About Money: BNPLs: Businesses Needing Provided Legibility (Jan 2022). It unpacks another payment format, BNPL – “Buy Now Pay Later,” which is beginning to appear all over the web next to the “Buy Now” button as an alternative to using your credit card. Instant instalment payments, and that boosts sales for the merchants (a new consumer behaviour).
McKenzie unpacks payment rails in another article which is absolutely worth absorbing in detail:
You could have made a payment by saying “I’m good for $4; please give me coffee”, and in some cases (such as stores you have a tab with) that suffices. But the reason it works at scale is that the trust problem has been solved by so-called payment rails, which are a constellation of firms that have implemented a protocol to quickly make a series of offsetting promises about debts such that the cafe quickly becomes almost positive it is owed money for the coffee and that that debt will be collected with a very high certainty.
In credit cards, a brief and intentionally simplified version of the actions of the payment rail is: you agree with your bank that you owe them $4, your bank agrees with a credit card network that it owes a particular processor almost $4 (taking a fee), and the credit card processor agrees with the cafe that it owes them a bit less than $4 (taking another fee).
In the settlement phase of the transaction, the credit card processor makes an agreement with its bank that it owes the processor a bit less than $4, which it discharges by having their bank agree that it owes the cafe’s bank a bit less than $4, which the cafe’s bank discharges by agreeing they owe the cafe a bit less than $4. And so your debt for coffee is now two offsetting debts; between you and your credit card issuer, and between the cafe’s bank and the cafe. You will, at some point in the future, probably up with your credit card issuer, and the cafe will probably withdraw money from the bank (perhaps to e.g. buy beans or pay the barista), but from your mutual perspective the transaction for the coffee will be long over by then.
So the technical implementation of high-trust rails allows for new behavior from consumers.
HYPOTHESIS: One capability to come out of the Web3 space is novel payment rails.
Because I’m hand-waving and not talking about end-to-end protocols and implementation, I’ll just say payment formats, not rails.
With crypto, you’ve got a couple of problems with payments:
- There’s typically (with the widely-accepted coins) a high transaction fee – transactions are verified by miners who have computers that can do the work, and that costs money. But if it costs $30 on top per transaction, you’re not going to opt into a $1/week subscription.
- Asset appreciation makes you want to hang onto it – everyone remembers the guy who spent 10,000 bitcoin on two pizzas in May 2010 (the cost in today’s dollars: $432m).
Could novel payment formats reduce this friction with crypto transactions, and provide for new behaviours besides?
Proof of Stake as the underpinnings of a novel payment format:
I’m still getting my head around all of this, so let me spell out my understanding as literally as possible. (Factual corrections gratefully received. Apologies for being casual with terminology.)
A blockchain is a transaction history. Each new transaction is verified to be non-fraudulent by looking at that history (you want to avoid double-spending, for example). The trick is how to do that in such a way that many, many parties trust that no-one is defrauding the system, and the answer with cryptocurrencies is that you decentralise the verification and make it so that all these parties can come to consensus without a single party being in control. The consensus mechanism varies.
With Bitcoin, the consensus mechanism is based on Proof of Work. As part of compiling the transaction history, verifiers run hard sums for each step, and the cumulative effect is that it would be really really expensive and slow to fabricate a fictional transaction history in order to defraud people (but, remarkably, very quick to check whether the history looks legit).
(The verifiers, or “miners” for Bitcoin, get paid the transaction fee.)
Other blockchains use other consensus mechanisms and there is one called Proof of Stake that burns less computational resources (and therefore less carbon).
With Proof of Stake, each step in the transaction history is signed off (“validated”) by someone who holds a large amount of that currency. That’s provable because it’s part of the transaction history.
Again the transaction history becomes hard to fake. And again the validators who knit the transaction history into the blockchain get paid the transaction fee.
Important note: from what I understand, the big blockchains are shifting to various variations of Proof of Stake because it more-or-less deals with the carbon problem. Good news.
Where this gets interesting, for people like you and me (as opposed to the people with large enough computers to become validators), is with Delegated Proof of Stake.
