Commonwealth Bank of Australia (ASX: CBA) might be leading the pack when it comes to blockchain technology in Australia.
For example, CBA was selected by the World Bank earlier this year to issue the first “blockchain bond”.
In 2016, the first global trade transaction between two autonomous banks was effectively finished by CBA and the US-based bank Wells Fargo (NYSE: WFC) via blockchain.
What Is Blockchain?
The term “blockchain technology” uses public key encryption and proof of work methods to securely transfer ownership of units. It is typically a transparent and trustworthy publicly accessible ledger which is not controlled by any central authority such as a bank, corporation or government, as the technology uses decentralised consensus to maintain the network. As the network grows larger day-by-day, it becomes more decentralised and secure.
Blockchain technology can be utilised in a variety of industries including financial services, charities and nonprofits, the arts, and e-commerce.
How Has Commonwealth Bank Used The Technology?
Commonwealth Bank has a dedicated blockchain team that is tasked with research into the impact of blockchain technology on the trade and commodities industries. To date, the team has completed numerous experiments spanning across debt capital markets, trade and commodities, and smart money.
The first of these experiments begun in late 2017, where, in partnership with a major commodities player, CBA tested a blockchain platform to combine inventory management and trading. The aim of this experiment was to enable counterparties to rapidly agree to financing terms and instantly transfer commodity ownership. As stated on CBA’s website, “while it usually takes days to negotiate, agree, confirm, amend asset ownership, sanction check, and settle, transactions on this platform took just 4 minutes.”
Here are some other ways CBA has worked with blockchain technologies.
Project Bond – i
Commonwealth Bank and World Bank partnered together with the aim of providing a trusted view of real-time information happening across markets. To successfully complete a secondary transaction with trading activity recorded on a distributed ledger, Project Bond – i was undertaken.
Bond – i was supported by four ‘nodes’, among which two of them were run by World Bank in Washington, while two were run by Commonwealth Bank in Sydney. With this, term sheets could be issued and be instantly visible to investors, who could then bid directly through the platform and the issuer could issue debt in real time. This would provide access to bonds at a click of a button for investors and make the process streamlined, easy to use and intuitive for issuers. This concept will contribute to providing access to global capital markets with transparency.
Sophie Gilder, Head of Experimentation & Commercialisation at CBA Innovation Labs said, “since issuing bond-i in August last year, the positive feedback and interest from the technology and financial sector community globally has been extraordinary.”
Trade Chain Experiment
Commonwealth Bank finances and manages 65,000 raw materials every day. Its Trade Chain transaction focussed on the relationship between the bank, clients and warehouses.
Seventeen tonnes of almonds have successfully been shipped and tracked from Sunraysia in Victoria, Australia, to Hamburg in Germany in a blockchain-based collaboration between Commonwealth Bank and five Australian and international supply chain leaders. CBA demonstrated its new blockchain platform, underpinned by distributed ledger technology, smart contracts and the internet of things (IoT) could facilitate the trade experiment by tracking the shipment from packer to end delivery.
The platform improves the process of getting goods from A to B by increasing transparency, efficiency and coordination between different parties. This would help to make agile decisions and cost reductions throughout the supply chain.
Smart Money
The scope for application is blockchain technology is huge. Blockchain could change the way Australians manage their household budgets, hunt for bargains and even control their diets, according to ‘Making Money Smart’, a report released by the Commonwealth Bank and CSIRO’s Data61.
For example, an individual might choose to set expenditure boundaries on certain categories such as entertainment or eating out. The blockchain could record expenditure transactions as they happen or provide a gentle reminder when an expenditure threshold is reached.
The concept of smart money, or programmable money, involves setting certain conditions so that the money knows what it can be spent on, when, and by whom — just by using a mobile app. Smart money could make customers and third parties more transparent and thus boost confidence.
In partnership with CSIRO’s Data61, a trial on the participants of the National Disability Insurance Scheme (NDIS) was conducted. NDIS plans include several budgets, the smart trial app converted these budgets into blockchain tokens. Tokens would automatically know whether they have been spent, if they are committed to future services or available for new bookings. This system makes the token ‘smart’ by attaching smart contracts which restrict who they can be spent by, what services they could be spent on and who is eligible to deliver these services. It gives higher visibility of the price of services. Basically, it makes NDIS easy for disabled individuals.
Why Does Blockchain Matter?
When it comes to funding assets, paper procedures, various communications and confirmations, manual inputs are prevalent pain points. Replacing this with a streamlined digital method allows for transactions that are transparent, quicker and more precise.
Moreover, it is possible to avoid counterfeit products, as businesses can provide the consumer with a full history of the item, from the production line to buying, thus giving assurance of authenticity. For CBA, transactions could be linked safely to individual assets, preventing clients from funding fraudulent activities.
Reduced management makes the method more effective and seamless for clients.
Final View
In recent times, CBA has been in the headlines for all the wrong reasons. However, this time around it seems to be for the right reasons. Blockchain is the upcoming disruptive technology in the financial industry and CBA appears to equip itself well in advance with the correct weapons for the fight. Commonwealth Bank’s Innovation Lab has taken a leadership role in exploring the potential applications of blockchain technology.
For an investor, the use of blockchain technology would open up various new opportunities and make life much easier.
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Disclosure: At the time publishing, Shoumik does not have a financial interest in any of the companies mentioned.
