Everyone seems to be interested in programmable money (and assets), but what exactly does this mean? This post explores the concept of programmable money – what is possible today, and what is possible with the help of smart contracts on blockchains.
Is it automated payments?
- If I click on “make a payment” in my bank’s online banking website, and the bank’s computers move the money, is this programmable money?
- If I run an app on my computer which does some stuff then logs in to my bank’s online banking website and clicks on “make a payment”, is this programmable money?
- What if my program does the same thing using the bank’s API?
It feels like simply instructing a bank to make a payment doesn’t count as programmable money, whether that instruction comes from a human or a computer program. Here’s a primer on how payments are made today.
This means that programmable money can’t just be the ability to write arbitrary code that can move money. Even if it includes complex business logic and external data as part of the decision making. Because businesses already do this today: payment instructions sent to banks typically come from computer programs running on corporate servers.
So is it more to do with automation of payments at the bank’s side (as opposed to on the customer’s side)?
- If I instruct my bank to make an automated monthly payment of $4,000 to my landlord, is that programmable money?
- If I authorise a utilities provider (eg electricity, gas, phone etc) to take different amounts of money from my bank account every month, is that programmable money?
- What about if I upload a file to my bank to pay 350 staff their monthly salary, is that programmability? (This is how payroll works; you don’t usually have someone manually typing in each and every payment)
Well, we have all of this already. Banks already perform client-instructed automated tasks, with rudimentary if/then logic:
IF it's the first day of the month THEN pay rent UNLESS I don't have enough money THEN don't make the payment AND send a notification AND charge a fee.
If banks saw demand, I suppose they could let you upload code, and they would run the code, and they would treat the result of the code as a payment instruction from you. But the result is no different to if you ran your own code then instructed the bank, as discussed earlier. And this would create liability headaches for the banks if and when the code goes wrong…
If not automated payments then what?
Well, in each of the above cases, of course the bank could actually hold back the payment, even after they have received the payment instruction. (And in many cases they are required by regulators to not tell customers why they have withheld the payment!)
So you are not guaranteed that the payment will work end to end.
Does programmable money mean that no matter what, the code’s instructions will be carried out, and no bank or intermediary can stop it?
If that’s the aim, then this can only happen if customers can hold and control money (or something representing money) outside of the banking system.
Stablecoins, on a public or permissioned ledger, get us closer. You can upload programs called smart contracts that are guaranteed to run. But even these smart contracts result in an instruction to the smart contract that defines the money. And the smart contract that defines the money can decide not to make the payment, for example if the payment instruction is to a blacklisted account.
It’s designer money
I think then the answer is designer money. Money that is created by someone – an issuer – that behaves a certain way, and has certain constraints no matter who “owns” it at any point in time.
Banks can’t do this, because money in banks is all different. My USD at Citibank is different to your USD at JP Morgan. It’s different in two ways:
- My Citibank-dollars are controlled by Citibank, and your JP Morgan-dollars are controlled by JP Morgan. This means if the money should behave a certain way, both banks have to implement exactly the same logic and constraints.
- My Citibank-dollars are legally, and practically, a different instrument to your JP Morgan-dollars. My Citibank-dollars are a legal agreement that Citibank owes me dollars; your JP Morgan-dollars are a legal agreement that JP Morgan owes you dollars.
The result is that money, controlled by all of these different entities, is all different and behaves in different ways. Think how hard it is to implement anti-money-laundering rules across the board. Every participant has to attempt to apply the same logic. Every. Single. Participant. No wonder it’s ridiculously expensive, and has many gaps.
Why is this the case? It’s because there is no ledger for money that can be referenced to while transactions are made.
- Money that was intended for some specific thing ends up somewhere else (corruption).
- Loans can be spent on items other than what the borrower told their lender they would use it for (fraud).
- Grants can be used to pay for things the grant was not intended for (misuse, corruption, or fraud).
