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Digital Currency using Blockchain technology introduced in Cambodia

picture:Checking balance with the dedicated application ©SORAMITSU CO., LTD.


『International Development Journal』2020 February edition
Innovation and Development Special

Assisted by a Japanese venture company

In recent years, digital currencies using blockchain technology have been the subject of a great deal of discussion in global financial markets. The upshot of this attention has been a rush for organizations, companies and countries to take advantage of growing opportunities in this space. Perhaps the highest profile example of this came in June 2019, when American social media giant Facebook announced plans to issue its own digital currency, called “Libra.” Another example came in April 2017, when the central bank of Cambodia (also known as the National Bank of Cambodia: NBC), and Japanese venture company Soramitsu Co., Ltd., signed a joint development of digital currencies agreement. It was at this point that development of a blockchain-based national currency in Cambodia began.
Blockchain, also known as “distributed ledger technology,” is a mechanism for continuously recording and managing transaction data, also known as blocks. The main advantage of blockchain technology is that, because data is stored in thousands of devices on a distributed network of nodes, the system and the data are resistant to technical failures and malicious attacks. The digital currency planned by Soramitsu and the NBC is the first attempt by a central bank to utilize blockchain technology, and its development is being watched closely around the world.

World standard technology developed

Soramitsu Co., Ltd. was founded in 2016 with the ultimate goal of creating a blockchain that covers the entire world.
According to Soramitsu’s Director, Kazumasa Miyazawa, the company decided to focus on blockchain because, despite promising technologies which were already available, these technologies still faced various operational problems. For example, conventional techniques had a low processing speed, allowed stored data to be accessed far too easily, and did not provide sufficient privacy management. Furthermore, programs were relatively difficult to use. Most used a complex programming language, meaning that only a select group of top engineers were able to develop them.
Another reason Soramitsu developed blockchain technology centres around the Linux Foundation’s launch of the Hyperledger Project in 2016. This project aimed to create a global standard for blockchain. Soramitsu first participated in the project in May of 2016 and was selected as one of the winning entities from about 290 companies in October of the same year. In May 2019 it released “Hyperledger Iroha 1.0” as a commercial version.
The blockchain developed by Soramitsu overcomes many of the problems inherent in digital currency. Specifically, in addition to the high speed and large capacity of its blockchain, access to Soramitsu’s product is limited to specific people, and privacy is protected. Furthermore, development using the blockchain can be easily performed by anyone with even low-level computer programming skills.
At present, Soramitsu uses its own blockchain technology to conduct business in Japan and overseas. In Japan, it is developing a digital regional currency in cooperation with the city of Aizuwakamatsu. Outside of Japan, the Moscow Exchange Group also uses a blockchain on settlement, custody and transfer. However, the development of a digital currency in Cambodia continues to be the company’s biggest international project.

Changing the nature of economic transactions

The joint venture between Soramitsu and the NBC came together relatively quickly for a project of its size and scope. In January 2017 the NBC became aware that Soramitsu was developing a global standard for blockchain, and offered to bid on the joint development of digital currencies. The joint development agreement was signed by the two parties about three months after the beginning of discussions, providing evidence that the NBC was serious about the project. After selection, a new digital currency, named Bakong, was developed in cooperation with the bank, and in July 2019, a test operation using Hyperledger Iroha was completed. If the test ultimately proves successful, it is expected to be officially introduced in early 2020.
Bakong has the potential to dramatically change economic transactions in Cambodia. First, Bakong has value, just like cash. Second, users experience no time lag in the Bakong system because the currency arrives immediately after payment. This is a major advantage, because when processing a transaction through a bank, there is normally a time lag between the moment of payment and the actual payment being processed. The Bakong system eliminates this delay. Transactions are also free of charge. The system is also flexible, as payments can be made both using the local currency of Cambodia (the riel) and the US dollar. In addition, remittances can be sent easily; the payer only needs to know the phone number of the other party or scan the QR code displayed on their smartphone.
Miyazawa says one of the main reasons the NBC decided to introduce a digital currency was “attempting financial inclusion.” In Cambodia, only about 20% of the population has a bank account, and about 80% of Cambodians have no means of settlement other than cash payment. On the other hand, smartphone penetration is said to be 150%. By downloading the Bakong application via smartphone, 16 million Cambodian citizens will potentially be able to send money to anyone using a method other than cash. The technology is also expected to increase the number of bank accounts because, while standard Bakong transactions are limited to $250 per day, having a bank account removes such restrictions. In addition, people who need the convenience of online transactions will be encouraged to open bank accounts for larger transactions or business purposes.
According to Miyazawa, “currency strengthening” is another reason the NBC decided to introduce a digital currency. In recent years, the possible introduction of a digital Chinese yuan and Facebook’s Libra have been discussed in international financial markets. If such well-known digital currencies are introduced first, the NBC fears a decrease in the use of the Cambodian riel. By introducing Bakong now, Soramitsu and the NBC hope to mitigate both potential concerns.

2020: a Potential Landmark Year for Blockchain

Another major reason Soramitsu decided to work with the NBC in the development of cryptocurrencies was an experience Miyazawa had during a previous project. Prior to joining Soramitsu, he worked for the Sony Group and was one of the core members of the launch of electronic currency called “Edy” (now Rakuten Edy). Miyazawa now looks back on his time with Sony as a bitter lesson learned. As with the introduction of credit cards, he has helped develop a mechanism to process payment and then send money later. In this case, even if a small store sells something, there is a time lag until payment is made, and the next purchase cannot be made. The development of Bakong applies this lesson by allowing users to settle and remit payment immediately.
Miyazawa predicts that “2020 will be a milestone year for blockchain, as blockchain utilization is progressing around the world”. With the wave of digitization currently occurring in financial and currency markets around the globe, Japan, which has a lot of cash settlements, may need to follow this trend. (Keitaro Fukushima)










本誌編集部・福島 勁太郎


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