"I have a view that a bank account will become a storer of value, rather than a storer of currency value, so why can't a bank account be used to store loyalty points in the same way that you can use the slider on a Qantas website to decide whether you are paying with points or dollars?" Mr Whiteing said earlier in the week.

"We have multicurrency bank accounts today, with 15 currencies available on your phone instantly in real time, so it is not that difficult for us to take that technology and make that a loyalty point store. It shouldn't be that difficult for us to then add cryptocurrencies to it, and whatever other means of payment transfers people might want."

Deep funds

CBA prides itself on being Australia's most technologically savvy bank. Its IT team has thousands of computer engineers and big budgets: CBA's $8.7 billion profit last year provides it with deep funds and a fair amount of fat to test where the future might be going.

The bank's Ripple experiment is a long-term play. At this stage CBA, like everyone else, does not know whether Ripple, or bitcoin for that matter, will become dominant protocols that change the orthodoxy on how payments are sent and received. It might be that cryptocurrency volume continues to wane and the hype goes nowhere. But CBA does not want to be left on the sidelines if demand for cryptocurrencies takes off. It joins a handful of other early adopters elsewhere in the world – Germany's Fidor became the first bank to integrate Ripple's protocol into its payments infrastructure, with two US banks, CBW Bank and Cross River Bank, following suit four months later.

As Ripple works on developing its relationships with financial institutions around the globe, bitcoin is gaining increasing attention on Wall Street. Former US Treasury secretary Larry Summers and former Citibank chief John Reed sit on the advisory board of bitcoin start-up Xapo, a bitcoin wallet. Meanwhile, former Citigroup chief executive Vikram Pandit, along with the New York Stock Exchange and the Spanish bank BBVA, are investors in Coinbase, a start-up that stores bitcoins.

These small steps for banking could prove to be a giant leap, determining which banks thrive in a world where money has morphed beyond central bank-regulated currencies into a myriad of forms. Or it could just prove to be a waste of time, especially given the massive regulatory hurdles that, for now, keep cryptocurrencies on the margins.


One well-placed observer wonders whether, for all the bravado of "innovation" and "experimentation", the big banks like CBA understand the true nature of decentralised peer-to-peer transactions.

As news of CBA's testing of Ripple sparked mainstream interest in cryptocurrency technology this week, one of the leaders of the global bitcoin scene, Jon Matonis, happened to be in Sydney, where he addressed AMP's Amplify conference. He thinks experiments inside banks with Ripple are merely a half-way step towards banks taking the full plunge with bitcoin itself.

"Banks don't like to use the term bitcoin, because they think it has this negative impression from the media," he says of small-scale experiments by banks in various blockchain technologies. "They want to still be innovative and get out there and prove that they're doing something, so they use this word blockchain instead of using bitcoin."

Get on the front foot

Whereas Uber infiltrated societies with overwhelming demand from customers, who adopted the technology rapidly to avoid taxis, banks are hoping to get on the front foot with the bitcoin network. Luckily for them customers haven't articulated exactly what they want yet.

Thinking about bitcoin is partly driven by the bottom line. With banks facing tighter margins from increased competition, finding cheaper ways of doing business is attractive. Protocols like Ripple and bitcoin offer a more efficient way to transfer funds between businesses.

Being highly regulated, it is also necessary for banks to conduct thorough testing of their systems before seeking approval to change the way in which a business like payment transfers is conducted. So by experimenting internally within the bank, CBA is preparing itself for future interaction with the regulator if demand spikes.

For now, though, bitcoin volume is minuscule. Data cited by the Reserve Bank of Australia shows 76,000 bitcoin transactions were made globally each day over a month late in 2014, valued at about $US55 million ($71.51 million). This included consolidating or dispersing bitcoin holdings, speculating on the value of bitcoins, and making payments. But this is dwarfed by the more than 504 million purchases made globally each day using credit, debit or prepaid cards, with an average daily value of more than $US47 billion.


But it's noteworthy that the august institution of the RBA is taking note. A Senate committee will report later this year, after receiving 48 submissions on digital currencies. In one of those submissions the RBA said while digital currencies don't currently present any issues for the payments system, monetary policy or financial stability, "the concept of a decentralised ledger is an innovation with potentially broad applications for a modern economy, and that digital currencies represent an interesting development in the payments and financial system landscape".

Matonis was introduced to bitcoin technology by Nakamoto via an email in early 2010, after the elusive bitcoin founder read on a blog that Matonis had started on digital currencies. Matonis initially put the email in his "crazies file", but says the penny dropped when he realised that Nakamoto had invented a system that created digital scarcity. He also envisaged something that could ultimately challenge the central bank monopoly as an issuer of money.

"Once people start thinking of it that way, [bitcoin] has the ability to be very, very viral," he says. "We do have the power over what we use as money and the only reason we use the government-issued legal tender is because we didn't know we had another option. That's a moment in time where we could definitely spark something."

Many sceptics

But within the banks there are many sceptics about bitcoin's ability to gain traction. One senior banker in Sydney says bitcoin will find it hard to get critical mass.

"It is not only one party that needs to adopt it, but a whole network needs to before it seriously gets going," the banker says.

New applications developed by fintech start-ups might change that. One example is Epiphyte, technology that allows banks to make consumer-to-merchant payments using cryptocurrencies through the existing bitcoin blockchain but allowing bank customers to perform the transactions in familiar fiat currencies like dollars and euros, while the banks themselves do not have to hold bitcoins.

Matonis says venture capital is pouring into bitcoin apps, "so people don't have to fumble around with these long strings of keys and everything. That's a real deterrent for people who aren't payment economics geeks. Once that opens up, we'll see a flood of new transactions and users."


Perhaps the biggest potential use of bitcoin is the $US600 billion global remittance business. The World Bank reckons the market could reach $US1 trillion by 2020, with migrants sending home billions of dollars each year using remittance specialists like Western Union and MoneyGram.

"This huge remittance market that's dominated by Western Union right now is just ripe for the taking," Matonis says. "They're charging between 10 to 20 per cent fees at the moment and on an annual basis that's one or two months of what you're actually sending to the people who can least afford to pay that."

Given the dizzying speed of innovation, governments, regulators and central banks are still getting their heads around how bitcoin might affect economies in the future. Now, global legal treatment varies considerably.

Matonis says it is a misnomer to think about bitcoin regulation because all governments are able to control is how their national currency can be used to get in and out of bitcoin.

"The important thing about bitcoin is knowing when you're able to regulate versus when you're not. Because regulators don't have carte-blanche on being able to regulate the entire network."