This was published 8 years ago
By James Eyers
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Commonwealth Bank of Australia and 10 of the world's largest banks have used a blockchain to simulate trading with each other, says R3 CEV, which is managing a project to prove uses for distributed ledgers across financial markets.
R3 said its private, peer-to-peer distributed ledger allowed the 11 banks to exchange value using "tokenised" assets without the need for a centralised third party.
The R3 blockchain is underpinned by Ethereum technology and is hosted on a virtual private network in Microsoft Azure's Blockchain as a Service (BaaS).
The banks were: CBA, Barclays, BMO Financial Group, Credit Suisse, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit and Wells Fargo.
A blockchain is a distributed ledger, held securely on a linked network of computers that continuously maintain the records. It is the technology that underpins the virtual currency bitcoin. Blockchain has been a hot topic at this week's World Economic Forum meeting in Davos, Switzerland.
"Together with other developments in financial technology, distributed ledger modalities could portend important structural shifts in the financial industry," the International Monetary Fund said in a paper on virtual currencies released in Davos on Wednesday.
'Significant milestone'
R3 said the successful test "represents a significant milestone in collaboration for the R3 consortium and a major step forward for the application of distributed ledger technology across the entire industry".
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"The transition from vision and hypothesis to application and execution signifies the next major step towards using this technology to transform how institutions interact, report and trade with each other in financial markets," R3 chief executive David Rutter said.
Alex Batlin, senior innovation manager at UBS, said: "Proving the scale and peer-to-peer operation of blockchain experiments is an important next step in this transformational initiative.
"Through connecting 11 bank labs into a simulated real-world network, we're able to establish the platform we need to test our theories effectively in a safe environment."
Additional R3 blockchain projects will take place during 2016. Macquarie Bank, National Australia Bank and Westpac Banking Corp are also part of the R3 consortium, which has 43 global banks.
But CBA is the most advanced in testing blockchain applications. As well as participating in this latest trial, it has built a blockchain in its innovation lab in Sydney and sponsored the blockchain workshops arranged by Coala in Sydney in December.
At that event, CBA's chief information officer David Whiteing said blockchain technology could transform trade financing, share trading and many other parts of banking and the economy.
He also pointed to its potential to reduce costs for banks.
"It is clearly . . . faster, cheaper and more transparent than some of the existing practices we have today," he said.
The IMF said on Wednesday: "The potential widespread use of distributed ledger technology, [for example, the blockchain], could have consequences for a wide range of markets and financial market infrastructures, including stock exchanges, central securities depositories, securities settlement systems, or trade repositories."
It added that distributed ledgers had "the potential to change finance by reducing costs and allowing for deeper financial inclusion in the longer run", pointing to the potential for remittance costs to be cut, for securities settlement to be accelerated, and for counter-party and settlement risks to be reduced.
ASIC sees opportunities
Australian Securities and Investments Commission chairman Greg Medcraft told the Coala workshop in December the commission had "embraced" blockchain.
He also suggested federal Treasury would need to examine how Commonwealth legislation might need to be amended to provide for its use.
Mr Medcraft will be leading international regulatory discussions about blockchain in February in his capacity as chairman of the International Organisation of Securities Commissions (IOSCO).
IOSCO has established a blockchain taskforce and its board meeting in February will spend a day on the implications of blockchain on markets, clearing and settlements.
"It is important the regulators move quickly. Let's harvest the opportunity and mitigate the risk," Mr Medcraft said in December.
"Clearly this is moving very fast. I really see fantastic opportunities out of this . . . but it is a different style of thinking."
The US Federal Reserve has a team studying the technology. The Nasdaq stock exchange has begun using a blockchain, Nasdaq Linq, to manage shares in some private companies.
Regulators are examining blockchains to understand whether they will increase systemic risk, because they are threatening to replace systems whose centralised nature allows them to act as shock absorbers in a time of crisis, something that blockchains, as decentralised ledgers, cannot.
The IMF said on Wednesday that like most systems relying on cryptography, blockchains "are vulnerable to cryptographic risks".
"This said, most of the potential channels of transmission are at this stage not clearly understood, and somewhat hypothetical in nature. Nonetheless, regulators and supervisors will want to closely analyse and monitor developments in these areas."
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