South Korean internet giants bid for central bank digital currency pilot

CBDC

The Bank of Korea plans to select an operator to run a blockchain-based CBDC pilot next month that will test a digital won in various use cases.

Affiliates of South Korean internet giants Naver and Kakao are among the top contenders to work on the country’s first central bank digital currency (CBDC) pilots.

On Monday, the Bank of Korea (BoK) announced the preliminary bid results for participating digital won pilots, local news agency Yonhap reported. Kakao’s blockchain subsidiary Ground X, Naver-affiliated Line Plus and conglomerate SK Group were the top three companies that submitted applications for a 10-month CBDC pilot contract.

The BoK now plans to select an operator to run a blockchain-based simulation project for the digital won. The bank expects to reach a decision next month. The pilot will run until June 2022, with a research budget of 4.96 billion won ($4.3 million).

According to the report, the pilot aims to test the CBDC in a virtual simulation environment based on distributed ledger technology. The BoK intends to explore potential use cases related to CBDC issuance, redemption, electronic payments and settlement, and purchases of digital artworks and copyrights.

The BoK launched the bidding process to choose a tech partner for studying the benefits and implications of launching a CBDC in May. The central bank previously published a book on CBDCs in February, officially announcing the country’s plans to test the distribution of a digital won.

The news comes shortly after Line Plus released its own blockchain platform optimized for issuing and maintaining a CBDC. The new open-source project is based on Line’s own blockchain technology and is designed to support confidentiality-focused payments and high-speed transactions.

ConsenSys to develop private version of Kakao’s Klaytn blockchain

Banks

A private version of Klaytn is in being developed in order to take part in South Korea's CBDC pilot, to be launched later this year.

Ethereum software company ConsenSys has formed a technical partnership with Kakao’s Klaytn blockchain, with a view to developing a private platform for the issuance of a South Korean CBDC.

Klaytn is a public blockchain developed by Ground X, a blockchain affiliate of the South Korean internet company Kakao. Best known for its Kakao Talk mobile messaging app, Kakao has since branched out into the shopping and travel industries, among others. In 2019 the company commenced work on the Klaytn blockchain, which by the time of publication has the 25th largest market cap in the cryptocurrency space.

The partnership will see ConsenSys work to develop a private version of Klaytn, in preparation for an upcoming CDBC pilot program in South Korea. The project will also encompass making Klaytn compatible with Ethereum layer-2 solutions and will look to build interoperable bridges with other blockchains.

“Through this collaboration we will strengthen the efficacy of the Klaytn platform, readying it to process transactions which would conceptually support CBDCs, and also optimize it for Ethereum Layer 2 integration,” said Charles d’Haussy, managing director of Asia Pacific at ConsenSys.

Klaytn is a fork of the Ethereum blockchain, however, Ethereum’s public, decentralized attributes are generally not desired by government or institutional entities. A private chain is being constructed to “reflect the rising concern around data protection among financial institutions”, according to a press release.

CBDCs, or central bank digital currencies, are simply digital versions of national currencies, and as such, must be overseen by central powers. Yet, ConsenSys’ plan to make its pending private network compatible with existing public blockchains suggests national CBDC platforms needn’t be as siloed as many initially expected.

“We are happy to cooperate with ConsenSys to strengthen our public network and also build a private network that can cater to a successful CBDC distribution test,” said Jason Han, the CEO of Ground X, following the announcement of the partnership.

Kakao Corp