Programmable money is one of the latest concepts to a growingly digital world, but at what cost?
Central Bank Digital Currencies
Central bank digital currencies, often referred to as CBDC’s, are being looked into all over the world. The aim of these CBDC’s is to enhance the current banking facilities that are already available and create more financial inclusion. Other possible advantages of having central bank digital currencies put into place is added security on digital transactions, controlled stablecoins and smaller costs for the consumer. On the other side of things, as banks will continue to hold liability for gathering and dispersing digital identifications, clients are likely to be opening themselves up to a loss of confidentiality. Such an approach could lead to possible data misuse and hacking. At this stage, there is still so much to be discussed and considered to ensure the efficient functionality of CBDC’s.
What is Programmable Money?
If you have recently bought a new mobile online or changed your car insurance policy over the phone, then you will have likely signed a smart contract. These are digital agreements that eliminate the need for any intermediaries to get involved. Smart contracts allow clear agreements to happen by automatically administering predetermined conditions.
The concept of these smart contracts is now being taken and merged with finances. This idea of preprograming money could mean that digital currencies may be set up for specific purposes. If this new concept were to come to fruition, it may come with some issues for how this would effectively be able function in the real world.
The security of programming money is up for debate. According to The Block, hackers have already managed to bleed around $685 million from a variety of decentralised finance systems over the past year and a half. But experts say that software bugs are not the only concern. In normal times, there could be potential benefits to programming money, however you cannot code in every possible scenario and sometimes there is the need for a middleman. You cannot preprogramme what will happen in a crisis. And if the contingencies of each and every possible crisis are not configured into the design, then it could prove to be immensely costly.
The difference between programming money and programming payments
Programming money is not the same as programming payments. Programmed payments have been around for some time now and are used to set up payments in advance such as monthly direct debits you may have on order with your bank. Essentially, programmed payments create a custom automated process for the user whereas programmed money would mean it could be hardwired with certain requirements.
The Concept of Purpose Bound Money
The concept of purpose bound money has been introduced by the Monetary Authority of Singapore. This version of purposeful finance’s goal is to keep the key characteristics of money as we know it while at the same time making headway in programmability. Purpose bound money as a model is a way for digital money to be used without changing its foundational design. This possible new form of payment method intends to provide more security benefits for both sides as buyer and seller, but as we have seen there is much speculation around this.
Findings from The Bank of England
In a trial carried out by the Bank of England (BoE) and the Bank for International Settlements (BIS) Innovation Hub the potential for central bank digital currencies (CBDC’s) the introduction of programmable money was researched. What they found from their trial was that governments would be given some new assets that they never had access to in the past, such as the authority to dictate how, where and for what people’s money should be used on.
A release of this new financial system will undoubtedly increase the power and control that entities such as the government can have over the finances of an individual.
An Oversight of What is to Come
Diving into the new concepts of Central Bank Digital Currencies proves an increasing interest of digital currencies. But under the control of governments or certain individuals, who knows what the future may hold for the common consumer? While still in its early phases, programmed money already has some massive concerns arising about the possible risks it poses.
Many of these concerns have been alleviated by the purpose-bound money project. The project has separated the roles of creator and issuer so that no entity can have complete control over how the money is used. Even with this development though, there are still many uncertainties being queried.