Cambodia Plots a Dollar-Free Future With Blockchain-Based Payments: White Paper

The National Bank of Cambodia revealed the technical details of its upcoming blockchain-based payments system dubbed ‘Project Bakong’ this week.

The central bank, which has been building Project Bakong since 2017, views its quasi-digital currency project as a high-tech revamp of the Khmer Riel, Cambodia’s official currency but hardly its de facto cash choice, as locals have favored the U.S. dollar for decades, according to the white paper published Thursday.

The central bank said Bakong will help challenge the dollar’s reign by inducing Cambodians to pay instead via QR codes and a mobile app, with a Hyperledger Iroha blockchain facilitating real-time fund transfers between e-wallets plugged into their bank accounts.

That permissioned blockchain will work between Bakong accounts and traditional accounts, record transactions on a distributed ledger, reach consensus via the block voting hash-based “Yet Another Consensus” algorithm, and process transactions in five seconds or less, according to the white paper.

“Transaction throughput is between 1,000 and 2,000 transactions per second,” depending on tech specs, the central bank said in the white paper. “This suggests that there is potential for this project to scale.”

The bank said its system’s peer-to-peer nature removes the inefficiencies of centralized clearing house models without costing users anything to transact.

“Since banks and individual users are now brought into one DLT platform both banks and users no longer face interconnectivity and interoperability problems,” the central bank said.

Quasi-digital currency

Cambodian officials have been hesitant to label the fiat-backed Project Bakong a central bank digital currency (CBDC) in the past, instead calling it a blockchain payments system. Users must load Riel into their Bakong accounts before they can transact with others. That’s different from a natively digital CBDC.

Even so, the white paper frames Bakong against the proliferation of CBDC projects in highly-developed countries around the world. But while the paper said such nations may turn to CBDC to address their population’s falling cash use rates, in developing countries – a category in which Cambodia may remain for decades – it said that CBDC can promote financial inclusion, improve inefficient payment systems and even reduce poverty by opening access.

(Notably, the National Bank of Cambodia is one of the few central banks whose future-of-money initiative actually relies on a blockchain.)

The demographically-young and increasingly tech-savvy population of Cambodia will likely boost Bakong adoption, according to the bank. Cambodians are increasingly porting their financial lives onto their phones: e-wallet accounts in the country climbed 64% in 2019 to a record 5.22 million, according to the paper.

Mass adoption may also grant the central bank a greater degree of control over Cambodia’s monetary policy by breaking the dollar’s decade-long local hold. Bank officials are already moving to oust the U.S. dollar: Last month, the central bank announced plans to phase out $1, $2 and $5 banknotes by the end of August.

It is still unclear precisely when Project Bakong will fully launch. The white paper said “early 2020,” despite being published midway through the year.

Disclosure

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“I don’t know if their intent is to denigrate bitcoin but it comes off that way,” said Nic Carter of a NY Fed report. (Northfoto/Shutterstock)

New York Fed’s ‘Bitcoin Is Just Another Fiat’ Claim Sparks Controversy

Economists with the New York Federal Reserve do not think bitcoin is a new kind of money.

Bitcoin, the decentralized, permissionless, trustless digital value system that an anonymous programmer created over a decade ago is “just another example of fiat money,” said Michael Lee and Antoine Martin in a Thursday blog post.

“Bitcoin may be money, but it is not a new type of money,” they said. Dollar bills are fiat, gigantic limestone wheels were once fiat and bitcoin is fiat as well, they said.

Their argument appeared to employ a definition of fiat money as being an intrinsically worthless object whose sole value derives from the bearer’s belief he or she can use it for goods.

But such a definition misclassifies the nature of bitcoin by botching the very meaning of fiat, said Nic Carter, a partner at the blockchain-focused Castle Island Ventures and frequent crypto commentator (including for CoinDesk).

Carter said fiat currency, such as dollar bills, has value because the issuing authority says so. But that is not at all the case with bitcoin, he said.

“I don’t know if their intent is to denigrate bitcoin but it comes off that way,” Carter said of the NY Fed economists. In a tweet he called the Fed’s argument “insane.”

What is bitcoin?

Martin and Lee posit that the Bitcoin ecosystem’s true newness lies in the novel “exchange mechanism” it spawned. “The ability to make electronic exchanges without a trusted party – a defining characteristic of Bitcoin – is radically new,” they said.

Simply put, there had never been a true means to conduct “electronic transfers without a third party” before Bitcoin came around, they said. Yes, central banks and commercial banks and an ecosystem of financial products all allowed money to flow electronically before. But those all worked because a third party said so. They said that’s not the case with Bitcoin.

Bitcoin’s innovation permits an ensuing wave of similarly trustless monies to foster and grow: stablecoins, initial coin offerings as well as unexpected assets, like CryptoKitties, they point out. But they also argue that none of those are new forms of money either.

“It is more accurate to think of Bitcoin as a new type of exchange mechanism that can support the transfer of monies as well as other things,” they said.

Carter agrees Bitcoin gave the world a new way to move money, challenged the authors’ assertion the Bitcoin blockchain should harbor other assets and said it was impossible to divorce bitcoin’s monied nature from the mechanism it exists upon.

“The monetary qualities are also essential. That was clear in the way Satoshi described” its limited supply, he said.

The economists concluded it’s important to define what is actually new about bitcoin for historical reasons.

“History provides lessons about what makes a good money as well as what makes a good transfer mechanism,” they wrote. “These lessons could help cryptocurrencies evolve in a way that makes them more useful.”

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