Australia sees the savings in a “smart money” cryptocurrency test

Posted: 13 November 2018 4:22 pm
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CSIRO's Data61 and Commonwealth Bank are finding opportunities for cryptocurrencies and smart money.

  • A blockchain trial has found potential savings of hundreds of millions of dollars for the NDIS
  • Existing limitations around what can and cannot be programmed by smart contracts are being pushed back
  • Smart money may carry enormous potential beyond the initial trial, for both better and worse

When you digitise money, a la cryptocurrency, with smart contracts, you get smart money. This was the foundation of a successful blockchain trial by CSIRO's Data61 and Commonwealth Bank.

The trial was a proof of concept, trialled for 10 participants and their carers in the National Disability Insurance Scheme (NDIS), and the results were released in a report titled Making Money Smart.


"Our use of blockchain added new kinds of programmable behaviours to the smart money in the prototype system. This automation and flexibility could reduce friction and enable greater innovation in many payment environments and unlock network-effect benefits," explains Mark Staples, senior principal researcher in the Software and Computational Systems program at CSIRO's Data61. "This could include more directly connecting citizens to public policy programs, empowering people to optimise their spending through things like smart savings plans and smart diets, and reducing costs for businesses, including through the potential for self-taxing transactions."

Essentially, it can automate money itself and allow the creation and enforcement of rules around how that money works. For example, automatically pulling tax payable from certain transactions and creating rules around what money can be spent on.

Consider how many overhead costs this can take out of existing systems each step of the way, from accounting to enforcement.

"Smart money" is the result of combining distributed ledger technology, smart contracts and cryptocurrency.

  • Distributed ledger technology: Blockchain is an example of distributed ledger technology. This is the kind of system design that allows for the secure creation of immutable pre-programmed rules as well as distinct, finite digital tokens that can be told apart from each other and programmed in certain ways. These are essentially smart contracts and cryptocurrencies, respectively.
  • Smart contracts: These are automatically enforced rules which can be programmed into blockchains to interact with tokens. For example, an automatic and unbreakable rule around what disability payments can be spent on.
  • Cryptocurrency: These are the blockchain digital tokens themselves. When programmed with smart contracts, they can be "smart money." These can represent anything. In the case of the NDIS test, the different tokens represented disability payments and were denominated in AUD.

Why crypto?

Each individual token in the test represented the amount of funds in AUD that the Australian government pays for specific disability services. This is the cryptocurrency of the system; although, whether it's technically a cryptocurrency depends on the exact definition one chooses to use. There's some overlap between terms like cryptocurrency, digital asset, token and smart money.

In this study, for example, if someone was entitled to $100 for a medical treatment related to their disability, they might get a $100 token which is programmed such that it can only be sent to a registered provider of that medical treatment.

That provider can then redeem this token through the National Disability Insurance Agency (NDIA) to receive $100 of real money after providing their services.

Making Money Smart

These tokens can be created, destroyed, programmed and re-programmed for different and changing circumstances. Generally, they can be programmed to absolutely anything at all, within the following limitations:

  • The technical boundaries of the blockchain platform. Some computational processes are too "big" and complex to easily run on some blockchains.
  • The kind of information that can be recognised by the system. For example, you need a data source to tell the blockchain who suitable service providers are, which means a registry of people who can provide certain services under the NDIS. More complete and reliable data sources mean more options.
  • Miscellaneous problems, such as whether there are loopholes which allow systemic abuse, or if it's worth the cost of doing certain things. Is it possible to check whether services have actually been rendered before tokens are transferred? Can any of the smart contract-feeding information sources be manipulated? Are the benefits of closing certain loopholes worth the cost of doing so? Do certain applications require the collection of too much information to be practical?
  • One's imagination. You have to think of something before you can do it.

As you can imagine, related developments like reliable self-sovereign identity systems and emerging blockchain data marketplaces can vastly expand the types of information that can be pumped into these kinds of systems, which in turn vastly expands its potential applications.

"Smart money that can "auto-regulate" is only the start," says Bit Trade managing director Jonathon Miller. "I think this is a really positive step in building out real world applications of blockchain without further encumbering government agencies with the regulatory burden of maintaining a centralised solution, and we expect many more exciting use cases for blockchain in Australia to play out in the months ahead."

