Marc Andreessen first posited that software was eating the world, and indeed one industry after another has learned software mastery is essential to winning (and keeping) digital-centric consumers. But how will consumers react when money can also function like software?
These features could form the core of new business models and drive innovative benefits to consumers and businesses alike.
What if money were programmable?
When money and software collide, specific terms and conditions can be “bolted on” to money, dictating when it is available or how it is used. Essentially, you can set up rules for the movement of money that are enforced by the money itself. A grandparent, for example, could set up a self-executing expense account for a child that releases funds according to a specific schedule or achievement of a milestone (such as achieving certain grades in school), and even puts rules around where that money is spent.
Business model-breaking functionality?
This is all possible today, of course, but enforcement involves time-consuming administration and costly third parties. By attaching something called a smart contract to money, the cost of enforcement, which could include escrow agents, banks, brokers, and lawyers, is reduced to creating a few lines of code.
Entrepreneurs are already working to use blockchains and cryptocurrency to drive new features for both consumer and business to business transactions in a broad range of industries, including lending, title and escrow, rentals and real estate, insurance, philanthropy, and supply chains. One day, this functionality could enable us to tie a donation to a specific purchase by a charity, to rescind a loan or lock down an asset if a condition isn’t met, and to more safely share our assets with our community—all at low cost. We could weave data from Internet of Things (IoT) devices and sensors into our rules for how money moves. Remote locks could open only once a term is met, or we could require a certain temperature or speed to be maintained before we release funds (maybe we tie payment of a wine shipment to proof it’s shipped at a certain temperature or tie a teen’s allowance to the condition he doesn’t exceed the speed limit).
But what about the reputation problem?
Cryptocurrency entered our lexicon with the force and drama of a particularly pronounced hype cycle, attracting hucksters and sensational headlines. It worked its way into dinner table conversation and cocktail party banter. This brought a rapid increase in awareness, but also a reputation problem. Some businesses in the space even moved away from using the term.
But consumers appear to still be open to cryptocurrency. In their recently released Future of Money Study, Logica Research reported that more than a third of consumers (from a sample of 1,000 U.S. adults) believe they are somewhat to very likely to own cryptocurrency in five years, and that most (38%) believe it’s a currency like cash. These results are striking, given that cryptocurrency as a payment mechanism is not only very new and mysterious, but not yet functional for the average consumer. It is possible that all the attention on the space helped open minds, not close them.
The adoption of new payment mechanisms, so reliant on network effects, tends to move slowly. But the Logica Research study also found that consumers say they are more likely to pay in the future with something new that hasn’t been invented yet than they are to pay with Google Pay or Apple Pay. Could the rapid pace of digital innovation across consumers’ lives also be making them more receptive to innovation in the way they pay?
Lilah Koski, the CEO of Logica Research, clarifies, “All these newly introduced digital payment options have primed consumers to expect innovation. But their focus is not on the technology itself. They care about meaningful benefits. There’s a tremendous opportunity here for a payment method that provides features that consumers really care about—and clearly packages and communicates those benefits.”
Could the benefits of programmable money be powerful enough to sway the well-worn habits of hundreds of millions of consumers?
We’re only at the starting line
Consumer applications are just one aspect of this vision for new, more functional money. It is possible that we will see B2B players conduct the first at-scale experiments, bringing new features to cross-border supply chain payments, for example. But regardless, there is still an incredible amount of work to be done before this future becomes reality. Development teams wrangle a host of technical challenges and the legality of smart contracts is still in question. Even the key feature of automatic execution can be problematic, as smart contracts cannot be easily amended or terminated unless this is built into the code ahead of time.
Like any new technology, it will take time to bring this functionality to market. But there is great investment and enthusiasm in the blockchain community for this future. With consumers’ openness to payment innovation, the entrepreneurs that figure out how to truly infuse new benefits into money—and communicate these benefits in a way that inspires—could transform the way our world transacts.