In this post “What is ERC-948?”, you will learn about the ERC-948. This includes the models for subscriptions using the ERC-20 protocol, ERC-948 protocol proposal’s viability, models for Ether subscriptions, the advantages of using a subscription protocol and lots more.
ERC-948 is a new Ethereum token protocol that permits subscription-based operations and links subscription companies with clients.
What Is ERC-948 and How Does It Work?
The ERC-948 token protocol is a new Ethereum token system that is solely for subscription-based transactions. Blockchain technology is changing business paradigms, and the connection between the two does not appear to be slowing down anytime soon. This is when ERC-948 enters the picture.
As more businesses adopt blockchain technology, blockchain experts and fans are working to ensure that it can be used in subscription-based business models.
ERC-948 can be a fantastic chance for developers who want to build a platform on which companies can depend on a verified, current economic model after proving the economic reason for subscription-capable coins and the absence of a protocol on which tokens can be generated at the time.
There are many of Ethereum-based token and digital asset standards to choose from. Users would be able to utilize the opt-out option, and more specifically, a smart contract could be developed to remove tokens from users if they ratified the contract beforehand. Such a concept may likely lead to a slew of new subscription-based system applications.
Let’s have a look at how an ERC-928 opt-out protocol functions:
An opt-out method would be the most cost-effective in terms of aligning consumer and supplier incentives. It’s possible that the protocol will look like this:
- The user allows “z” business to take “x” tokens from their wallet every “y” time period.
- Authorization can be revoked at any moment by the user.
- The proprietor of “z” business may remove “x” tokens from the user’s wallet every “y” time period. The transaction will fail unless “x” tokens are available, the user’s permission is active, and “y” time has passed since the last withdrawal, the transaction will throw ().
An opt-out smart contract for a subscription-based business that relies on ERC-948 may look like this using the Ethereum blockchain’s smart contract influence:
- A smart contract is implemented in the service, allowing customers to withdraw tokens.
- The user approves the contract for an infinite amount of money and an indefinite period of time.
- The user calls the createSubscription() function of the contract, which allows “x” tokens to be withdrawn from their wallet every “y” time period by “z” service until the user cancels.
- Every “y” time period, the service calls withdrawSubscription(), which utilizes transferFrom() to collect the “x” tokens that have been accepted for that billing period, if funds are available and the user agrees.
Despite a number of challenges, ERC-948 gives subscription service providers a highly appealing and lucrative setting. Because blockchain technology is so adaptive, one does not need to be concerned about the concerns because blockchain typically finds appropriate solutions.
If a unified subscription standard is created, it may attract even more consumer-facing businesses to blockchain technology. While most blockchain rhetoric vilifies the old and espouses the new, we should check up on the market incentives that have proven beneficial in our present economy, one of which is clearly the subscription economy.
More Details on ERC-948
Customers can use the ERC-948 Ethereum token standard to conduct subscription-based transactions. ERC-948 tokens’ versatility makes it easier for developers to build systems that integrate with the present economic model.
Customers also have the option to opt out of the subscription, in which case a smart contract would erase off the user’s token withdrawal. For subscription-based applications, the ERC-948 token standard can open up a whole new universe of opportunities.
Standardizing a token for subscription-based services might encourage firms to use blockchain technology.
The ERC-948 Protocol Proposal’s Viability
Rather, Owocki offered an opt-out option for a subscription-based business on the Ethereum blockchain. From an economic standpoint, he feels it would be the most profitable and would correspond with customer motivations.
According to the site, an ERC-948-based opt-out smart contract for a subscription business may look like this:
“The service employs a smart contract that allows users to withdraw tokens.” The contract is approved by the user for an unlimited allowance and an infinite period of time. The contract’s createSubscription() method allows the user to withdraw ‘x’ tokens from his/her wallet every ‘y’ time period only until user cancels. The Service runs withdrawSubscription() every ‘y’ time period, which uses transferFrom() to collect the ‘x’ tokens that have been approved for that payment period, assuming that funds are accessible and that User permission is current.”
The protocol must be designed to accommodate a shared contract or a contract-per-subscription in order to function. Although price volatility is a concern, a short-term approach is to fix the subscription price in paper currency and charge customers the appropriate transaction rate.
As a result, the ERC-948 protocol proposal is a great chance for devs wishing to create a platform on which businesses may rely on a tried-and-true economic model.
ERC-948 Subscription Services on the Blockchain
Learn more about the game-changing token protocol concept that aims to link subscription companies with customers.
The Economy of Subscriptions
Subscription-model businesses proliferated in the aftermath of the 2008 financial crisis.
