As the arrival of the internet-of-things appliances in the average home is becoming more and more unignorable every day, we have to start thinking about the financial system and the money that will back them up.
If we individually pay for each of these appliances, it means a large chunk of our day will be spent making payments in our internet-of-things future.
The traditional financial system would not be of much assistance. Banks are capable of processing transactions quickly. Intermediaries will compel our appliances to honor and execute commitments by using the legal system as a backstop.
When it comes to payments that are dependent on the delivery of a good, service, or asset, however, current technologies would be overwhelmed as everything becomes linked.
That’s where smart money, also known as programmable money, comes in. Lines of cryptographic code running on a distributed ledger technology like the Ethereum blockchain would determine the appropriate payment sum and provide conditions for a value transfer from one party to another.
These capabilities will be built into the money itself, and we won’t have to look far to find out who will make it available to us.
Some central banks are concerned about the increasing influence of cryptocurrencies such as Bitcoin, while others are concerned about the growing market power of e-commerce and payments companies that have access to billions of transactions’ data. Another driving force is the rivalry between the United States and China for global financial supremacy. In the midst of it all, perplexed users wonder, “What’s in it for me?”
The short response is to look in your future vehicle. When one internet-enabled computer pays another without having to ask us for permission every time, the true usefulness of a central bank digital currency will be very visible.
Money that can be programmed can make life easier. In a study published by the Bundesbank working group, nine possible use cases were examined, ranging from cross-border remittances, and machine-to-machine transactions.
Traditional finance may be able to meet the challenge in some cases by incorporating blockchain-based smart contracts into its workflow. Cryptocurrencies may also be used for this purpose, but they are “unsuitable in practice due to volatility, restricted interoperability, and legal certainty concerns,” according to the report.
As a result, central banks could find it more realistic to make their digital currencies smart. The programming can be done by the private sector. The money we placed in the car’s pocket will cover the costs of gas, parking, and tolls. The app on the refrigerator could subtract an item that the online grocery store failed to deliver and pay the remainder of the bill without disrupting the delivery. Sounds good, right?