The Commonwealth Bank of Australia (CBA) is expecting to be the first to implement the issuance of a bond on the blockchain, and hopes to launch it into the market early next year with help from a "very large" world issuer.
Although the details are limited, the bank's head of blockchain Sophie Gilder told the GMIC Sydney conference on Tuesday that the launch will be the culmination of CBA investing in the possibility of a single transaction that has the asset moving, and the payment for that asset secured, within the blockchain.
"We're particularly interested in that in financial markets in equities, bonds, syndicated loans, many other applications where we currently have markets that have a lot of friction -- they currently don't work well," she said.
"We think the platform we have built can make this more efficient."
CBA has been looking into the possibilities of blockchain technology for over four years, with Gilder noting that CBA recognised early on that the technology presented both a significant opportunity and also a threat for the financial services industry.
With a focus on how blockchain and other emerging technologies will impact finance in the future, Gilder and her teams headed into experimentation.
Blockchain, and in particular Bitcoin, is the subject of an enormous amount of hype, Gilder said, adding that she wanted to peel back that hype and understand what the technology can do well and what its limitations are.
"We took a very practical approach and started with experiments, and we've now completed 25 proof of concepts or experiments applying blockchain technology and other emerging technologies to real-world business problems," she said.
Blockchain, however, is just one part of the overall piece for CBA, with artificial intelligence, the Internet of Things (IoT), robotics, quantum computing, and biometrics also on the bank's radar.
"Blockchain itself is not a complete solution; it's one very interesting module which can enable us to do business in very different ways to how we do it today," Gilder explained.
There's a growing realisation that blockchain is actually widely applicable to many industries, even beyond financial services, with digital cash only one use for the technology. IBM is currently using blockchain to conduct, manage, and track transactions in the shipping supply chain, and more specifically to help prevent contamination in the global food supply chain.
"Blockchain's secure, shared database is really a foundational breakthrough," Gilder said. "The ability to build decentralised networks that have consistent data without being controlled by a single entity is a paradigm shift. What it really means is that it can enable distributed computing for the first time."
With the idea that blockchain is one of many emerging technologies that provide endless possibilities, Gilder offered up the concept of a blockchain mesh.
"If we can incorporate IoT and AI on 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 that we're living in, and then connect these elements through a secure, synchronised blockchain network -- this will deliver more efficient ways of getting through our lives on a daily basis," she said.
CBA is also exploring the use of blockchain with cybersecurity.
"Blockchain technology has an inherent link to cybersecurity; it is really the culmination of decades of research and breakthroughs in cryptography and security that has led to blockchain technology being possible," she explained.
"Whilst Bitcoin has experienced significant volatility in value, and it will continue to do so, the blockchain underpinnings have withstood, so far successfully, cyber attacks for almost nine years.
"We think that this is a structure for addressing the risk of cybersecurity threats in the future."
The bank is still eyeing possibilities from a finance perspective, however, with Gilder unimpressed by the way money is still transferred in 2017.
She said that physical cash is not ideal for large transactions, especially if the recipient is on the other side of the country, and that even with a technology upgrade thanks to the introduction of the Reserve Bank of Australia's New Payments Platform making it more efficient to transact, the practice of moving money still has its limitations.
"As soon as I try to move money offshore, it becomes phenomenally inefficient as we're using cutting-edge 1973 technology to move money around the globe," Gilder said. "It's really not fit for purpose in today's global economy.
"Blockchain can allow you to transfer value peer-to-peer within seconds or minutes, depending on which network or protocol."
The most valuable aspect to Gilder is that it can be programmed.
With a digital token that can be transferred on the blockchain, the user can add terms and conditions to it, such as being given $1 with the instruction that it cannot be spent until Friday through a certain merchant, embedded in the code.
But to Gilder and CBA, the possibilities move beyond transferring money, as tokens on the blockchain can represent any type of value. It could be, for example, frequent flyer or loyalty points.
She also noted the possibility of voting tokens, licence tokens, and e-titles such as the title to a house or car.
"In the future, I can see not just payments on the blockchain, but more broadly peer-to-peer programmable value transfer powered by blockchain," she added.
PREVIOUS AND RELATED COVERAGE
The first interbank trade transaction combining blockchain technology, smart contracts, and the Internet of Things has been executed by Commonwealth Bank, Wells Fargo, and Brighann Cotton.
Gartner has highlighted that curiosity is keeping the sector aware of the technology, but risk aversion is stopping it from being an investment priority.
The bank is taking the more responsible path and getting its ducks in line before investing further in blockchain-based technology.
The Australian banking giant is one of 22 new additions to SWIFT's blockchain proof of concept being built with input from ANZ Bank.
The trial saw ANZ and Westpac, in partnership with IBM and shopping centre operator Scentre Group, digitise the bank guarantee process used for commercial property leasing using the blockchain.
With the emergence of blockchain potentially requiring the government to find other means of tracing the income and assets of organisations and individuals, a House of Representatives committee has toyed with the idea of the ATO heading down the distributed ledger path.
Cheat sheet: Blockchain (TechRepublic)
This comprehensive guide covers everything you need to know about the innovative blockchain technology that powers Bitcoin, Litecoin, and other cryptocurrencies.