Bitcoin can keep Digital Gold, Ethereum eyes the +$100 trillion Global Bond Market
In the classic american action movie “Die Hard”, a group of highly skilled European mecenaries led by Hans Gruber (played by the late Alan Rickman) seize and hold hostage the U.S. headquarters of the fictional tech giant Nakatomi. In the following visionary scene, there is a fantastic foreboding regarding the future of global financial assets:
Takagi looks confused. Hans puts a friendly arm around Takagi's
shoulders and guides him into the adjacent board room where
Theo types in commands onto a built-in computer console.
HANS
Mr. Takagi, I could talk about
industrialization and men's fashions
all day, but I'm afraid work must intrude, and my
associate, Theo, has some questions for you...
sort of fill-in-the blanks questions
actually...
JUMP CUT:
A COMPUTER SCREEN SPITS OUT:
CEO Workstation
Nakatomi Socrates BSD 9.2
Z-Level Central Core
Preliminary Clearance Approved.
Subroute: Finance/Alpha Access
Authorization:
Ultra-gate key>
Daily Cypher>
(> symbols flashing) THEO
sits fingers poised over the keyboard. Hans sits opposite.
Takagi stands like the accused at the foot of the table, has
just read the screen, blurts:
TAKAGI
I don't have that code...!
(beat; to Hans)
You broke in here to access our
computer?!? Any information you
could get when they wake up in Tokyo
in the morning, they'll change it!
You won't be able to blackmail our
executives, threaten our profit--
Hans barks him to silence:
HANS
SIT DOWN!
Takagi complies. Hans is abruptly compassionate and quiet.
HANS
Mr. Takagi...I'm really not interested in your
computer.
(beat)
But I need the code key because I am interested in
the 640 million dollars in negotiable bearer bonds
that you have locked in your vault.
And the computer controls the vault.
TAKAGI
You want...money? What kind of
terrorists are you?
HANS
(amused)
Who said we were terrorists?
As a brief aside, the concept of a“bearer bond” may be unfamiliar to many because they were outlawed by the US in 1982.
“Bearer bonds are owned by whoever physically holds them, rather than through the registered ownership system used for the majority of securities. Similar to other bonds, they have a stated maturity date and interest rate, but bearer bond coupons for interest payments are physically attached to the security and must be submitted to an authorized agent for payment. In this way, bearer bonds are different from other bonds, which are no longer physically issued, existing only on the computerized records of brokers and custodians.”
Read more: Bearer Bonds: From Popular To Prohibited | Investopedia https://www.investopedia.com/articles/bonds/08/bearer-bond.asp#ixzz5SJrDCWZO
What brought this scene to mind is the recent announcement by the country of Austria regarding the issuance of a first of its kind government bond notarized by the Ethereum public blockchain.
As a neutral capital-market participant, and on behalf of the Austrian Treasury (OeBFA), Oesterreichische Kontrollbank (OeKB) operates the auction procedure for the issue of government bonds by the Republic of Austria.
Following successful tests, at next week’s government bond auction, for the first time, a blockchain notarisation service will be used. This coming Tuesday, 2 October 2018, a tap issue will take place of two outstanding government bonds (0.75% government bond 2018–2028, and 0.00% government bond 2016–2023) in a total volume of EUR 1.15 billion.
https://english.bmf.gv.at/carousel/OeKB_launches_live_blockchain_operations_for_government_bon.html
This is the first major step by a respected country to implement transparent documentation of its debt instruments onto a public blockchain. Just to be clear, these are NOT bearer bonds. The management and transfer of the bonds will be on the Luxembourg Stock Exchange. Ethereum will act as the platform which records the terms and characteristics of the asset. Making Ethereum essentially the paper on which the bond is written (as a digital immutable truth). And it raises the question of what might come next?
Ethereum was designed to enable the issuance of programmatic financial instruments such as these Austrian government bonds. If fact, it is perfectly capable of managing the issuance, ownership and transfer of such instruments and virtually every other kind of digital asset. And it can secure them against theft (similar to the Nakatomi vault in Die Hard) even if they were bearer assets.
Austria has now opened the flood gates and we can expect many other countries to begin exploring the possibilities of blockchain financial instruments. One of the major advantages will be more transparency. Doubtless, many honest countries and companies will be eager to demonstrate their trustfulness by using the blockchain to publish their bonds in order to differentiate themselves from shady and corrupt nations and organizations. In this way they can show they are globally accountable through an immutable record.
Naysayers may try to downplay this, claiming that notarization of a bond is a far cry from actually issuing and transferring it. But these are the stutterings of simple minds too blind to see what is happening. Naturally, as Ethereum matures, it will seem only proper that the digital asset reside on the same platform as the notary of its terms and conditions. In fact, trusting Ethereum to safeguard the conditions of the debt is really the majority of the battle. Therefore, we can expect these assets to gradually migrate onto the blockchain and inherit all the powerful capabilities of native crypto-assets (ie. global decentralized markets operating 24/7).
The endorsement that Austria is making in Ethereum cannot be overstated. Government bonds are amongst the most respected and conservative of financial assets. Austria in particular ranks in the top 15 countries according the Standard and Poor’s credit ranking (AA+, equal in rating to the USA). This announcement represents a pivotal moment in our blockchain journey which will lead to the establishment of a global infrastructure for financial instruments.
*Applause* for Austria and their leadership.
And who knows, one day if the pendulum swings and financial privacy is insisted upon by the citizenry of the world, we may see the resurgence of bearer bonds, this time issued and secured through the blockchain.
