Tipping. It is becoming a part of the new digital economy; whether it for online-only services or hybrid services like eGrocery delivery, this type of transaction is facilitated by innovative payments infrastructure. This leads us down the Yellow Brick Road of micropayments, donations, and the economy that exists beyond wages, some of it on the blockchain. Because it seems like when it comes to currencies, “we aren’t in Kansas anymore Dorothy!”
In Western society, tipping as a % of the bill (typically 15%) is very common in restaurants, taxis, coffee shops, and more. Payment processors have built the Tip 10 – 15 – 20% UX/UI (User Experience, User Interface) into pretty much every payment terminal, making it pseudo–obligatory to tip. The tips (theoretically) flow to staff and help offset low minimum wage, creating a cash-based performance incentive for the service economy.
These days, workers in the gig economy are using delivery apps like Uber Eats and DoorDash, eGrocery services like Instacart and Shipt, and apps in other niches as their primary means of income. As a result, tipping is becoming more commonplace during the transaction process in the app (although some may choose to tip in cash).
As the social model shifts around the digital economy, many traditional jobs in these service industries are being either lost, replaced as part-time work, or shifted into administrative roles where there is no customer interaction. The result for these workers is no tips. Without tips, they arguably lose their primary performance motivator and opportunities for wage growth. Tips are important.
When we look online, tips are generally uncommon, but starting to become more commonplace. Content creators, musicians, designers, and writers rarely get tipped. Whether or not that is related to the design of the Internet where platforms capture lions share of the value created, or due to the inherent limitations of payments technology (or both) is unclear.
Part of the premise of blockchain technology is that it will, one day, drive micropayments for content/artistic creation. There are many experimental social networks with this model in mind. The problem, however, is that most of these networks have created their own token, which is not exactly money for most people. These tokens trade similar to an equity, and earning them relies on a vested interest in the ecosystem, knowledge on how to exchange them back to money (something like Bitcoin or local fiat money), and restrictions related to the size of the ecosystem (ie. walled garden). In real life, you don’t work for one restaurant and worry that you might not be able to translate your earnings to another restaurant because they use a different type of currency.
That’s where donations becomes an interesting realm to study. Charities, non-profits, and socially-driven entities will now accept major digital currencies, especially since the price has exploded. They also take money in their local currencies in any amount, either through local banking infrastructure (in Canada it would be eTransfer via email for example) or through major apps like Paypal. While non-profits and charities are not creators or service employees in the traditional sense, they may be at the vanguard of the next wave in payments because of their reliance on donations.
This post explores the practical and philosophical context of exchanging value using the non-profit and service sectors as proxies as to what we might expect in the future.
Apps to Accept Donations
To avoid controversy, we will state outright that anyone with knowledge of digital currencies like Bitcoin and Ethereum who knows how to accept a payment in those currencies can simply send their public key to the would-be donator and voila – money is ‘in the bank.’ Fees are low enough (on median-sized transactions, not micro-transactions) and the transaction can be completed within minutes with no middleman. The problem is that the vast majority don’t know how to do this.
Mainstream Apps – Paypal, Venmo, etc.
Right away, if you have either Paypal or Venmo, someone can send you a donation, needing only your email or username. The problem with Paypal is that they usually charge the a 2-3% fee for any transfer. The upshot of Paypal is that one side of the transaction does not need to have an account. Venmo, on the other hand, has no fees on transfer between two parties but both parties need to have a Venmo account.
There are other similar P2P payments apps, but the general principle is the same. CashApp (by Square), Zelle, and others top the list.
Some fundraising apps offer a direct Venmo integration.
If you Google ‘Apps to accept donations‘ or other similar terms, you will see 10s of 100s of options. The structure of these apps is generally linked to whatever the business model is for their respective platform. They will help charities/non-profits accept donations, but they will charge you. This is fair, but the fragmentation means that what works in one place might now work in another, and vice-versa. The next-gen apps for donations can likely be found by looking at what’s happening with tips.