Benefits of designer money
Now you can create money where the money itself has control logic built into it. This is done at the smart contract level. A smart contract is typically a bunch of code that is run by all participants in a blockchain network. It that defines:
- The characteristics of the money (how many units there are, who initially owns it, etc)
- How users can interact with the money (ask for a balance, make a payment, etc).
The constraints are coded into the second part of the smart contract, so that all payment requests are subject to those constraints – no matter who is in control of the money at the time.
In this way, money can only go to intended destinations. Once this special purpose money has arrived at the destination, it can be “redeemed” for general purpose money, if needed. (As analogy, think about how food stamps work)
You can create certain types of money that can’t be sent without additional data, eg proof that the payment is to support an export or import.
You can even put constraints on wallet balances or money flows. For example a recipient’s balance can’t exceed $2,500, or any payment can only be made up to $50, or any account can only send or receive a total of $1,500 per day, or whatever.
With designer money, the possibilities are practically endless. Yes, special purpose money reduces the ‘fungability’ of money, but that’s the point. There are so many cases today where money has special uses and should not be fungible with general purpose money, but the current system messes this up.
During Covid-19, governments are experimenting with grants that should only be spent in certain ways. Blockchains provide a platform for building designer money in a repeatable and scalable way.
What do you think? What’s your definition of programmable money?
Note: Special thanks to Henning Diedrich, author of “Ethereum: Blockchains, Digital Assets, Smart Contracts, Decentralized Autonomous Organizations” for feedback and inputs on this piece.
Cardano Price Analysis: 17 May
At a time when other altcoins were stumbling, Cardano [ADA] witnessed significant growth. Although the price of the digital asset mirrored the correction in the Bitcoin market, the overall market still seemed to hold on to a high value.
At the time of press, ADA had lost 12% of its value since the peak and was currently being traded at $2.14 with a market capitalization of $69.31 billion.
Cardano hourly chart
The above chart of Cardano shows the drops seen by the markets recently. Although the price dropped from a peak of $2.47, it has now managed to hold on to $2.13. Though the overall market looked strong, short-term indicators predicted a correction.
As the price traded right above the support at $2.10, a fall could push it under the level and close to the next immediate support at $2.02.
ADA market unlike many other altcoins markets was showing reduced volatility. Convergence of Bollinger bands was indicative of this trend. The signal line was moving lower, tracing the movement of the candlesticks.
As the price remained above the current support for a long time, there were chances that the price would breach support. The relative strength index was noting that selling pressure which was maintained close to 50 was now heading towards the oversold zone. The rise in selling pressure could push the price lower; however, Chaikin money flow suggested that the money that was leaving the market was now coming back in.
Take profit: $2.01
Stop level: $2.16
Risk to Reward: 1.04
The current Cardano market was suggesting that the consolidating price might be looking to correct again. The indicators were suggesting a rise in selling pressure, which could result in another fall. However, the buying pressure could result in a trend reversal as the CMF highlighted money entering the ADA market.
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Legacy Records, The First Record Label Paying Music Artists In Crypto
From painters to digital artists to musicians, crypto continues to find integration across artistic mediums. Music continues to be a field that is ripe for revitalization, from a business standpoint. Accordingly, a number of different musicians have been releasing songs and albums as NFTs. Now, we have what’s being reported as the first official record label looking to get involved. The label looks to have artists join the ranks of other musicians getting involved in crypto.
In a press release issued to start this week, Legacy Records CEO Keishia McLeod said it came down to “either get involved or get left behind”. McLeod cited unique income stream opportunities for artists and closed by saying that “this is the future, not a trend”. McLeod has stated previously her intent to drive the label to be at the forefront of leveraging emerging technology in music.
There are two major buckets contributing to Legacy’s approach. The first is the most notable, as the label will become the first to offer artists an opportunity to receive their advance and royalty payments in the form of crypto. The second is to engage artists with NFTs, allowing fans to participate in auctions for unique content. The label’s specific plans around NFTs, and number of artists seeking to get paid in crypto, have not yet been disclosed.
