Bank of Korea finds performance issues with CBDC blockchain technology – Ledger Insights
The Bank of Korea completed the second phase of its digital central bank (CBDC) simulations in late June and today shared the results. While it was pleased with some aspects of its digital won simulations, such as using CBDC for offline payments and cross-border transfers, the central bank highlighted performance issues with the blockchain technology.
Specifically, it found the overall performance of the Ethereum-based blockchain inadequate, including the scaling solutions and privacy technology tested.
“There will be some limitations in real-time transaction processing during peak hours,” the Bank of Korea said.
One of the tests simulated peak demand by maintaining 4,200 transactions per second (TPS) for 30 minutes. At that level of activity, users sometimes had to wait up to a minute for a response (latency).
However, the system can handle an average TPS of 1000, which is typical of many Korean micropayment systems, but not peak periods such as lunchtimes or payment deadlines.
The scalability limitations of Ethereum are widely known, and in response to this, a number of Layer 2 scaling solutions have been deployed in the crypto sector, particularly rollups. Bank of Korea tried using summaries of up to 700 transactions on each subnet. The collections worked well when both sides of the transaction took place on the same subnet. However, there were very significant performance issues when a large proportion of transactions were between subnets.
Another performance challenge related to the use of zero proof of knowledge (ZKP). This technology can prove that someone owns CBDC without revealing the details of their identity data. The central bank found to be using ZKP required up to 14 seconds per transaction. ZKP is also widely known to have performance challenges, although some alternative approaches partially mitigate this. We are not aware of which ones were used.
The bank also tested inter-ledger transfers using different blockchain technologies for the purchase of non-fungible tokens and for cross-border CBDC transfers. It used hash time lock contracts (HTLC) and was happy with these. The cross-border CBDC was simulated with the United States and used commercial banks as intermediaries.
CBDC technology partners
As previously reported, the central bank chose Ground X as its primary technology partner for the simulations. Ground X is the web3 subsidiary of Korea’s largest social network Kakao and the founder of the Klaytn public semi-permission blockchain. Klaytn is based on Ethereum technology, and for its pitch it collaborated with Ethereum development house ConsenSys, which is still involved in the project.
Other companies involved in the project include Samsung Electronics, KPMG, Kakao Bank, Kakao Pay, S-core (digital transformation consultants), Kona I (prepaid cards), Dream Security (authentication), Zkrypto (zero knowledge proof), OnTher (team). 2 scaling) and NGLE (software testing).
Now that the second phase of simulations has been completed, the central bank has begun working with 14 commercial banks and the Korea Financial Telecommunications & Clearings Institute (KFTC). The banks are Kookmin, Shinhan, Woori, Hana, Nonghyup, Enterprise, Suhyup, Busan, Gyeongnam, Daegu, Gwangju, Jeonbuk, Kakao and K.
Next step for CBDC
The Bank of Korea outlined its next phase of work that centers around the banks. For example, the ability to integrate the simulation system with the banks’ internal systems. And to check the performance when using a large number of users. It creates a virtual private network to securely communicate with these intermediary banks.
Apart from the purely technical aspects, it also plans to explore potential use cases and is considering involving other types of companies in the simulations, such as credit card companies and securities companies.
The central bank also hinted at possible further cross-border experiments. “We plan to cooperate with financial institutions and international organizations,” it said.
Meanwhile, various central banks around the world are moving forward with their attempts. Both the Monetary Authority of Singapore (MAS) and the European Central Bank (ECB) are separately beginning to explore programmable money applications for retail CBDC.
There is a growing number of cross-border CBDC projects. Hong Kong-based MBridge recently shared its latest results and announced plans to go into production. MBridge includes the central banks of Hong Kong, China, UAE and Thailand.
A new project Mariana, including the central banks of France, Switzerland and Singapore, will explore the use of DeFi for foreign currency for cross-border CBDC. New York Fed launched Project Cedar for faster currency settlement. And MAS announced Project Ubin+ for cross-border payments. All of these are wholesale CBDC projects.
Two of these, MBridge and Cedar, have created custom blockchains in part to address performance challenges.
In addition, there is Project Icebreaker which involves the central banks of Norway, Sweden and Israel to explore retail CBDC over cross-border payments.