And this is the kind of system that can theoretically be implemented with existing technology, rather than just being a vague promise somewhere down the line.

"Unlike a lot of previous examples of blockchain technology deployments that we've seen in Australia which have relied on the promise of utility for ecosystems that are yet to evolve, what’s exciting about this use case is that it shows us immediate utility that can be embedded into a variety of existing industries," says Huobi Australia head of marketing and communications Lien Truong. "It cuts out the middle men, reduces processing times by speeding up overall processes and reduces costs - particularly in both staffing and administrative functions."

Efficiencies waiting to be unlocked

It's worth emphasising that the programmable "smart money" can be anything.
juicy crypto wordsIn this case, each token is a disability entitlement, but it might also be bitcoin, straight-forward digitised central bank money, a decentralised stablecoin-type cryptocurrency or even a token that represents ownership of tangible assets. For example, with the right information and infrastructure, you could have a house that automatically holds and safely invests tenant bonds during the course of their stay, and collects its own rent from tenants and distributes it as agreed between parties like the landlord(s), the council and property maintenance.

CBA modelling found that if the NDIS proof of concept in its current form was applied across the breadth of the NDIS ecosystem in Australia, the benefits would equate to hundreds of millions of dollars of savings annually.

"We’re excited by the potential to enable NDIS participants to exercise greater choice and control over their disability support services, while streamlining budget management and removing the need for paperwork," said Commonwealth Bank head of Government and ADIs Julie Hunter. "The results also show potential to reduce administration costs for disability service providers and the risk of fraud and accidental misspending.

"The trial has also highlighted that the technology could have wide application across the government, business and not-for-profit sectors. We look forward to exploring these opportunities with our partners and clients across Australia."

Despite the benefits of smart money, it might be an uphill struggle against existing perceptions of cryptocurrency as things like bitcoin, rather than the broader and probably more accurate perception of cryptocurrency as digital tokens of all kinds with (theoretically) almost limitless potential.

Opinion: There's always someone who takes it too far

There is an extraordinary amount of things one can do with the "blockchain + smart contact + cryptocurrency = smart money" framework, and not all of them are nice.

As technology keeps hurtling forwards, it might be worth considering some of the other applications that might be waiting way, way down the line and to consider that smart money also presents a potential opportunity for central authorities to achieve totalitarian control over every single bit of their official money in circulation. These efficiencies can also be used for things one might consider bad.

Giving preferential access to one's cronies, or blocking access to those unwilling to pay, could be even more valuable than it already is. Or maybe a country could prevent "undesirables" from ever receiving or spending money. And perhaps an ethnic group that falls out of favour in a country could be efficiently and officially excised from the financial system and their assets confiscated.

It would be an efficient way of maintaining an economic status quo by preventing those of the wrong caste from achieving too much upward mobility, payments of all kinds could be centrally tracked and recorded and whoever holds the keys to the castle can go digging through their opponents' financial history for a wealth of blackmail material.

Funding for nosy publicly-funded media organisations that embarrass too many politicians can be switched off like a faucet, and non-profits that don't align with the commercial or political goals of the party in power can be prevented from receiving donations. Those who financially support the party in power can be rewarded more directly, donations to opposing political parties could be barred and anything that threatens the status quo can be strangled in the crib.

All of the above has happened at some point, and many are happening right now.

If that level of totalitarian control over an entire monetary system is reached, it might be much more difficult for a society to dig itself out of those kinds of holes without re-inventing the concept of money in a decentralised form – which is what decentralised cryptocurrencies are going for right now.

Frankly, it would be really inconvenient if humanity had to reinvent money twice in the same century just because it wasn't up to spec the first time.

In some ways, the sheer breadth and depth of cryptocurrency applications – even on permissioned blockchains – is one of the main reasons decentralisation is such a key element of cryptocurrency. This is why, in the long run, additional consumer choice in currencies, including options which offer selective privacy/transparency modes and real decentralisation, are essential.

Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM and BTC.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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