In the evolving financial landscape, programmable money is gaining traction, extending beyond cryptocurrencies and CBDCs. New technologies are emerging that bring programmability to traditional forms of money. This shift signifies a move towards smart contracts and automated transactions within established banking systems.
The concept of programmable money is closely linked to smart contracts, which automatically trigger events based on predefined conditions. Ethereum, launched in 2015, pioneered blockchain-based smart contracts. Platforms like MakerDAO, Uniswap, and Compound then emerged as practical financial tools, eliminating the need for human or software intermediaries.
Central banks are exploring their own digital currencies, though most are unlikely to use public blockchains like Ethereum. The Bank of England, for instance, favors a private, permissioned ledger. Despite this, programmability remains a key feature of Central Bank Digital Currencies (CBDCs).
Quant, a financial technology company, developed a programmable payment system for retail CBDC transactions as part of the Bank of England's Project Rosalind. This system, using a "multi-party lock," functions as a digital escrow, releasing funds based on conditions like delivery verification. Quant has since adapted this technology for commercial bank money, enabling programmable transactions with real bank deposits.
Banks are exploring wholesale use cases, such as business-to-business escrow payments that automatically release funds after compliance checks. Retail applications are also anticipated, including programmable accounts where bill payments are triggered by events like receiving a paycheck.
While programmable money was initially explored by decentralized finance protocols, smart bank deposits are not seen as competition to stablecoins. Banks are focusing on generating revenue through programmable services built on existing infrastructure. Concerns about government censorship and surveillance are largely unfounded, with data encryption and commercial banks leading the retail rollout.