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Programmable Payments and Money: The Future of finance

16 Sep 2022 By : Sudeep Saxena
Southeast Asia’s Lar

Key Takeaways

  • Programmable money is a digital form of money that can be programmed by the user to follow an inherent logic for a predefined purpose.

  • Programmable payments are automated payments generated by smart contracts or other distributed ledger technologies.

  • Programmable money can be used to automate business operations and ensure that money can only be used for the purposes for which it is intended.


The financial services industry is exploring the potential of blockchain technology. There have been significant conversations across a number of initiatives, including DeFi. Now, blockchain technology has emerged as an attractive payment system due to its exceptional transaction and settlement security, data integrity, record-keeping, and efficiency advantages.

"Programmable Money" and “Programmable Payments”  are popular terms in the blockchain industry. Even though you may have heard about automated payments in the current banking industry, the blockchain has taken it a step further with the introduction of programmable money. In this article, we will explore the concept of programmable money and programmable transactions and how they can be used as a part of the banking system.

What is Programmable Money?

Programmable money is digital money that can be programmed to behave in a specific way based on predetermined criteria. It can also be referred to as the automated form of money that can be programmed to have restrictions. It highlights the potential to give DLT-based tokens an inherent logic.

The programmability of money mainly relates to the smart contract's feature of specifying the characteristics of money. When money is printed on a distributed ledger, it becomes programmable, allowing us to design a token with built-in logic. For example, we can create this token so that its value fluctuates over time. As an alternative, we may make sure that this token can only be used to purchase specific items.

While the term "programmable money" may have originated in the public blockchain community, the notion does not have to include distributed ledger technology at all. There are numerous approaches to designing a technological system that provides a digital representation of money with an associated programming facility with an otherwise independent non-programmable digital money.

What is Programmable Payment?

Programmable payments are automated payments generated by smart contracts or other distributed ledger technologies. They are an innovative way to transmit money that provides functional benefits, enables new procedures, and supports new business models.

Programmable payments make it possible for an automated procedure to respond to real-time events. Payments are made under pre-programmed rules whenever requirements are satisfied, eliminating the need for human involvement to find, figure out, and verify the prerequisite circumstances.

Complex logic is difficult to include in these payments, which limits their flexibility. Smart contracts enable the integration of automatic payments into even the most complicated corporate operations.

Programmable money and transactions don't need to exist only with blockchain technology. For example, in the current banking system, programmable payments already exist in the form of standing orders and direct debits.Programmable transactions are automatic payments settled using either programmable (DLT-based) money or non-programmable money, even when they are initiated by DLT-based smart contracts. 

Programmable transaction execution with smart contracts

The execution starts with the initiation of a contract. The contract is built on distributed ledger technology (DLT), which implies that it is a smart contract. The environment in which contracts are put and executed is referred to as the "contract execution system." Such contracts, for example, can be executed by any business logic or business process. 

The pricing negotiation, charging procedure, and payment initiation are all part of the contract execution system since they are all implemented using smart contracts. At this point, the first component of smart contracts — programming capabilities — is in action. Providing these programming capabilities to transactions is one of the key features of the smart contract.

The next stage involves the creation of programmable money, i.e., imposing properties on the tokens like whitelisting or blacklisting of receivers, numbers' decimal places, and transaction size limitations. This payment infrastructure is critical for transaction programmability. When tokens can be traded for other tokens, such as tokenized assets or services, they reach their full potential. This allows for a smooth exchange with instant transaction completion, commonly known as "delivery vs. payment."

Finally, the monetary unit must be determined. Fiat money is the sole accessible monetary unit in traditional payment and settlement systems (i.e., EUR, USD, etc.). Assets with different denominations, like Bitcoin and Ether, can be traded on a DLT. Fiat money can also be transferred directly using tokens on a DLT in many ways- CBDCs and Fiat-pegged stablecoins are one of its few examples.

Future with Programmable Payments

Programmability aspects could provide several benefits, such as allowing new workflows, procedures, and digital business models without changing the currency's attributes.

For example, machine-to-machine payments have a lot of potential. Without any human involvement, driverless cars may deal with charging stations directly, pay for the power utilized, and then drive away.

Industrial machines might independently assess reliability problems, buy supplies when inventories are running low, and pay for repairs. Programmable payments increase the consistency and efficiency of corporate operations. Transactions that can be automatically settled can save a ton of money and time. 

For a wide range of stakeholders, the ability to schedule payments increases convenience and promotes efficiency. The outcome could be revolutionary, enabling significantly quicker transactions and alleviating a key liquidity issue for businesses.

The function of corporate administration is modified by this offering. Instead of relying on human monitoring, forecasting models, or next-day processing, payments will be based on precise, real-time occurrences. The financial industry will become a responsive, real-time, dynamic entity with programmable payments, enabling banking capabilities to be integrated naturally into corporate operations and overturning the conventional financial services system.

Furthermore, a DLT-based currency system can be utilised for novel business models based on tokenization. Micropayments might be carried out efficiently in this manner, which is presently not yet achievable with the current financial infrastructure. For these reasons, it is encouraging that financial institutions are considering tokenizing money to boost efficiency, minimise risks, and allow creative business models based on tokenization.

However, there is an operational risk associated with automation. Any vulnerabilities in the code of smart contracts can affect multiple users. Additionally, in a fully programmed environment, you can't take advantage of the weak as a competitor, and the powerful can further strengthen themselves.

Bottom Line

Programmable money unlocks a world of opportunities for businesses that want to automate their operations. Auxiliary payments can be made with the aid of programmable money, and control over the constraints programmed into the currency could ensure that this money can only be used for the purposes for which it is intended.

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