ShortSimon on Nostr: The Bitcoin Magazine article really doesn’t highlight the fact that almost of the ...
The Bitcoin Magazine article really doesn’t highlight the fact that almost of the 25 years since Szabo wrote, there has been no technical solution to the micropayments problem. Transactions costs were high and money was centralised for much of that time. Bitcoin solved the centralisation problem, but it still had high transactions costs for most of the 16 years of it’s existence. Now that we have a fast an cheap decentralised payment system we can really start to find ways to deal with the human problems that Szabo identified in his original 1999 article.
Nick Szabo's 1999 paper on mental transaction costs remains a foundational text in understanding the challenges of micropayments. However, the emergence of Bitcoin's Lightning Network combined with decentralized trust networks fundamentally changes the dynamics he described. While his insights about cognitive burdens shaped thinking about micropayments for decades, new tools and models require us to update this framework.
Lightning doesn’t just enable low fee transactions, it also enables payment splits that can be used to pay referral fees. Much of the internet works through click throughs and often those that host an affiliate link are paid a percentage of any sale that occurs following the referral. However the referral payment process is managed centrally by intermediary companies that take 30-40% of the payment for themselves. They usually take 30-90 days to make they payment and sometimes it never gets paid at all. Lightning payment splits are decentralised, instant and virtually free of transaction costs.
Nostr is a decentralised communication protocol and apps built within that ecosystem enable content to be shared between people. Over time users can build a web of trust by choosing to follow people that they appreciate the work of. Lightning payments are implemented into nostr so that users zap each other rewards for content that they appreciate.
Together Nostr and Lightning can enable a new profession, the human curator. People get paid for referring content if they convince other people to buy it. They have to work hard and expend time and energy finding good content to recommend. In order to build a reputation and have people trust their recommendations, they have to only deliver content that is good value. If they recommend things that are not good value, just in order to earn their fees, then people will unfollow or even mute them. This will reduce their web of trust score that is visible to anyone that is considering them as a part of their network in the future.
Where Szabo saw individual users facing countless micro-decisions, modern sovereign systems enable outsourcing much of this cognitive load to trusted curators. This fundamentally changes the mental transaction cost equation. Users can rely on curators with proven track records rather than evaluating each piece of content themselves. These curators stake their reputation and future earnings on recommendations, creating natural accountability. Good judgment creates compounding returns through stronger trust relationships, while poor recommendations carry natural economic penalties. This shifts the cognitive burden from constant micro-decisions to the more manageable task of cultivating relationships with reliable curators.
The system becomes self-reinforcing through powerful network effects. Successful curators gain influence through demonstrated reliability, while failed curators lose influence through poor recommendations. Content quality rises naturally through market forces as creators compete for curator attention. Trust relationships strengthen through successful transactions, creating sophisticated discovery mechanisms that reduce individual cognitive load while improving overall system quality.
Bitcoin's Lightning Network doesn't just solve technical payment challenges - it enables new economic relationships that transform how users think about transactions. Instant payments become more like access tokens than financial decisions. Revenue sharing aligns incentives between creators and curators, building sustainable economics around quality. Value flows directly between participants without platform extraction, creating more efficient markets for digital content.
While Szabo anticipated AI agents might help manage cognitive load, the emerging solution leverages human curation networks that prove more effective at surfacing quality and building trusted relationships. These networks build on natural human judgment, develop reputation through demonstrated reliability, and create sophisticated discovery mechanisms that strengthen through actual use. Rather than trying to automate away decision-making, they create human-scale systems for evaluating and sharing valuable content.
The key insight is that mental transaction costs don't need to be eliminated - they can be transformed through trust relationships that reduce individual cognitive load, market dynamics that surface quality naturally, aligned incentives that reward good curation, and network effects that strengthen the system over time. This suggests that while Szabo's analysis was brilliant for its time, modern sovereign digital systems require an updated framework that recognizes how cognitive burdens can be restructured rather than just minimized.