Apps to Accept Tips
Major digital currencies like Bitcoin and Ethereum have gained a lot of traction recently with creators – these tend to be younger users who are more fluent with technology and can navigate digital wallets to easily accept tips/payments in BTC/ETC. Some have become ‘Bitcoin rich’ because of it.
A quick search on ‘Apps to accept tips’ will show that Paypal/Venmo/CashApp top the list.
But there are other creative solutions that are emerging in the ether for tips.
One unique option that is becoming more commonplace is BuyMeACoffee. It is a hybrid between subscription platforms like Patreon and crowdfunding apps that provide one-off payment processing to fund a new creative project or venture.
The difference is the design and integrations. The money moves through the platform to either your bank account, Stripe or Paypal.
Payments are directly transferred to your PayPal, Stripe or bank account. We do not hold your money, and there is no minimums to get paid. Buy Me a Coffee is an official partner of PayPal and Stripe.
It is designed specifically as a tool to for creators to accept tips (and build a Subscriber base if they desire). It has web integrations and number of other features to make it seamless to embed into different digital products, and accepts all major forms of payments.
We accept all major Credit Cards, PayPal, Apple Pay, Google Pay, as well as local payment methods such as UPI in India.
What’s the catch? They charge 5%.
While not obscene when factoring in the perceived strength of the product and the payment processing fees on each transaction, it is these types of fees that give rise to the proposition of micropayments on the blockchain in the future.
Edgy Social Platforms
Next-gen social media platforms like TikTok, Twitch, and Clash facilitate tips, donations, and micro-transactions (via in-site currencies) from fans to creators, and then themselves take a cut. For example, users on Twitch purchase Bits, send them to their favourite gamers, and those users are paid $0.01 by Twitch. With in-site currencies, the problem is always that said currency only holds value in that platform itself, as is the case with Twitch.
On the flipside, many social media stars will link their Venmo in their bio and then encourage users to give them tips. One example of this was used for the cause (tipping service workers) happened last year when TikTok star @LexyLately – a former server in Nashville, along with her husband – solicited her followers to donate to her on Venmo via the #VenmoChallenge. She then went on to pay it forward and offer large tips to people in the services sector that were negatively affected by the pandemic. She is building a brand now around Serial Tipping after having collected more than $100,000 in donations.
Now, it’s the Burkes who are overwhelmed with all of the donations they need to give away. The couple said they probably will start giving $2,000 or $2,500 tips, and it’s the kind of problem they love having.
A Look at Micropayments
For argument’s sake, let’s call micropayments those under $5, or what we would refer to as ‘change’ in monetary terms. On the street, it is is easy to give someone a toonie (in Canada), on the Internet, not so much.
Micropayments have been seen as the holy grail of blockchain-based digital currencies since their inception. The big idea is that by effectively creating a digital currency itself – rather than a platform that simply accept/exchange currencies – you alter the incentives from rent-seeking ( taking a % of each transaction) to network penetration ( wanting as many people to hold the digital currency as possible, even in small amounts).
The problem with the concept of micropayments in the traditional payments ecosystem is that it is designed in such an archaic way that there is almost no way to execute them at scale. Turns out hard cash and coins were pretty useful innovations. The theory behind blockchain technology is that it alters the incentives to the point where the ‘platform’ would be disincentivized from charging users per transaction because then less people would use the token, which means ultimately less people would hold the token and the token would lose value. But theory is different from reality.
The problem – in practice – is that the security model between the two dominant digital currencies are so different, that one can’t even put individual ‘cryptocurrencies’ into the same category any more than you can put gold and US dollars into the same category. Proof of Work (ie. Bitcoin which requires CPU to validate transactions, and therefore a fee) and Proof of Stake (ie. Ethereum where stakeholders validate transactions) create two separate currency models:
>one where you charge for transactions (ie. miners on Bitcoin) in order to secure the network, making it more expensive to move money in smaller amounts (theoretically) compared to Proof-of-Stake models
>another where transaction fees are designed to be lower (Ethereum runs Proof-of-Stake nodes, not Proof-of-Work miners), but the network is less secure
Today, Bitcoin’s transaction fees are $13.15 USD on average and Ethereum’s transaction fees are $15.03 USD on average. Neither are anywhere near close to being conducive to facilitating micropayments. And that is not a criticism of either one, just a practical observation.
