Szabos Micropayments and Mental Transaction Costs: 25 Years Later

What if every click you made online cost just a fraction of a penny? What if your favorite news site, your go-to streaming service, or even your daily email usage could be paid for in tiny increments rather than one big chunk at the end of the month? This vision, where nearly every digital interaction could be monetized by “micropayments,” has hovered over the internet economy since its earliest days. But as Nick Szabo’s seminal 1999 paper, Micropayments and Mental Transaction Costs, pointed out, there’s a lot more than technology standing in the way.

Twenty-five years on, Szabo’s warnings about mental transaction costs the cognitive overhead of deciding whether something is worth paying for still resonate. Even as developments like AI-based “intelligent agents” and Bitcoin solutions such as the Lightning Network promise frictionless micropayments, Szabo’s observations remain crucial to understanding why this idea hasn’t fully taken flight and whether that might finally change.

Below, we’ll examine:

• The core arguments from Szabo’s 1999 paper

• Why micropayments remained on the fringes for decades

• How AI and Bitcoin’s Lightning Network attempt to overcome these barriers

• Whether mental transaction costs…