The combination of Lightning Network payments and decentralized trust networks creates possibilities that were unimaginable in 1999. This opens new opportunities for sustainable digital commerce while respecting rather than fighting against human psychology. By understanding how these new tools and models change the fundamental dynamics Szabo described, we can build better systems for digital value exchange that work with rather than against human nature. The revolution isn't in making decisions disappear - it's in creating networks of trust that make those decisions more manageable and meaningful.
Nick Szabo's 1999 paper on mental transaction costs remains a foundational text in understanding the challenges of micropayments. However, the emergence of Bitcoin's Lightning Network combined with decentralized trust networks fundamentally changes the dynamics he described. While his insights about cognitive burdens shaped thinking about micropayments for decades, new tools and models require us to update this framework.
Lightning doesn’t just enable low fee transactions, it also enables payment splits that can be used to pay referral fees. Much of the internet works through click throughs and often those that host an affiliate link are paid a percentage of any sale that occurs following the referral. However the referral payment process is managed centrally by intermediary companies that take 30-40% of the payment for themselves. They usually take 30-90 days to make they payment and sometimes it never gets paid at all. Lightning payment splits are decentralised, instant and virtually free of transaction costs.
Nostr is a decentralised communication protocol and apps built within that ecosystem enable content to be shared between people. Over time users can build a web of trust by choosing to follow people that they appreciate the work of. Lightning payments are implemented into nostr so that users zap each other rewards for content that they appreciate.
Together Nostr and Lightning can enable a new profession, the human curator. People get paid for referring content if they convince other people to buy it. They have to work hard and expend time and energy finding good content to recommend. In order to build a reputation and have people trust their recommendations, they have to only deliver content that is good value. If they recommend things that are not good value, just in order to earn their fees, then people will unfollow or even mute them. This will reduce their web of trust score that is visible to anyone that is considering them as a part of their network in the future.
Where Szabo saw individual users facing countless micro-decisions, modern sovereign systems enable outsourcing much of this cognitive load to trusted curators. This fundamentally changes the mental transaction cost equation. Users can rely on curators with proven track records rather than evaluating each piece of content themselves. These curators stake their reputation and future earnings on recommendations, creating natural accountability. Good judgment creates compounding returns through stronger trust relationships, while poor recommendations carry natural economic penalties. This shifts the cognitive burden from constant micro-decisions to the more manageable task of cultivating relationships with reliable curators.
The system becomes self-reinforcing through powerful network effects. Successful curators gain influence through demonstrated reliability, while failed curators lose influence through poor recommendations. Content quality rises naturally through market forces as creators compete for curator attention. Trust relationships strengthen through successful transactions, creating sophisticated discovery mechanisms that reduce individual cognitive load while improving overall system quality.
Bitcoin's Lightning Network doesn't just solve technical payment challenges - it enables new economic relationships that transform how users think about transactions. Instant payments become more like access tokens than financial decisions. Revenue sharing aligns incentives between creators and curators, building sustainable economics around quality. Value flows directly between participants without platform extraction, creating more efficient markets for digital content.
While Szabo anticipated AI agents might help manage cognitive load, the emerging solution leverages human curation networks that prove more effective at surfacing quality and building trusted relationships. These networks build on natural human judgment, develop reputation through demonstrated reliability, and create sophisticated discovery mechanisms that strengthen through actual use. Rather than trying to automate away decision-making, they create human-scale systems for evaluating and sharing valuable content.
The key insight is that mental transaction costs don't need to be eliminated - they can be transformed through trust relationships that reduce individual cognitive load, market dynamics that surface quality naturally, aligned incentives that reward good curation, and network effects that strengthen the system over time. This suggests that while Szabo's analysis was brilliant for its time, modern sovereign digital systems require an updated framework that recognizes how cognitive burdens can be restructured rather than just minimized.
The combination of Lightning Network payments and decentralized trust networks creates possibilities that were unimaginable in 1999. This opens new opportunities for sustainable digital commerce while respecting rather than fighting against human psychology. By understanding how these new tools and models change the fundamental dynamics Szabo described, we can build better systems for digital value exchange that work with rather than against human nature. The revolution isn't in making decisions disappear - it's in creating networks of trust that make those decisions more manageable and meaningful.