# Survey of Blockchain-Based Applications for IoT
## 9 Economic and Incentive Models  
### Micropayment/Microtransaction  
The rise of blockchain technology and the IoT has revolutionized micropayments, enabling small-value transactions between devices. These transactions are crucial in IoT ecosystems, where Machine-to-Machine (M2M) automated payments drive efficiency and functionality.  
Micropayments rely heavily on off-chain payment channels to address scalability and costs. Transactions begin with an agreement between participants to lock a predefined cryptocurrency in a blockchain-based smart contract, thus creating a direct channel. Once the channel is established, parties exchange off-chain messages to conduct transactions that are later finalized in the chain. This approach reduces transaction costs and processing  
\begin{table}
\begin{tabular}{c c c c} \hline \hline
**Layer 2 Solution** & **Key Features** & **Advantages** & **Challenges** \\ \hline Payment Channels & High-speed. Only initial and final states are recorded on-chain. & Low cost. Instant transactions. & Limited to payments. \\ \hline State Channels & General-purpose off-chain interactions. Settled on-chain after completion. & Flexibility beyond payments.Reduced blockchain congestion. & Complex setup. Limited to predefined participants. \\ \hline Sidechains & Customizable consensus mechanisms. & Allow scalability and experimentation. Supports large-scale. & Requires a separate security model. May lack decentralization. \\ \hline Multi-Layer & Combines features of other layer 2 solutions. Balances scalability and security. & High scalability. Flexible for diverse use cases. & Increased design complexity. Dependency on interlayer sync. \\ \hline \hline \end{tabular}
\end{table}
Table 5: Layer 2 and multi-layer options.  
time, making it ideal for real-time IoT use cases, such as smart vehicles paying tolls or IoT devices purchasing bandwidths.  
DLTs such as blockchain networks and Tangle are foundational for many micropayment solutions. Initiatives such as IOTA's Tangle showcase DLT's ability to enable feeless and scalable micropayments tailored for the IoT. Despite these advancements, DLT remains in its exploratory stage for large-scale implementation, with no global standard in place [66].  
Micropayments powered by a blockchain and the IoT have the potential to transform industries by enabling autonomous, cost-effective, and efficient transactions, thus paving the way for a more connected digital future. However, achieving scalability and standardization remains a critical challenge. Micropayments can revolutionize various applications, such as pay-per-use, dynamic pricing, and subscription-based IoT systems. For example, smart appliances can autonomously pay for energy or maintenance services based on real-time usage data. Additionally, by integrating layer 2 solutions, such as payment channels, micropayment systems can achieve faster transaction speeds and reduced costs, thereby overcoming the inherent limitations of the blockchain. These systems also enhance transparency and security and foster trust among users and service providers.  
Figure 14 below illustrates a decentralized micropayment system for the IoT. It shows an electric vehicle and a charging station, forming an agreement for energy usage. After completing the transactions, the final settlement is recorded on the blockchain to ensure secure and trustless payment verification. This process emphasizes automated M2M interactions.