Some of the most important and influential financial institutions worldwide may be looking to further integrate blockchain technology into their offerings. A report by Coin Telegraph highlights how the World Bank has ordered the creation of a blockchain-based bond. The new bond will be created through Australia's Commonwealth Bank (CBA). Below, we'll take a look at what these bonds might be and how they could impact the mainstream investment world.
The new bond is called bond-i and has been referred to as "the first global bond to use distributed ledger technology," according to a Twitter announcement by the World Bank. "Bond-i" is short for "Blockchain Offered New Debt Instrument," and the bond will be issued by the World Bank in Washington.
According to the report, this particular bond was designed and developed by the CBA Innovation Lab's Blockchain Centre for Excellence. While it's not immediately clear why the World Bank selected CBA as the developer of the new blockchain-based bond, it may be related to the fact that the CBA Innovation Lab had previously tested a prototype blockchain bond last year as part of a partnership with the Queensland Treasury.
It's important to note that bond-i is likely the first bond issued through blockchain, but it is not the first debt instrument to do so. Previously, the Spanish banking group BBVA signed a $117 million blockchain-based loan in July of this year.
Ethereum Blockchain to be Integral
A private ethereum blockchain is reportedly set up to allow for the management of bonds. This blockchain network will also create bond-i products. According to Coin Telegraph, the platform has been reviewed by Microsoft to ensure that architecture, security and functionality are solid. The CBA development team partnered with an unnamed law firm to plan for the issuance of bonds and to develop the smart contracts which will govern bond-i products.
Independent blockchain developer Matthew Di Ferrante, who has previously worked for the Ethereum Foundation, indicated that the move is a "good first example" of how blockchain can be integrated into the bond world. He adds that "financial instruments like bonds are easily ported to blockchains/smart contracts, but it's not the be-all and end-all even for mainstream financial institutions. The real usefulness will come when many different institutions and industries are all using compatible blockchains" (emphasis in original).
Implications of the Project
While the bonds issued as part of this project may be fairly standard, the implications of the project are not. First, there is the question of decentralization. For much of the cryptocurrency and blockchain industries, decentralization is a crucial and central tenet. Necessarily, a private blockchain with the World Bank co-managing is not nearly as decentralized as many blockchain projects are.
Further, while this new bond project is harnessing blockchain technology for management, creation, and oversight, it is so far essentially entirely unrelated to cryptocurrency. Some might see this as a confirmation that mainstream financial institutions are happy to separate out cryptocurrencies from blockchain technology, preferring to only utilize the latter as they ignore the former.
While the World Bank's plan is not the first time that major financial institutions have looked toward blockchain technology in various ways, it does have the potential to influence other institutions which may have previously been hesitant. Martin Ethereidge of the Bank of England's Fintech Division, for example, explained that his organization is aware that "in a distributed system, there is the potential for resilience, and other benefits of distributed payment systems," adding that these blockchain is something that "we want to make sure we are aware of" going forward. Undoubtedly, the success or failure of the bond-i program will impact other financial institutions' decision to explore this space as well.