With Delegated Proof of Stake, a validator doesn’t need to hold coins themselves. Instead, I can “stake” my coins with a validator, they will perform the validation, and then they will share the transaction fee reward with me.
FOR EXAMPLE:
- Let’s say I own 100 Tezos coins (XTC)
- I can stake these with a validator who I trust not to defraud the network, say Coinbase (this process is called delegation)
- Coinbase performs validation using their big, always-on, always-connected computers
- The validator gets the reward, and they share it with me. With Tezos and Coinbase this amounts to 4.6% annual yield (i.e. at the end of the year I have 104.6 XTZ)
- I still own the coins, so if the value goes up I have that benefit too.
Okay, this is how it works today, and there’s the hint of something interesting here.
If staking = asset appreciation + yield, could the two income streams be separated and used for a new recurring payment format?
Imagining Stake Patronage:
My proposal is that it should be possible to stake my coins with a validator, retaining ownership of the coins as before, but name a separate beneficiary for the yield.
(It’s a variation of Proof of Stake, deep in the blockchain consensus mechanism itself, and that’s why I call it Stake Patronage.)
The use case here is to support artists and creators, such as with the low monthly recurring payments offered by services like Patreon and Substack in the “regular” dollar economy.
So it would work like this:
- I see an artist performing. I love them!
- So I decide to stake my 100 coins for the artist as patronage (a validator like Coinbase is still involved)
- I retain ownership of the coins: I can remove my patronage or re-stake the coins for a different artist at any time
- The artist benefits from the 4.6% per annum yield – this is paid every week or so.
The format has some benefits:
- Staking is sticky. Unlike tipping, where the artist has to ask/encourage each tip, staking is more like subscribing to a channel on YouTube or following someone on Twitter. It’s worth the artist pushing for it because it’s easy to do and it continues.
- Staking produces recurring income. Artists get the benefit of the yield every day/week/month. This means that income is smoothed out, and it can act as anticipated future income which provides mental space for creative work.
- It’s low-friction for the patron. Staking isn’t loaded with transaction fees, and it doesn’t require the tense decision of giving up an appreciating asset – it’s easier to do than transferring actual coins. It’s also easily reversible.
- Patronage acts as a discovery mechanism. It would be possible to have a public leaderboard of which artists have most coins staked with them as the beneficiary. Given a number of live performances being advertised, if you see an artist with high Stake Patronage, you know they have a dedicated following - just like choosing among YouTube videos according to their views.
- It’s direct support for artists. When artists produce a work attached to an NFT, they’re creating a speculative asset, and they can make money when that asset is traded. But it’s a secondary way of supporting them, and it means that their focus is partially on boosting marketplace activity rather than creating new work. This is a way to directly support artists.
(By “artists” I know I’m skewing more towards live performers rather than artists who produce static, tradable works. But I think patronage has pretty broad applicability.)
Implementation and user experience:
I can picture the user experience.
A site, like YouTube but with more social presence, has a number of live streams available. You can see which are the popular ones because they have a large number of coins staked for their benefit. Or maybe there are curators who support up-and-coming artists: curators have patrons too.
(Any platform needs a non-zero-cost score to figure out popularity, if only to sort the search results. The web has PageRank based on hard-to-earn backlinks; YouTube has views based on scarce time; Twitter has followers based on scarce attention. Here, artists would have patrons.)
So there are leaderboards, but of course because Stake Patronage is on the public blockchain, this is a distributed score, not limited to a single site.
Then, next the live stream, there is a button so that viewers can choose to stake the coins in their wallet. “Like, Subscribe and Stake,” the performers say at the end of a set, by way of sign-off.
The site itself would act as a validator, or perhaps partner with an existing validator.
And then the artists receive yield.
The analogy for me is this: subscribers are stickier than one-off transactions for writers; patronage is stickier than tip-jars for performers. Just as NFTs unlocked a new market for visual artists, perhaps Stake Patronage could unlock a market for performers, artists, and creators more generally.
In terms of implementation, how would this work?
- Perhaps it’s a protocol upgrade. Maybe a chain like Tezos would need to include the concept of yield beneficiary (default to coin holder) in the consensus mechanism, and then validators like Coinbase would need to expose this in the user interface.