Innovators used the subscription model to product “boxes,” home items, media streaming services, and software products, understanding users’ inclination for the financial stability of spending a modest amount over a prolonged period of time. And the risk-taking paid off. In 2017, B2C subscription firms attracted over 11 million clients, and there were over 2,000 B2C subscription businesses by the end of the year. The number of visits to subscription firm websites has surged by more than 800 percent since 2014, reaching 37 million. According to a McKinsey report published in February 2018, 15% of online buyers have registered to an e-commerce subscription in the previous year.
Streaming-media providers (Netflix, for example) have transformed 46% of internet consumers into subscription subscribers.
The subscription-based economy is showing no signs of stopping. It has shown to be a contemporary and profitable manner of delivering services and products to rich consumers. (According to McKinsey, the average subscription client earns between $55,000 and $100,000). As more companies use blockchain, it’s important for developers and evangelists to make sure the platform can support subscription models. ERC-948 is a proposal for a new Ethereum token protocol designed to make subscription-based transactions easier. This essay will explore the value and practicality of a new protocol to handle this token functionality, in the language of the GitHub discussion in which the standard was first offered.
The Advantages of Using a Subscription Protocol
The economic benefit of a token standard that promotes the subscription economy is established by financial facts from the previous decade. However, the issue of why a completely new protocol has to be argued and constructed emerges. Why aren’t we able to utilize ether or a pre-existing standard like ERC-20?
Models for Ether Subscriptions
At the moment, there is no efficient way for ether to act as the money for a subscription-based business. Every transaction in an ether subscription model would have to be signed using one’s private key. Customers would not be able or willing to sign a transaction for a service or product every month at scale. The consumer’s closest alternative is to set up and manage a prepaid subscription using ether kept in escrow. He can prolong the subscription by adding ether to the escrow, or he can terminate the subscription and get the remaining cash from escrow. The service provider might withdraw a sum equal to [subscription rate * time since last withdrawal] from the escrow.
The problem with this approach is that it needs the subscriber to either put a large sum of money in escrow from the start (to which they do not have access till they cancel the subscription). Or remember to replenish the escrow every month with enough money to keep all of their memberships active. As a result, the option is either a large upfront investment or arduous, ongoing management. From the viewpoint of the consumer experience, neither will be scalable.
There have been discussions about making ether an ERC-20 token. The ERC-20 protocol, on the other hand, makes subscription models difficult to implement.
Models for Subscriptions Using the ERC-20 Protocol
The closest contract we could construct to a real time-based subscription model using the present ERC-20 protocol on the Ethereum blockchain would need the service to send an email or notice every month to reaffirm. This “opt-in” procedure might look like this:
- Email Sending
- Email Reception
- Sending and receiving emails
- / Executing a tx
- Sending a text message
One of the major marketing and psychological aspects of a subscription model is that this strategy violates it. The “opt-in” strategy causes friction for the consumer because he or she must authorize the service every month to keep it going. Despite their success, subscription businesses are plagued by significant turnover. In 2017, 40% of e-commerce customers discontinued one or more subscriptions. The more obstacles a corporation puts in front of a customer, the more likely that customer will cancel their subscription. Every time the consumer is reminded of the financial commitment or requested to (re)confirm the subscription, there are more points of failure. An optin mechanism is particularly problematic at scale in a future when each Ethereum-based user may have hundreds of subscriptions.
Methods of Opt-In vs. Opt-Out
The “opt-out” option, in which the customer must choose to stop. But instead of proceed, is desirable to the “opt-in” method. Still it is not yet widely used on the ERC-20 standard. One option for opting out would be for a corporation to provide a user with an approve(x) function in a contract where x = price*n (price = monthly cost of service/good and n = number of months). The corporation would then call transfer(x/n) once a month.
There are two problems with this model. First and foremost, a user will want firm assurances about when they will be able to discontinue my membership. The user will want to be able to terminate their subscription at any moment using a cancel() method that cancels the subscription provably and quickly. Any outstanding subscription fees should be paid to the provider as part of the termination process. This enables that providers may let membership payments accumulate for any period of time, allowing them to cut transaction costs.
Second, the ERC-20 “opt-out” standard requires the user to decide how long his or her membership will last from the start. They renew the contract every time “n” is met.
The more choices a corporation asks a customer to make concerning their subscription data, the less likely he or she is to complete the procedure. Setting the subscription term for a very long duration, such as n = 1000, is one possible solution. The user, on the other hand, does not want to pay for a membership for 1000 months. The user must be assured that the firm will only charge them the monthly fee of service/good each month.
