Are we ready for programable money? 🖥️
In December 2022, The Free-Range Technologist is exploring Central Bank Digital Currencies.
Last week (More than 💵 ? Central Bank Digital Currencies), we looked at the essential ways that CBDCs might be used (retail and wholesale) and how money with a claim on a nation’s central bank might allow for governmental/economic transparency and more direct flow of funds to citizens (bypassing banking institutions).
Bitcoin was launched in 2009 and was the world’s first working digital currency. Bitcoin is analogous to cash:
It can be transferred between individuals.
The transactions are not reversible by one party.
Transactions don’t require permission from a central authority.
While digital, the blockchain ledger used for Bitcoin is not capable of logical operations commonly found in computer programs such as loops if-then statements, etc. Our colleagues in computer science would say that it is not Turing-complete. However, it didn’t take much time to fix that oversight.
Sidebar: What does it mean to be Turning-complete?
In September of 2015, Vitalik Buterin and others launched Ethereum, a Turing-complete blockchain.1 Ethereum allow the means of payment (coin know as Ether) to be combined with a smart contract. Ethereum and other turning complete blockchains have spawned all sorts of magical new transactions and assets, from Non-Fungible Tokens (NFTs) and smart contracts to Decentralized Autonomous Organizations (DAOs) and decentralized dispute resolution platforms.
Sidebar: What is a Smart Contract?
What is possible for CBDCs using a Turing-complete blockchain? Whatever can be imagined by a smart contract’s programmer or CBDC’s central bank.
Use it or lose it
The ability to distribute money as part of a smart contract could bring about even more efficiencies when cash is distributed in response to a financial crisis or catastrophic event.
For example, much of the stimulus funds distributed by the US government during the beginning of the Covid crisis were saved or invested rather than used to purchase goods. An airdropped CBDC on a Turing-complete blockchain might be programmed with an expiration date. If the funds were not spent within a given time, they could be locked up and made unusable or destroyed (in cryptocurrency, this process is referred to as “burning”). With programable money, investing in GameStop stock might have been a prohibited transaction, whereas rent or groceries payments could be easily transacted.
Such scenarios call into question the fungibility of future currencies and the abilities of a government to control microeconomics.
…..Next Week: Fusing Monetary and Social Policy
Continue the Conversation on Chat and Zoom
Can programable money lead to a more just and fair economy? What are your thoughts? Join in the subscriber chat below!
Join Live Zoom on Dec 28th at 12pm Noon CST
Robert Mowry and I will be on zoom to talk about about CBDCs, the past year and the future of crypto assets (and his recent interview with Sam Bankman Fried, below).
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The Ethereum networks was described by Buterin in a whitepaper the year before: “Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform.”