Programmable Money Is Coming to Traditional Bank Accounts-No Crypto Needed

Key Takeaways

• Programmable money is most commonly associated with crypto and CBDCs.
• However, emerging solutions imbue commercial bank money with programmability.
• Use cases include wholesale escrow payments and “smart” bank accounts.

Programmable money is commonly associated with crypto and the idea of using digital token transactions to trigger smart contract functions.

But new technologies are emerging that imbue traditional forms of money with programmability.

What Is Programmable Money?

The term programmable money is intimately tied to the concept of a smart contract, which is a self-executing contract in which transactions automatically trigger events.

In 2015, Ethereum was launched as the first blockchain-based smart contract platform, bringing programmability to crypto transactions.

In the years that followed, platforms like MakerDAO, Uniswap and Compound emerged as the first practical financial tools that don’t require either a human or a trusted software intermediary to execute contract terms.

Smart Money Without Crypto

In recent years, central banks have expressed significant interest in issuing their own digital currencies.

While most Central Banks are still in the exploratory phase, they are unlikely to issue digital currencies on public, permissionless blockchains like Ethereum.

The Bank of England is among those that have explicitly ruled out this possibility. Instead, its preferred digital pound architecture relies on a private, permissioned ledger.

Although they won’t be true cryptocurrencies, programmability is still one of the main draws of Central Bank Digital Currencies (CBDCs).

As part of the  Bank of England’s CBDC prototyping exercise, Project Rosalind, financial technology company Quant developed a programmable payment system for retail CBDC transactions.

Quant’s “multi-party lock” functions as an automated digital escrow system that releases funds based on conditions like delivery verification or third-party authorization, CEO Gilbert Verdian explained to CCN.

While the technology was originally developed for CBDCs, after Project Rosalind, Quant turned its attention to commercial bank money.

“You don’t have to wait for tokenization,” Verdian explained. “We’ve figured out how to do it with real bank deposits.”

Building on the learnings from Project Rosalind, Quant has now packaged the technology into a platform for banks to offer programmable transactions to their customers.

Use Cases for Programmable Transactions

Identifying potential use cases for Quant’s technology, Verdian said banks are exploring wholesale use cases first.

For example, business-to-business escrow payments automatically release funds once the necessary compliance checks are finalized.

Looking further ahead, he expects to see retail use cases develop too.

Using the same technology, banks will be able to offer customers programmable accounts where they can set up bill payments to occur only after they receive their paycheck.

Stablecoins vs. Smart Deposits

While programmability was first explored by decentralized finance protocols, Verdian doesn’t see stablecoins as competition to smart bank deposits.

“Stablecoins are just a binary push and pull,” he said. “They’re not truly programmable the way this is.”

Moreover, although he acknowledged that banks are increasingly interested in stablecoin use cases like remittances and international payroll solutions, he was skeptical of the notion that stablecoins could ever compete with fiat bank transfers for the vast majority of transactions.

After all, banks “can process the entire stablecoin market in about an hour,” and they can move money at a fraction of the cost, he noted.

Rather than adopting crypto payments en masse, Verdian said banks are looking to generate revenue through programmable services layered on top of existing infrastructure.

What About CBDC Concerns?

With programmable money transitioning from the experimental stage to real-world applications, critics have voiced concerns that the technology could enable government censorship or surveillance.

However, asked about political pushback against CBDCs, Verdian dismissed fears as largely unfounded.

“The data is encrypted. Central banks don’t care what sandwich you bought,” he said.

Moreover, Verdian predicted that the retail rollout of programmability won’t happen through central banks, but through commercial ones.

“What you’ll have is your current relationship with your bank, just with smarter money running it. That’s why the banking system exists—to deal with that front-facing relationship for business and consumers,” he emphasized.