What Is Programmable Money?

What Is Programmable Money?

Marten Nelson

Co-Founder and VP of Marketing at Token

Views 1473

What Is Programmable Money?

23.03.2017 10:15 am

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.

Latest blogs

Shuvo G. Roy Mphasis

Reboot 1.0: How financial services technology can enable the supply chain to support a post-lockdown boom

Ground control and Captain Tom When veteran Captain Tom Moore decided to walk one hundred laps of his garden before his 100th birthday to raise funds to support NHS heroes battling Covid-19 from the frontline, he never imagined that he would Read more »

Lisa Gutu Salt Edge

Building a PSD2 compliant channel: challenges and opportunities for financial institutions

PSD2 obliges ASPSPs including banks, e-wallets, prepaid cards and other companies that offer payment accounts to provide at least one channel for secure communication with third party providers (TPP). Even neobanks or e-money institutions, including Read more »

Thomas Pintelon Capilever

Credit origination - A lot of innovation on the horizon

While consumer credits are becoming more automated and user-friendly to request, all other credits are often still very manual and labor intensive to originate. In this (relatively long) blog I will try to give a description of the (potentially Read more »

Kelly Kearsley Hourly.io

Time Card Theft is a Big Problem. Here's How to Stop It.

Trust is at the core of every employer-employee relationship. You trust your people to do their jobs, and they trust you to compensate them for their work. Most of the time, it works. However, there's always the person looking to bend the rules or Read more »

Daria Afanasyeva UTP Merchant Services Ltd

Cybersecurity – Online payments are getting more secure

Ever since we've been able to buy anything we need with just a click of a button on our laptops or phones, online sales have been consistently increasing each year. Just last year, the total value of UK retail sales was £394 billion, with an average Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel