The Bank of Japan (BOJ) published the English version of the results of the second phase of its proof-of-concept (PoC) work in which it confirmed the technical feasibility of the basic functions of a central bank digital currency (CBDC). In April 2023 the prototype phase began, in which the end-to-end process flow will be tested, the measures and potential challenges for connection with external systems will be explored, and considerations and solutions indicated as necessary in the PoCs will also be explored. No decision has been made to issue a digital yen, but the BOJ will continue to its technical work, to be prepared to go. [Read more at the BoJ]
Summary of BoJ CBDC PoC tests and findings
The results of the first PoC phase, which was focused on basic performance such as transaction latency and throughput of various platforms, were published in May 2022. [Read more at the BoJ] In the second phase, additional functions were evaluated in three separate blocks to see what impact they may have on the performance metrics (Figure 1).
The BoJ tested account- and token-based data models (Figure 2). For account-based model testing the BoJ used a traditional relational database (RDB) in the first phase, and in the second, a non-RDB (NoSQL) databases, some of which are said to have high processing speed and performance scalability. A key-value type NoSQL database, which is a data model of a simple combination of a unique key that can identify data and a value, specifically designed for processing rows of data, was selected for the test.
In their token-based model, a unique ID is assigned to face value monetary data, which is linked to user IDs. Tokens can be based on fixed-values in which the face value is fixed like cash and the user to whom the existing tokens are linked is changed after the tokens are converted to ones of lower value as necessary at the time of remittance. Or tokens could be based on flexible-values in which they are merged or split as necessary at the time of remittance and users are linked to newly created tokens.
The ledgers evaluated in the second phase were comprised of the following four designs: (i) (a) centralized management by the central bank or (b) shared management between the central bank and intermediaries for the system architecture and (ii) (a) account-based or (b) token-based for the data model (Figure 3). In Phase 1, Designs 1–3 were evaluated, and in Phase 2, Design 4 was additionally evaluated. Regarding Design 3, while the fixed-value token model was evaluated in Phase 1, the flexible-value token model was evaluated in Phase 2.
To evaluate system performance in both phases, the number of users was set to 100,000, the number of intermediaries was set to 5, and the load for the basic function of transaction instructions was set to 500 transactions per second for the base scenario and 3,000 transactions per second for the high-load scenario. The results suggest that none of the additional functions would cause significantly lower performance and could ensure the scalability and reliability required for a full-scale public digital yen launch.
The results also suggest that the flexible-value token-based model approach has some performance advantages over the fixed-value model in terms of its ability to be processed in parallel. However, the resource requirements and difficulty of implementing additional functions might increase compared with the account-based data model. The BOJ found that the NoSQL database tested did bring performance improvements over RDB databases, but more work needs to be done to confirm compliance with non-performance considerations.
*For those interested in intra-day updates, check out my searchable Diigo Fintech developments database, which is also a good place to go to query for past developments: https://www.diigo.com/user/kiffmeister/ART.
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