Central Bank Digital Currency Partner: Soramitsu

Blockchain technology has attracted the attention of central bankers worldwide. In July 2019, with the help of technology firm Soramitsu, the National Bank of Cambodia (NBC) launched a new private-permissioned blockchain payment system called ‘Bakong’.

Since going live with a soft launch, the system has acquired 10,000 active end-users from 15 commercial banks. The system processes payments in digitised versions of both US dollar and Cambodian riel.

“The central bank originally wanted to build a system that was more inclusive to the large unbanked and underbanked population, while simultaneously having better insight and monetary controls over the usage of USD,” says chief executive Makoto Takemiya.

NBC began exploring blockchain in 2016, when it designed a central bank digital currency system and looked for a technology partner. “We thought [Soramitsu’s] Hyperledger Iroha was the most suitable platform for our use case,” said Veasna Kru, director of information technology at NBC.

Hyperledger Iroha uses the Byzantine Fault Tolerant consensus algorithm to validate transactions. Transactions are visible to nodes run by the central bank, without disclosing the identity of parties involved in performing the transaction. Bakong requires participating institutions to manage know-your-customer for their end-users or clients.

 “The simplicity of Hyperledger Iroha over competing technologies is extremely appealing to large organisations with already complex systems,” says Takemiya. “Central banks do not want to add yet another layer of slow, overly complex technology onto their stack.”

The platform has been tailor-made for NBC. As with traditional blockchain structures, the nodes in Bakong’s core are installed in closed-loop infrastructures located at NBC. They can be shared with participants through the payment gateway, and only individuals who register can carry out their business transactions.

However, Bakong also allows users to perform real-time retail transactions using its mobile payment and banking application. The application enables users to transfer funds by scanning QR codes, keying in phone numbers or selecting from a contact list. “Bakong serves as a payment backbone by connecting all payment service providers and all banks,” Kru says.

Testament to their commitment to the project, Soramitsu opened an office in Cambodia that now houses 25 staff. This allowed the firm to have a team of people onsite at the central bank during the implementation process. Soramitsu has also invested $3 million of its own money and resources into building the system since it was awarded the contract in 2016.

“We built this technology with eyes on the future, opting to co-own the intellectual property of the system with NBC while looking to deploy it in other geographies and for new use cases, rather than charging them transaction fees,” said Takemiya.