• Marten Nelson, Co-Founder and VP of Marketing at Token


• 23.03.2017 10:15 am
Programmable Money

Confused about programmable money? Marten Nelson, co-founder and VP of Marketing at Token sets the record straight.

The process of ‘getting’ programmable money relies on a clear understanding of what ‘normal’ money is; something that is, in itself, a little more complex than it can seem at first. We often think of money as a physical entity, as coins and notes, for example. As objects made of metal and paper, however, these are more or less worthless. A €20 note is only worth €20 because it has been assigned that value by the European Central Bank, which adheres to a shared system of rules that are enshrined in law. Everyone that uses the Euro participates in these rules and agrees to abide by them. In this way, money is nothing more than a shared set of rules for exchanging value.

Programmable money is just the same. The only difference is that here, the rules which define when and how value can be exchanged can be reimagined according to how the payer and payee want to transact.

As long as all participants in the system share and abide by the agreed rules, ‘money’ can take on a rich and diverse range of characteristics. It is perhaps helpful to think of these rules as ‘terms and conditions’ that are hardwired into the transaction. Only when all the T&Cs are met can the transaction be authorized and the value exchanged.

For single transactions between two parties, programmable money can give the payer and payee a vastly greater range of parameters to use when exchanging value. It also enables a huge array of different ‘valuables’ to be exchanged – far more than conventional money – time, contracts, expertise, goods, services and more can all be traded.

Example: Alice buys a car online from Bob. The payment will only be executed after the car has been delivered and passes an emissions test. The terms verification is completed by the shipping agent and the emissions test agent. When both are complete the transaction is authorised and the money changes hands.

By using Token’s programmable money platform, banks and their customers can hardwire T&Cs into their transactions, securing and verifying them using a combination of cryptography and tokenization technologies. Transactions can only ever be authorized when all the T&Cs are met. It makes the transaction virtually impossible to hack, since the data transmitted between the transacting parties is meaningless to everyone else. It also happens instantly and enables the parties to reduce - and usually eliminate - their dependence on third parties, such as clearing houses, which would traditionally charge a fee for verifying the authenticity of the transaction and those performing it.

By using programmable money, banks in particular have a massive opportunity to transform how they operate. Many of the transaction-based services banks provide, like inter and intra-bank transfers, cross border payments, direct debits and B2B payments all require third party validation. This external checking process costs the bank and slows everything down.

The potential applications for self-validating transactions conducted using programmable money are practically limitless. When used consistently across the world, they have the power to transform the way the world transacts.