- Or maybe it’s a standalone smart contract that connects to any coin in a user’s wallet, but I don’t know whether this would be possible.
Generalised, maybe this isn’t just about patronage. Could yield also be directed to charities? A way for crypto holders to support good works without giving up their appreciating asset.
But this is where my hand-waving knowledge really runs out of road.
Of course the above is quite possibly totally wrong-headed. But for me it’s areas like this where Web3 gets interesting: we can think about behaviours we want to encourage (like artist patronage) and then tweak the actual underlying economics to make that a low-friction path. Is this route viable? Unknown. But the exercise in figuring it out makes me want to spend more energy on finding opportunities in Web3.
On the off-chance you know how to do this, or you’re at Tezos or Coinbase or similar and you have a path to knowing how to do this – get in touch? I’m working on a platform for performers and patrons that is the perfect test-bed for this.
Thanks to Ed Cooke and Jon Boutelle at Sparkle for conversations and being early readers. Blind spots and misconceptions all my own. As always this is a snapshot: thinking out loud rather than a final view.
Here’s an idea for a (possibly) novel form of payment, inspired by the crypto/Web3 world, specifically to support performers, artists, and creators. I call it Stake Patronage.
Perhaps this already exists! In which case let me know.
Some background before I get to the mechanism…
Why I’m interested in Web3:
The cryptocurrency world is troubling because of (a) carbon cost, and (b) scams. BUT in the midst of this are fascinating hints of emerging new infrastructure for the web.
The consumer web over the past decade has become centred on vast attention aggregators resting on adtech and a small number of cloud computing providers, and the economics, incentives, and who-owns-what is at this point locked in. It’s not great.
With Web3 we may find our way to a new settlement between users and corporations. Here and there are glimpses of new ways of storing files, new ways of owning and providing access to data, new ways of asserting identity, new forms of payments – and from all of this, there may be a route to upend the status quo.
Is finding the way worth the carbon and the scams? I’m sceptical about whether crypto will eventually mean (as its boosters promise) a newly egalitarian economy or breaking up of monopolies or net increase in personal freedom and agency. Honestly I lack the imagination/faith to imagine a future so totally transformed. But these new capabilities are tantalising… so I keep a personal running list of what I find interesting in the Web3 gold rush, in the hope of spotting something useful in its fundamentals that has immediate applicability.
Why I’m interested in novel payment formats:
New payment formats mean new behaviours.
For example, we’ve got:
(Of course it’s more fine-grained than that.)
And you can see what the effects of these being “standard” allows in the digital space:
Then there are a couple of novel-but-now-accepted payment formats:
What makes a payment format work? Trust. Trust from the consumer that the vendor won’t run off with their money. Trust from the vendor that the money will eventually find its way to them.
Deep down, payment formats are implemented as “payment rails:”
That quote is from this fantastic edition of Patrick McKenzie a.k.a. patio11’s series Bits About Money: BNPLs: Businesses Needing Provided Legibility (Jan 2022). It unpacks another payment format, BNPL – “Buy Now Pay Later,” which is beginning to appear all over the web next to the “Buy Now” button as an alternative to using your credit card. Instant instalment payments, and that boosts sales for the merchants (a new consumer behaviour).
McKenzie unpacks payment rails in another article which is absolutely worth absorbing in detail:
So the technical implementation of high-trust rails allows for new behavior from consumers.
HYPOTHESIS: One capability to come out of the Web3 space is novel payment rails.
Because I’m hand-waving and not talking about end-to-end protocols and implementation, I’ll just say payment formats, not rails.
With crypto, you’ve got a couple of problems with payments:
Could novel payment formats reduce this friction with crypto transactions, and provide for new behaviours besides?
Proof of Stake as the underpinnings of a novel payment format:
I’m still getting my head around all of this, so let me spell out my understanding as literally as possible. (Factual corrections gratefully received. Apologies for being casual with terminology.)
A blockchain is a transaction history. Each new transaction is verified to be non-fraudulent by looking at that history (you want to avoid double-spending, for example). The trick is how to do that in such a way that many, many parties trust that no-one is defrauding the system, and the answer with cryptocurrencies is that you decentralise the verification and make it so that all these parties can come to consensus without a single party being in control. The consensus mechanism varies.
