From August 2021 to June 2022, the Bank of Korea (BOK) carried out a sequence of proof-of-concept (PoC) trials with the main aim of evaluating the technical viability of a Central Bank Digital Currency (CBDC) on a Distributed Ledger Technology (DLT) based platform. The PoC experiments were guided by the subsequent objectives:
- Validate the technical and institutional design aspects of a CBDC within a simulated virtual environment.
- Test the feasibility and dependability of DLT in supporting fundamental functions spanning from the management of CBDC lifecycle to peer-to-peer (P2P), offline, and cross-border payments.
The BOK established a CBDC test system in the cloud using a hybrid model that included a two-tier structure. In this structure, the BOK supervised the CBDC lifecycle, while participant nodes were responsible for facilitating CBDC circulation and providing end user services, which encompassed digital wallets and Know Your Customer (KYC) requirements. The test system consisted of four primary components: the BOK system, participant system, end user support system, and ledger management system. These components were meticulously designed to support the following crucial functions:
- BOK System: This module managed the complete CBDC lifecycle, including creation, issuance, redemption, and disposal. Creation and disposal operations occurred in a secure environment inaccessible via the internet. Additionally, executing these functions required multiple rounds of authorization procedures using distinct private keys to mirror real-world security measures. This module acted as a bridge connecting the virtual reserve balances of participant nodes with the BOK and the corresponding CBDC circulation in the simulated space.
- Participant System: This module facilitated participant nodes in transferring (redeeming) CBDC to/from end user wallets. It adjusted the end user’s relevant account balance with the nodes accordingly.
- End User Support System: This module enabled end users to initiate payments and generate CBDC receipts through their mobile wallet applications.
- Ledger Management System: CBDC transactions and circulation were processed on a permissioned DLT platform developed by the BOK. The design of this platform was influenced by the open-source protocols of Ethereum. Both the BOK system and participant system were integrated into this DLT platform as “nodes” during the course of the CBDC experiments.
The results indicated that a robust cloud-based test system could be established, effectively supporting the smooth operation of fundamental CBDC features as intended. Notably, all stages of the creation, issuance, circulation, redemption, and disposal cycle exhibited stable performance. The CBDC circulation on the DLT platform demonstrated the seamless processing of P2P CBDC transfers among end users using this emerging technology in routine business operations.
The Bank of Korea (BOK) has not yet reached a decision on whether to introduce a CBDC. Developing a CBDC involves intricate planning and coordination among various stakeholders, including government bodies, financial institutions, and technology firms. The preparation for CBDC launch generally spans several years. To this end, the BOK has conducted a series of research and experiments to explore potential forms and designs for a CBDC.
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Source: https://www.bok.or.kr/eng/main/contents.do?menuNo=400411