Batching Mental Transaction Costs

There’s a popular American pastime that involves flinging dollar bills at scantily clad dancers. Canada, Europe, and the UK lack small-denomination banknotes, so strip club patrons have limited ability to express appreciation for their performers. Customers can either pelt the dancers with coins, which is rude; or shower them with large bills, which is extravagant. The transaction costs are unnecessarily high, and onstage tipping is rare.

In Australia, the smallest banknote is a five. While living in Sydney, I discovered (not from personal experience!) that gentlemen’s clubs sell fake banknotes for guests to use as tips. The dancers exchange the fake dollars for real money at the end of the night.

Fake dollars for sale at a gentlemen’s club in Sydney. Why did they model their money after USD instead of Aussie banknotes? Also, I bet the US $2 bill would have much wider adoption if the note featured a pole dancer instead of Thomas Jefferson. He already has the nickel! How bout some diversity, come on.

How terribly exploitative! Instead of peer-to-peer payments, the house intermediates every transaction with self-issued fiat. It probably even takes a cut.

But… maybe it’s not so bad. I endured many a childhood birthday party at Chuck E. Cheese, where parents would hand each kid a stack of tokens and set them loose. Tokens could be used to pay for rides and games and candy, and were functionally equivalent to a quarter.

We already have quarters. Why did Chuck E. Cheese go through the hassle of minting its own coinage when it could have simply installed a laundromat change machine?

Chuck E. Cheese tokens come in a jumbo plastic cup, just like a real casino.

Chuck E. Cheese and Aussie strip clubs employ the same brilliant strategy of batching mental transactions. Every monetary exchange incurs a cognitive cost, if from nothing more than the conscious decision to spend money. The overhead is nominal for most standard transactions, but relatively massive compared to a micropayment.

By forcing customers to make a large upfront commitment, these establishments avoid imposing a cognitive load on every subsequent exchange.

Casinos employ the same strategy with poker chips and slot tokens: Gamblers wager more freely with play money they’ve already bought. Sure they can cash out, but that’s an additional transaction cost.

People have been failing to effectuate micropayments since the early days of the internet. A machine-payable web, where you pay for the content you consume, or pay-per-byte internet protocols – these sound like great ways to finely optimize the allocation of resources. But no matter what fancy new technology is employed – Digicash! Millicent! FirstVirtual! CyberCash! Blockchain! – micropayments never cease to be a bad idea.

And now the Bitcoin Lightning Network. With instant transactions and exceptionally low fees, This Time is Different.

Maybe. A user funds a Lightning channel with the intention of fully spending its contents (it is a hot wallet after all, and costs money to cash out). In these early days, each channel has limited utility. If a channel commitment represents a one-way payment for a certain set of services, then it functions more like a subscription fee than a series of microtransactions. Like buying a stack of tokens at Chuck E. Cheese.

This model isnt great for Lightning-as-a-liquidity-provider, but it does bode well for Lightning-as-enabler-of-micropayments. Who knows.

Virtual tipping. A great application for Lightning.

See Also:
The Transaction Costs of Tokenizing Everything

4 thoughts on “Batching Mental Transaction Costs

  1. This is also why I purchase the meal plans when I visit Walt Disney World. Lumping paying for the food in with the one large transaction is carries less mental stress than contemplating the cost of each meal in the park.

  2. Speaking of Lightning, I just set up a mainnet LND node today in order to buy some t-shirts from

    It was pretty difficult!

    Re: “it is a hot wallet after all”… this is true, but not different whatsoever from holding bitcoins in any network-connected (software) wallet, right? To be useful, however, protocols like Lightning will need a major uptick in adoption. Here we are at the chicken and egg problem once again…

    Elaine, I would love to ask you some questions about Abra as they’re looking to hire developers to work on the big “stablecoin” push they just recently announced. By any chance would it be possible to get in touch with you directly as opposed to leaving comments on your blog posts and begging for a response on Twitter? 🙂


    1. Hey Matt how’s it going 🙂

      I’m afraid I don’t know anything about Abra’s stablecoin push. I left over a year ago, and stablecoins were certainly not on the roadmap when I was there. This is the first I’ve heard of it myself.

      Sorry I can’t be of more help!


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