The Commonwealth Bank of Australia has participated in what the bank describes as a world first: A global transaction employing a ‘smart contract’ that uses a distributed ledger inspired by the design of Bitcoin’s blockchain.
The transaction involved US-based Brighann Cotton sending a shipment to Brighann Cotton Marketing Australia and leveraged Skuchain’s Brackets system. CBA and US bank Wells Fargo participated.
Skuchain says its system “automatically executes the flow of money based upon signals resulting from the flow of goods”. (Brackets stands for ‘Blockchain based Release of funds, that Are Conditionally Key-signed, and E Triggered by Signals’.)
CBA said the transaction mirrored a letter of credit, which is a bank-guaranteed transaction where a seller receives payment from a buyer once certain conditions have been met. In the case of the Brighann Cotton transaction, payment was triggered once the cotton shipment being in transit, with electronic sensors sending the signal to release the payment.
Possible advantages of the system include transparency, cost efficiency, convenience and security, the bank said.
“Existing trade finance processes are ripe for disruption and this proof of concept demonstrates how companies around the world could benefit from these emerging technologies,” said CBA’s Michael Eidel. Eidel is executive general manager of cash-flow and transaction services at the bank.
“We strive to stay at the forefront of disruptive technologies to understand how they can be used to enable greater efficiencies and solve the real world challenges our customers face.
The interplay between blockchain, smart contracts and the Internet of Things is a significant development towards revolutionising trade transactions that could deliver considerable benefits throughout the global supply chain.”
The Commonwealth Bank has been investigating the potential uses of blockchain technology in the banking sector for over a year now, including through its membership of the international R3 consortium.
Blockchain has “huge potential” the bank’s CIO, David Whiteing, said earlier this year.
The bank has run in the region of 25 “experiments” involving blockchain, including using Ripple to settle transfers between group subsidiaries, the IT executive told the told the annual conference of the Stockbrokers Association of Australia in June.
CBA is not the only Australian bank interested in the technology. And outside of the banks, the ASX has been working on a potential blockchain-based replacement for its CHESS system, which providers clearing and settlement services.
The operator of the Australian Securities Exchange has taken a stake in US company Digital Asset Holdings with an eye to potentially using technology inspired by the distributed ledger system.