While Australian regulators grapple with how to best manage the legalities surrounding blockchain tech, financial services giant Commonwealth Bank of Australia is preparing to launch what it claims will be a “world first” issuance of a bond on blockchain in 2018.
Commonwealth Bank head of blockchain Sophie Gilder claimed the launch would be a starting point to eliminating friction that currently exists in financial markets.
“We’re particularly interested in the financial markets, in equities, in bonds, syndicated loans, and many other applications where we currently have markets which have a lot of friction, that don’t work well,” Ms Gilder told the Global Mobile Internet Conference in Sydney on Tuesday.
The launch comes off the back of the bank’s exploration of blockchain over nearly five years. CBA has completed more than 25 proof of concept applications to see how blockchain tech could help solve real-world business problems.
“We recognised early blockchain was both a significant opportunity, but also a threat for the bank. We wanted to understand very well the technology in order to maximise opportunities, and also to minimise threats of this particularly technology,” said Ms Gilder.
One of the 25 proof-of-concepts included trialling the first government bond with the Queensland Treasury Corporation (QTC) earlier this year. It saw QTC use blockchain to generate a bond tender, view investor bids in real time, finalise investment allocation and settle instantly with investors.
“In the capital market space – one that is interesting to us at the moment – we assist large companies to raise debt by helping them to issue bonds,” Ms Gilder said.
“For the bond market today, it’s relatively inefficient. There are many intermediaries in the middle, and there’s a lot of time cost and error. We decided to look at how blockchain could change this market.
“We started with a completely blank sheet of paper and worked with our team to build a new issuance platform, so a completely new infrastructure, based on blockchain, could enable companies to issue bonds directly to investors and then trade it in the secondary market.”
Other potential use cases of blockchain, according to Ms Gilder, include allowing peer-to-peer transactions such as the transfer of funds offshore to occur within minutes or seconds, instead of days, or even issuing automatic smart contracts.
“You could use a self-executing bit of code that you can set on autopilot, set terms and conditions of the contract, so that when they are met another event is triggered,” she said.
“This is interesting for banks because many of the actions we undertake are repetitive and manual and error-ridden, because humans are not very good at doing repetitive tasks. We make mistakes.”
Beyond payment transfers, Ms Gilder believes there’s the opportunity to use blockchain to digitise the transfer of physical assets, such as a title to a car or house, which can be represented on e-titles; loyalty points; or votes as part of a government election.
“It breaks down the paradigm we deal with today. In the future I see we can do not just payments on blockchain like we do with bitcoin but more broadly, such as peer-to-peer programmable value transfer, powered by blockchain,” she said.
Ms Gilder also addressed the issue of cybersecurity in relation to blockchain, which has been key a concern for many in the market.
“Whilst bitcoin experiences volatility in value and it will continue to do so, the blockchain underpinning it has withstood so far successfully cyberattacks for more than eight years,” she said.
“Blockchain is replicated across many nodes. There is no single point of failure. We think this is a very interesting structure in addressing the risk of cybersecurity threats in the future.”
Blockchain, however, is only one form of technology that Commonwealth Bank is placing its bets on. The others include artificial intelligence, the Internet of Things, robotics, quantum computing, and biometrics
“If we can incorporate the Internet of Things, artificial intelligence and a blockchain mesh, what we can do in the future is link the physical with the digital, make machines learn and respond to the world we’re living in, and then connect these elements through a secure, synchronised blockchain network,” said Ms Gilder.
“This will deliver more efficient ways of getting through our daily lives and business.”
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