The World Bank has ordered the issuance of a blockchain bond through the Commonwealth Bank of Australia (CBA), which is a "world first."
This marks that some of the world's most influential financial institutions have begun to use blockchain technology to improve their products.
The Commonwealth Bank of Australia has developed a blockchain-based system using the private Ethereum blockchain. The new debt instrument (Blockchain Offered New Debt Instrment, bond-i) provided by the blockchain will be issued by the World Bank in Washington.
The project is led by the World Bank, which is seeking to use blockchain technology to improve its way of issuing bonds around the world.
Today, we made history by creating the first global blockchain bond. The World Bank has authorized the Commonwealth Bank of Australia as the sole arranger of bond-i, which is the first global bond using distributed ledger technology.
——World Bank Finance Department August 9, 2018
The agency issues approximately $60 billion in bonds each year for sustainable development. The World Bank stated that this move aims to explore the use of blockchain technology in different businesses.
bond-i is specially designed and developed by the Innovation Lab's Blockchain Centre for Excellence (Innovation Lab's Blockchain Centre for Excellence) of the Commonwealth Bank of Australia. The department previously tested a bond prototype on the blockchain in cooperation with the Queensland Ministry of Finance in 2017.
Although this may be the first bond issued through blockchain technology, it is not the first debt instrument. The Spanish Banking Group (BBVA) signed a $117 million blockchain loan in July, and it hopes to take advantage of the transparency and traceability provided by the contract. Prior to this in April, the bank also conducted the first "global corporate loan transaction."
A little regretIt is very exciting to use the private Ethereum blockchain to allow the creation and management of bonds.
The development team used a law firm to provide legal advisory services for bond issuance on the platform and provide advice on the smart contract legal framework for managing bonds.
In addition, Microsoft conducted a separate review of the platform in terms of architecture, security, and resiliency, thereby adding credibility to the entire project.
The Commonwealth Bank of Australia stated that it is also willing to explore the use of other blockchain platforms, and that the Ethereum protocol provides the functions needed to power the project.
Matthew Di Ferrante, an independent developer working for the Ethereum Foundation, told Cointelegragh that this move is the first step in the use of the banking industry and its blockchain applications.
I think this is a good example. Financial instruments like bonds are easily transplanted to blockchain and smart contracts, but even for mainstream financial institutions, it is not everything. When many different institutions and industries are using "compatible" blockchains, something really useful will appear.
Although this move is undoubtedly a step in the right direction, Di Ferrante pointed out one of the main principles of blockchain technology-decentralization. This is a factor that may be missing from the project, which will remove transparency from it:
I am very happy to see that the system already established by the Commonwealth Bank of Australia seems to be jointly managed by the World Bank and given it a certain degree of decentralization in this case, but I prefer to see transparent and distributed projects, even if it is for Projects of private blockchain services.
Blockchain and cryptocurrencyThe World Bank and the Commonwealth Bank of Australia are actively using blockchain technology, but they are not involved in cryptocurrency at all. To be fair, mainstream financial institutions even distinguish between cryptocurrency and blockchain, the former being seen as an unnecessary by-product of the technology.
When the use and accessibility of cryptocurrencies are equivalent to digital vouchers, the true standard for measuring the adoption of cryptocurrencies will be obvious. At present, many financial institutions are praising the advantages of blockchain while maintaining an indifferent attitude towards cryptocurrencies.
Jamie Dimon, CEO of JP Morgan Chase, is a typical example. He made it clear that JPMorgan Chase will use blockchain technology in multiple projects. They even applied for patents for p2p and blockchain systems to facilitate the payment process between banks.
On the contrary, JPMorgan Chase told the US Securities and Exchange Commission (SEC) in February this year that cryptocurrency is a kind of "competition" and "dangerous" for their business. This may be a prime example of the indifference towards cryptocurrencies that still prevail in the financial world.
Why choose Commonwealth Bank of Australia and Australia?
It is not clear why the World Bank chose Commonwealth Bank of Australia as the pioneer in this project, but the Bank of Australia Blockchain Center of Excellence appears to be a factor.
As mentioned above, the Commonwealth Bank of Australia’s Innovation Lab was responsible for an early prototype of a blockchain-based bond, which may have some influence on why the Commonwealth Bank of Australia was selected to participate in the development.
In July of this year, the bank completed the trade of almonds from Australia to Germany through the sending and tracking of the blockchain platform.
The platform uses blockchain, Internet of Things (IoT) and smart contracts to provide a lot of information for the transportation of 17 tons of nuts.
The Commonwealth Bank of Australia stated that the platform is geared towards the three areas of global trade, operations, records and finance. Users can access container information, task tracking and documents through the blockchain platform.
In an interview with Cointelegraph, Nicholas Merten, the founder of the Datadash channel on Youtube, said that the Commonwealth Bank of Australia has put Australia in a leading position in promoting blockchain adoption:
Australia has an intriguing solution to this problem. As banks are hesitant to cryptocurrency, and the Commonwealth Bank of Australia is very eager to explore blockchain technology, they have shown a clear attitude of acting as the gatekeeper of this technology in real-world applications.
A more serious issue deserves attention. The Commonwealth Bank of Australia has become the focus of attention due to suspected violations of anti-money laundering laws and terrorist financing.
Are there any signs?This move by the World Bank will not be ignored by other financial industry leaders. Of course, this is not the first time we have heard of financial institutions wanting to use blockchain technology to improve their products.
As previously reported by Cointelegraph, some major global banks have been paying close attention to the blockchain field, as discussed at the Money20/20 conference in June.
MarTIn Etheridge, head of the Bank of England's financial technology department, made it clear that the bank is not actively developing its own DLT, but admitted that they are aware of its potential advantages:
We recognize that there is a potential for resilience in a distributed system, and the other benefit of a distributed payment system is that we want to make sure that we are aware of it and fully integrate it into our current work on our own infrastructure.
One of the most confusing questions is why the World Bank chose the Commonwealth Bank of Australia as the issuer of this blockchain-based bond instead of a country like Switzerland that is the most liberal in adopting cryptocurrencies.
The country’s banking system has been challenged by an initiative aimed at abolishing the fractional reserve banking system. Although the referendum on this initiative was finally rejected in June, it provided a lot of thinking.
Switzerland has supported the use of Bitcoin for some time. But Thomas Moser of the Swiss National Bank emphasized the country's indifference to cryptocurrencies:
Switzerland is very keen on encryption technology. Our national railway system has turned ticketing machines into Bitcoin ATMs. At every train station in Switzerland, you can put cash in a ticket vending machine and deposit it in your Bitcoin wallet. So far, cryptocurrencies have been well tolerated in Switzerland.
At the same meeting, most of the heads of these banks believed that cryptocurrencies would not challenge traditional fiat currencies. However, a powerful theme emerged: if people lose confidence in traditional currencies and banks, then cryptocurrencies can provide another option.
As Moser said, this initiative by the World Bank and Commonwealth Bank of Australia demonstrates the impact of blockchain technology on financial applications:
With outdated legacy systems still clogging the financial industry, this development may sound alarm bells, allowing banks to realize how important this technology is. I think many organizations are still looking for killer applications that their systems can use. In the world without permission, we have found the corresponding application-currency. But once a company can prove that blockchain can be used in a private environment and drastically reduce costs, then companies will rush to follow suit.
As the World Bank has made considerable progress in using blockchain technology to reform the existing system, is it only a matter of time before other large banks follow suit?
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