Commonwealth Bank of Australia begins blockchain trial to speed up transactions

Rage Review : The Commonwealth Bank has launched numerous blockchain technology tests, hoping to tap into its potential to speed up transactions and release customer and bank funds. The traditional method of banks building their own customer databases increases the cost and risk of information verification in transactions, and the countermeasures taken by banks further slow down transaction settlement. Therefore, the Commonwealth Bank joined the R3 blockchain alliance, gathering the strength of large financial institutions to tap into the deep capabilities of blockchain.

Translation: Annie_Xu

Blockchain technology has the potential to change everything.

The government is testing blockchain, hoping to apply it to data storage, stock trading, etc., while the Commonwealth Bank's blockchain exploration is mainly aimed at speeding up transactions and freeing up customer and bank funds.

Blockchain is essentially a series of public records stored in multiple locations. Think of it as a shared spreadsheet. Blockchain records ownership relationships in detail, adding transaction records and information changes in real time; system participants must obey the majority and follow a certain record. Therefore, blockchain contains a trusted record of every transaction.

Each bank uses its own database to record transaction information and ownership relationships. This independent operation lacks mutual communication. Therefore, fund transfer settlement is time-consuming and laborious, and banks have to hold transaction funds to control transaction risks. Blockchain enables trading parties within the system to complete transactions quickly without the involvement of centralized institutions. In the future, blockchain will become the only database for all institutions.

Michael Eidel

Michael Eidel, Executive General Manager, Cash Flow and Transaction Services, Banking Institutions and Markets, CBA, said:

“Currently, banks use databases and ledgers that only they can edit. There are many types of technology, but the crux is that only banks have the right to modify the ledgers.”

“It’s important for banks to control the ownership of databases, but what blockchain really affects is the area where transactions are conducted between multiple parties.”

The goal of this area of ​​exploration is to build private or permissioned blockchains for banks, where they all have a copy of the ledger and anyone can initiate transactions. Commonwealth Bank is one of the first banks in the world to join R3, which aims to create a set of specifications for banks' private blockchains.

Eidel said:

“In the existing system, I have a copy of my data, you have a copy of your data, and it takes a lot of effort to keep all of these copies consistent.”

“Blockchain allows databases to be synchronized efficiently, with everyone agreeing on a central record, which means there is no need to spend a lot of money to verify the consistency of the data over and over again.”

Although the interbank blockchain protocol is still under development, the Commonwealth Bank has completed several blockchain tests, including interbank remittances and back-office processing applications.

In a joint project with R3, the Commonwealth Bank worked with a number of international banks to instantly initiate financial transactions, evaluate different blockchain solutions for global ledgers, and successfully applied blockchain to short-term public bond transactions between institutions. The commercial paper market is mostly in paper form, so various risks, settlement delays and errors increase the cost of transactions.

“There is a lot of room for improvement in the commercial paper market and other over-the-counter markets to replace the manual paper-based document processing process.”

“In many cases, banks deal with large institutions and each of them keeps their own data. Blockchain and shared records have the potential to reduce costs and vulnerabilities inherent in the system.”

Reducing transaction time is just one of the main purposes of these experiments. If blockchain can reduce transaction time, it can be applied in many fields. Many markets have settlement delays - it takes many days to settle cars, stocks, property transactions, etc. Excessive settlement time increases trade risks, thereby increasing transaction costs.

“Where there is settlement delay, there is transaction risk.”

"Fund custody is required in financial market transactions to prevent transaction risks. It is conceivable that reducing transaction risks can reduce transaction costs."