The Bank of Korea plans to start a CBDC pilot this month. (AP Photo/Lee Jin-man)
Policymakers around the world have been exploring central bank digital currencies (CBDCs), digital fiat currencies designed to be issued and controlled by these financial institutions.
More than 50 central banks and monetary authorities are researching CBDCs, according to figures provided by the Bank for International Settlements and reported on by Reuters.
Last month, The Bank of Korea announced that it had selected Ground X, the blockchain subsidiary of internet giant Kakao, to put together a pilot to test its CBDC, the digital won, according to The Korea Herald.
The pilot, which will include two phases, will start off this month, The Korea Herald reported. The key stakeholders are planning to complete the first stage, which will focus on the nascent digital fiat currency’s most basic functions, by December.
The second phase, which will look at more advanced concepts, such as privacy considerations, is scheduled to conclude in June 2022.
Several companies, including digital lender Kakaobank and online payment service Kakao Pay, will all participate in the upcoming tests, according to Junsik Sim, CEO of blockchain company Onther, which will also be involved.
Sim provided an exclusive interview, whose responses were translated to English by a company spokesperson.
Charles Bovaird: What can you tell me about the key companies involved? What will they contribute to this central bank digital currency pilot?
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Junsik Sim: Kakao Bank, Kakao Pay, and GroundX: The core team, made up of employees from these three companies, which are under the umbrella of Kakao, will provide development and integration into its already deployed users apps/payments. S-Core will work on CBDC issuance. Samsung Galaxy/Konai will work on making offline payments possible. Dream Security will focus on the digital wallets. Samsung SDS and KPMG provide business advisory. Onther, Consensys and ZK crypto will provide scaling technology.
Charles Bovaird: What distributed ledger technology will the digital won use?
Junsik Sim: It will run on a Klaytn ledger, which is based on Ethereum. Klaytn is a public blockchain built by Ground X, the blockchain unit of Kakao. The CBDC pilot will utilize a chain that uses the same technology as the Klaytn public chain, but will be different and used only internally by the teams developing the CBDC.
Charles Bovaird: What consensus algorithm will this CBDC use? How many transactions per second will it provide?
Junsik Sim: It will use the same consensus algorithm as Klaytn. As it stands, it will support 3,000 transactions per second (TPS) for 50 million wallets. This will be improved to 10,000 TPS using Onther’s scaling technology.
Charles Bovaird: Will the digital won make use of smart contracts? If so, what language will it use?
Junsik Sim: Yes it will. It will be using solidity.
Charles Bovaird: Will this CBDC harness cryptography?
Junsik Sim: Yes. It will use cryptography similar to that of Ethereum to generate wallets and the keys for those wallets.
Charles Bovaird: I have read that the pilot’s first phase will involve issuing and circulating the digital won in a public cloud. I have also read that the initial phase will entail redeeming the CBDC. What role will Onther play in this?
Junsik Sim: Onther will focus on utilizing its rollup technology to increase the scalability of the CBDC. So we will be involved in optimizing the circulation of the token, and the total number of users the CBDC will support.
Charles Bovaird: Further, I read that this first phase will involve testing some basic use cases like using the digital won to make payments and exchanging bank deposits for the CBDC. What role will Onther play in these trials?
Junsik Sim: It hasn’t been decided what Onther will do for that specific scenario. As the project develops, the specific roles that Onther will take on will be determined. For the time being our main focus will be on helping scale the CBDC chain.
Charles Bovaird: Is there anything else you would like to add?
Junsik Sim: Onther’s participation was critical in helping raise Kakao’s technology rating points to secure the contract over Naver. It’s pretty apparent now that our rollup technology is the best in the Korean blockchain industry. We’re happy to be working with Kakao and the other teams.
The conversation has been edited and condensed for clarity.
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Author: Charles Bovaird, Senior Contributor