With Bitcoin, the consensus mechanism is based on Proof of Work. As part of compiling the transaction history, verifiers run hard sums for each step, and the cumulative effect is that it would be really really expensive and slow to fabricate a fictional transaction history in order to defraud people (but, remarkably, very quick to check whether the history looks legit).
(The verifiers, or “miners” for Bitcoin, get paid the transaction fee.)
Other blockchains use other consensus mechanisms and there is one called Proof of Stake that burns less computational resources (and therefore less carbon).
With Proof of Stake, each step in the transaction history is signed off (“validated”) by someone who holds a large amount of that currency. That’s provable because it’s part of the transaction history.
Again the transaction history becomes hard to fake. And again the validators who knit the transaction history into the blockchain get paid the transaction fee.
Important note: from what I understand, the big blockchains are shifting to various variations of Proof of Stake because it more-or-less deals with the carbon problem. Good news.
Where this gets interesting, for people like you and me (as opposed to the people with large enough computers to become validators), is with Delegated Proof of Stake.
With Delegated Proof of Stake, a validator doesn’t need to hold coins themselves. Instead, I can “stake” my coins with a validator, they will perform the validation, and then they will share the transaction fee reward with me.
FOR EXAMPLE:
Okay, this is how it works today, and there’s the hint of something interesting here.
If staking = asset appreciation + yield, could the two income streams be separated and used for a new recurring payment format?
Imagining Stake Patronage:
My proposal is that it should be possible to stake my coins with a validator, retaining ownership of the coins as before, but name a separate beneficiary for the yield.
(It’s a variation of Proof of Stake, deep in the blockchain consensus mechanism itself, and that’s why I call it Stake Patronage.)
The use case here is to support artists and creators, such as with the low monthly recurring payments offered by services like Patreon and Substack in the “regular” dollar economy.
So it would work like this:
The format has some benefits:
(By “artists” I know I’m skewing more towards live performers rather than artists who produce static, tradable works. But I think patronage has pretty broad applicability.)
Implementation and user experience:
I can picture the user experience.
A site, like YouTube but with more social presence, has a number of live streams available. You can see which are the popular ones because they have a large number of coins staked for their benefit. Or maybe there are curators who support up-and-coming artists: curators have patrons too.
(Any platform needs a non-zero-cost score to figure out popularity, if only to sort the search results. The web has PageRank based on hard-to-earn backlinks; YouTube has views based on scarce time; Twitter has followers based on scarce attention. Here, artists would have patrons.)
So there are leaderboards, but of course because Stake Patronage is on the public blockchain, this is a distributed score, not limited to a single site.
Then, next the live stream, there is a button so that viewers can choose to stake the coins in their wallet. “Like, Subscribe and Stake,” the performers say at the end of a set, by way of sign-off.
The site itself would act as a validator, or perhaps partner with an existing validator.
And then the artists receive yield.
The analogy for me is this: subscribers are stickier than one-off transactions for writers; patronage is stickier than tip-jars for performers. Just as NFTs unlocked a new market for visual artists, perhaps Stake Patronage could unlock a market for performers, artists, and creators more generally.
In terms of implementation, how would this work?
Generalised, maybe this isn’t just about patronage. Could yield also be directed to charities? A way for crypto holders to support good works without giving up their appreciating asset.
But this is where my hand-waving knowledge really runs out of road.
Of course the above is quite possibly totally wrong-headed. But for me it’s areas like this where Web3 gets interesting: we can think about behaviours we want to encourage (like artist patronage) and then tweak the actual underlying economics to make that a low-friction path. Is this route viable? Unknown. But the exercise in figuring it out makes me want to spend more energy on finding opportunities in Web3.
On the off-chance you know how to do this, or you’re at Tezos or Coinbase or similar and you have a path to knowing how to do this – get in touch? I’m working on a platform for performers and patrons that is the perfect test-bed for this.
Thanks to Ed Cooke and Jon Boutelle at Sparkle for conversations and being early readers. Blind spots and misconceptions all my own. As always this is a snapshot: thinking out loud rather than a final view.