The argument will be that there are other blockchains (ie. tokens) that will facilitate micropayments in the future, but right now price is the ultimate metric of utility for digital currencies. Hypothetical utilitarian arguments are made by the 100s of other coins out there. The top 100 coins by Market Cap all trade at a valuation of over $500 Million USD based on today’s prices – many of these will cease to be worth anything in the future; yet the potential to be another Bitcoin or Ethereum drives people to speculate on what are essentially ‘equities’ in practice. Will one of these other cryptos deliver on scalability to the point where micropayments become a global reality? Possible, but it will depend on the reasons we discuss below.
The characteristics of each digital currency (including factors such as monetary policy, security, etc) drive the price up/down today, which is why they trade like volatile stocks. ‘Stable coins’ will in theory solve this problem, but those are all “backed” by the assets that they are produced on (example Ethereum), which could itself go to zero.
Imagine receiving tips in different currencies ($USD, $CAD, $EUR, $GBP ) in a tourist town and wondering:
>which one will be the most stable in value?
>which one will change most in value?
Most people would likely sell the most volatile currencies in exchange for the more stable one. The most stable currency then becomes in highest demand and itself appreciates over time on a relative basis. One day it becomes the most desired currency, to the point where some merchants/workers will only accept one currency. This process is playing out in real-time, not just with digital currencies, but also many fiat currencies in the developing world. The two models are now in direct competition in some countries.
This brings up the core point in relation to micropayments on the blockchain. The technology itself will one day facilitate micropayments; however, it is the unit of account that matters more in the long-run. Obviously, anyone will accept almost any digital currency that they can readily exchange as a tip or donation. But this is the edges of the market. To mainstream the micropayments innovation to the point where it can be widely deemed as acceptable for tips/donation to creators, non-profits, artists, etc., it must be broadly accepted in society as currency.
If the vast majority take tips/donations in digital currencies and instantly convert them into their local currencies, then they will inevitably be paying the same transaction fees as in the mainstream banking system. This defeats the entire purpose of ‘the blockchain’ relative to currencies. Only if a body of people hold onto their digital currencies and exchange them with a broader array of producers in the economy can the micropayments blockchain model can take hold.
Network Effects > Technological Innovation
In summary, the best options a person can use to accept tips/donations outside of a physical space are:
>Bitcoin, Ethereum and other major digital currencies
>Paypal, Venmo, Cash App & other major payments apps
>Niche apps for accepting tips like BuyMeACoffee
Likely, it won’t be the actual technology that governs which of the above becomes optimal over time, rather it will be about network effects. Blockchain technology has created tremendous innovation in finance, payments, and many related areas; however, social behaviours, cultural norms, and regional preferences cannot be undone overnight.
Nations in the West are accustomed to tipping staff, donating to non-profits and charities, and rewarding social innovation through fundraisers and similar activities. Payment processing technology has reduced friction in many ways for these activities to occur; yet at the same time, these technologies have given rise to new industries that themselves displace workers and reduce full-time work. The long-term solution likely lies in the middle between a hyper-tech future and a sense of tradition that governs a nation’s history.
In many Western nations today, the best possible tip or donation would still be physical cash, or even silver/gold for some. Even a cheque from a local bank is preferable to an obscure digital currency, no matter how ‘innovative’ it might seem. Nonetheless, the massive rise of Bitcoin, Ethereum and other digital assets has created wealth effects that will have exponential ripples into the margins of society where this newfound wealth can have the greatest impact, and potentially even shift this model. On the edges, creators and non-profits may experiment with new ways to bring in tips/donations, especially during rough economic times like we are in now.