Programmable Money and Programmable Payments

Authors: Alexander Bechtel, Jonas Gross, Philipp Sandner, Victor von Wachter

“Programmable money” is, without doubt, one of the major buzzwords in the blockchain space in 2020. Even though everyone seems to talk about it, we still lack a clear definition and hence common understanding of this term. In this article, we present a taxonomy of programmable money. In particular, we argue that “programmable money” has to be differentiated from “programmable payments”. To make this distinction as clear as possible, we develop a framework in which we decompose the payments value chain into three pillars: the contract execution system, the digital payment infrastructure, and the monetary unit.

Programmable payments

The terms “programmable money” and “programmable payments” are often used interchangeably, even though they mean different things. Programmable payments are payments that are automatically executed after certain conditions are met. Thus, these payments are automated and follow an inherent, predetermined logic. Programmable payments already exist in today’s banking system, for example, in the form of standing orders and direct debits.

However, it is difficult to implement complex logic into these payments and hence their flexibility is limited. In this context, smart contracts based on distributed ledger technology (DLT) offer more degrees of freedom. With the help of smart contracts, even complex business processes can embed automated…