Though the ERC-20 protocol would allow for early subscription model implementations. The opt-in and opt-out choices available would almost certainly result in significant user turnover owing to poor UX.
The ERC-948 Protocol Proposal’s Viability
We can now look at what the ERC-948 protocol may look like now that we’ve established the economic motivation for subscription-capable tokens. And also the lack of a platform on which to currently create those tokens.
A Protocol for Opting Out
From an economic standpoint, an opt-out system would be the most successful, as it would align customer and supplier interests. The opt-out process might take the form of the following:
- The user authorizes the “z” firm to withdraw “x” tokens from his/her wallet every “y” time period.
- Consent can be revoked at any moment by the user.
- Every “y” time period, the owner of “z” firm may remove “x” tokens from User’s wallet. Unless “x” tokens are accessible, User consent is active. And “y” time has passed since the last withdrawal, the transaction will throw().
An opt-out smart contract for a subscription business based on ERC-948 may look like this. Leveraging the capabilities of smart contracts on the Ethereum blockchain:
• The service implements a smart contract that allows users to withdraw tokens.
The contract is approved by the user for an unlimited allowance and an infinite period of time.
• The user instructs the contract to perform the createSubscription() method, allowing “x” tokens to be taken from his/her wallet every “y” time period by “z” Service until the user cancels.
• The Service performs withdrawSubscription() every “y” time period, which uses transferFrom() to collect the “x” tokens that have been approved for that payment period. Assuming that funds are available and that User permission is active.
Three Crucial Elements
The ERC-948 protocol’s viability is dependent on the following:
- Either a shared contract or a contract-per-subscription should be supported by the protocol. A common contract eliminates the requirement for the user to audit each and every subscription. Instead of deploying a contract for each new subscription, he would only need to put up one createSubscription() method. This model is most likely superior in terms of customer experience. A single source of subscription control, rather than handling all contracts separately, would be most user-friendly in an economy where 35% of customers have more than three active subscriptions. A shared contract is also preferred due to gas savings concerns. The shared contract mechanism, like any other kind of centralization, produces a single point of weakness. A contract-per-subscription paradigm would need the user deploying a new createSubscription() code for each new subscription he or she joined. Spacing out contracts minimizes the attack surface area. But it may degrade the user experience by requiring customers to handle all of their subscriptions individually.
- When corporations ask consumers for authorization to withdraw “x” tokens every “y” time period over a lengthy period of time, the price volatility of tokens poses a hurdle. Over the course of six months, a monthly charge of, example, one token may translate into dramatically varied USD values. If monies were withdrawn on one day instead of another, it might simply be bad or good luck for the user. The pace of innovation will not be slowed by the stabilization of token pricing.
Setting the subscription price in fiat currency and charging the customer whatever the transaction rate is at the time of payment might be a temporary solution. Another approach is to make ERC-948 compatible with stable currencies like the recently announced Dai.
Issuing a new contract for each individual subscriber’s wallet is a time-consuming, gas-intensive, and laborious procedure for the service provider. Also it might be economically unsustainable due to high churn rates among subscription clients. A way might be to adopt the “shared contract” concept, in which businesses use a single smart contract to withdraw tokens from all users. When firms have various membership tiers or B2C vs. B2B subscription arrangements, things get a little more difficult.
Gas, the charge required to conduct each action within a contract on the Ethereum blockchain. This is another stumbling obstacle for future blockchain-based subscription businesses. Price transparency is the foundation of the current subscription model’s success. Consumers are told how much they would spend each month and are frequently assured that there will be no additional or hidden expenses. Many people may perceive gas as a hidden expense if, in addition to the monthly subscription fee, they must pay for the gas fee associated with executing the subscription function every time a payment is due. Especially if the gas rates are liable to fluctuate. The ability to arbitrate gas expenses should be viewed as a customer experience opportunity for subscription firms. If corporations can predict gas costs, they may factor such costs into the entire product price. Satisfying the customer’s needs and wants that the advertised package price is the final figure.
The ERC-948 protocol proposal gives developers the ability to create a platform on which businesses may use an economic model that has proved successful in the retail and software industries over the last decade. A universal subscription standard might entice more consumer-facing businesses to use blockchain technology. And, while much blockchain rhetoric decries the old and extols the new, we should keep an eye on the incentive systems that have worked in our existing economy. One of them is the subscription economy.
ConsenSys’ Everett Muzzy and Gitcoin’s Kevin Owocki collaborated on this piece. Kevin Owocki deserves special gratitude for launching the protocol proposal on GitHub and for his assistance with this essay.
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