As the crypto market grows, both artists and businesses are getting involved | Source: CRYPTOCAP-TOTAL on TradingView.com
Legacy Music’s Broader Business Growth
Las Vegas-based Legacy Records, not to be confused with Sony’s Legacy Recordings, will look to take advantage of the potential press buzz from the announcement. However, in tandem with the release, the label also announced a to-be-name music distributor who has also agreed to pay Legacy Records artists in bitcoin. The label also merged with New Jersey entertainment lawyer Navarro Gray’s ‘The Gray Firm’, to provide legal guidance around digital execution.
McLeod has noted previously that the label has desired being a mainstay in revolutionizing the way music artists do business. In a January interview with the LA Tribune, McLeod cited Netflix’s impact on the film industry, adding that “we haven’t seen that yet in this industry, but it’s coming. We’re going to be a large part of making that happen”.
Related Reading | Reviewing Topps MLB’s First Swing At NFT Tech
Music Artists Emerging Into Crypto
Legacy’s roster has the potential to join a growing list of music artists that continue to engage with crypto and NFTs. Last month, we wrote about long-time hip-hop artist Eminem partnering with Nifty Gateway to release original instrumental beats. Saturday Night Live promptly had a sketch explaining the digital collectibles parodying Eminem’s “Without Me”.
Other musicians engaging with NFTs include DJ Premier, 3LAU, The Weeknd, Linkin Park’s Mike Shinoda, and more.
Each week, our team recaps the week’s NFT action with ‘NFTs In A Nutshell‘ – covering everything NFT, from sport, music, and more.
Featured image from Pixabay, Charts from TradingView.com
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XRP, Dogecoin, Chainlink Price Analysis: 17 May
Dogecoin required to counter bearish conditions before a jump above $0.569 resistance. Lastly, Chainlink needed to push above $45.5 to trigger a bullish comeback after a descending triangle breakdown.
Gains made over the last three days were impressive especially considering a bearish broader market, but sellers returned at $1.52-resistance. At press time, the cryptocurrency traded within the channel $1.52-$1.31 and reflected a degree of equilibrium between the buyers and sellers. For those hoping to make profits from a volatile XRP market, ADX’s movement dimmed expectations. Since mid-April, ADX has been on a steady decline and a period of consolidation seemed likely.
RSI hovered in the neutral territory around 50. A symmetrical triangle awaited a breakout to the upside and the Fibonacci tool presented a few target levels above the 200% extension level north of $3 (not shown).
On the daily timeframe, Dogecoin showed some sideways movement as bulls prepared for the next upswing. The channel between $0.523 and $0.373 was bolstered by the 20-SMA (blue) and formed a reliable buy zone should another dip occur.
As mentioned earlier, breaking above $0.569 resistance could trigger another rally in the DOGE market. Steering clear of $0.73-resistance would heighten the chances of DOGE touching $1. However, bearish conditions still presided and had to be countered first before any talks of an upswing. Awesome Oscillator noted bearish pressure after a series of red bars. MACD line remained below the Signal line but a bullish crossover could signal the onset of an uptrend.
Chainlink broke south from a descending triangle and a single candlewick dropped as low as $35.1- representing losses of 14% from the bottom trendline. Now below its 50-SMA (yellow) on the daily timeframe, bearish sentiment could lead to another sell-off towards $31 for LINK. On the other hand, some buying volume was noted on the 4-hour timeframe. A pickup in volumes and buying pressure could lead to a resurgence above $45.5 and this would likely push LINK beyond $50. A broader market recovery could act as a catalyst for such a price swing.
Meanwhile, RSI’s lower highs confirmed weakness after LINK formed a peak at $52.9. Even though Chaikin Money Flow dipped over the past couple of days, the index was still well above the half-line as capital inflows outmatched outflows.
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