Goodbye dumb-money, welcome smart-money
Manuel Valadas Preto
Brace!! Smart money is coming.
Cash as we know it is a dumb lifeless thing. It can surely do intelligent or very stupid things, such as being lost or stolen, buy weapons, gamble, but mostly reflecting the intelligence of its owner. Electronic money, as the one in plastic cards or in electronic banking is slighter smarter. We can set automatic bank transfers, reverse charges, partial or credit payments and even set up conditional payments, e.g. depending on the balance of our account, price of a good or time of the month. In fact, it is not the money that has that certain degree of “intelligence “ but applications or systems to which we give control over our money.
Cryptomoney based on blockchain technology is quite different and finally we can have money that is really smart, i.e. that can take complex decisions and transfer itself to a specific account depending on external conditions or events and because is distributed and without any central controlling entity, more trustable. Ethereum was the first blockchain to claim its money, Ether, was smart, but now many others have this sort of smart-money. This type of cryptomoney can have attached a sort of smart-contract or any other type of blockchain programme that is set to take actions depending on the outcome of externalities. For instance, a betting system can set apart the cost of the bet which will be automatically paid to the side that wins it. An insurance contract can be set so that a claim is automatically paid in case of an accident, without the intervention of either the insurance company or the client. A logistic payment can be attached to a delivery contract where the money only is transferred when a certain good reaches a predefined destination. The money can be blocked in either the payment or payee side or in an independent wallet until certain conditions are met.
A big advantage of this type of smart-money is that it removes uncertainty and intermediaries and simplifies the payment decision to a blockchain written contract. Thus it will be less subjected to fraud, legal uncertainties and many other issues that increase the cost of most services. It also simplifies M2M (machine to machine) payments, e.g. a device downloading an upgrade or update or a home wind turbine being paid when it delivers extra electricity to the network and vice-versa. It can be quite useful for micropayments over Internet of Things as the costs of payments become negligible (including cost of fraud).
One of the implications (that some see as the main advantage of crypto smart-money), is that legal staff, such as layers used to write contracts, are replaced by programmers that write the conditions in blockchain language.
Smart-money will not be error free and much needs to happen until we can start using it with a peaceful mind. Examples such as the Ethereum crowdfunding DAO loophole that was exploited by attentive programmers to steal many million worth of ethers showed us how a mistake in a programme can be very costly. Of course, garbage in garbage out and smart-money is only as smart as the people programming it, But then again, dumb money can also be stolen and hackers attack dumb banks and their products all the time…
