Available online at www.sciencedirect.

com

ScienceDirect
ICT Express 8 (2022) 264–270
www.elsevier.com/locate/icte

Blockchain and central bank digital currency

Tao Zhanga,b ,∗, Zhigang Huangc
a Guangxi Key Laboratory of Trusted Software & Guangxi Key Laboratory of Cryptography and Information Security, Guilin University of Electronic
Technology, Guilin, China
b School of Cyber Science and Technology, Beihang University, Beijing, China
c Fujian Provincial Key Laboratory of Financial Science and Technology Innovation, Fuzhou University, Fuzhou, China

Received 31 May 2021; received in revised form 19 August 2021; accepted 29 September 2021
Available online 29 October 2021

Abstract
With the development of blockchain and digital currencies, central banks all over the world are accelerating the process of CBDC
development. However, it is still controversial on adoption of blockchain in CBDC design. In the paper, we analyze both functional and
non-functional requirements of CBDC design, and make a literature review on blockchain based CBDC schemes. Analysis findings show that
permissioned blockchain is more suitable for CBDC than permissionless blockchain. Besides, there are some challenges in blockchain based
CBDC, such as performance, scalability, and cross-chain interoperability. Our analysis is timely and can provide guidelines for blockchain
based CBDC design.
⃝c 2021 The Authors. Published by Elsevier B.V. on behalf of The Korean Institute of Communications and Information Sciences. This is an open
access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Keywords: Central bank digital currency; CBDC; Fiat money; Distributed ledger; Blockchain

1. Introduction such as stability and regulatory means. Thus, these decen-

tralized cryptocurrencies cannot be an option for digital fiat
In 2008, Bitcoin [1] is proposed as the first decentral-
ized cryptocurrency (digital currency), which enables transac- money. And central banks all over the world are researching
tions without relying on trusted third parties, such as banks. their digital fiat money, CBDC (Central Bank Digital Cur-
Blockchain is the backbone technology of Bitcoin and break- rency). International Monetary Fund (IMF) defines CBDC as
throughs on blockchain have made a great influence on pay- a new form of fiat money issued digitally by the central bank
ment methods, e-commerce and cross-border transfer. and served as legal tender [3]. According to BIS (Bank for
Blockchain technology is also widely used in cryptocurrencies International Settlements) [4], central banks have a positive
and more than 5000 blockchain based cryptocurrencies have
attitude to CBDC research and development, and more than
emerged in the past 10 years [2].
In the fast-changing digital world, more and more trans- 80% of central banks are actively researching and developing
actions are processed online and less paper money is used. CBDC prototypes. The main motivations of CBDC are to
To comply with the trend, governments all over the world are promote safety, robustness and efficiency of payments, reduce
towards digital fiat money. Fiat money is government-issued issuing cost and increase transaction convenience.
currency, the U.S. Dollar, the Euro, and the Chinese Yuan are As the key technology of most cryptocurrencies, blockchain
all fiat money. is also explored in CBDC researches and prototype experi-
There are significant differences between Bitcoin like de- ments. With benefits of blockchain, blockchain-based CBDC
centralized blockchain based cryptocurrencies and fiat money,
can help to increase efficiency and create more secure payment
∗ Corresponding author at: School of Cyber Science and Technology, systems [4]. However, it is still controversial on adoption of
Beihang University, Beijing, China. blockchain in CBDC design, because there are still many
E-mail address: tao.zhang.cn@outlook.com (T. Zhang).
Peer review under responsibility of The Korean Institute of Communica- challenges of blockchain technology to overcome, such as
tions and Information Sciences (KICS). security, throughout and scalability issues.
https://doi.org/10.1016/j.icte.2021.09.014
2405-9595/⃝ c 2021 The Authors. Published by Elsevier B.V. on behalf of The Korean Institute of Communications and Information Sciences. This is an
open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
T. Zhang and Z. Huang ICT Express 8 (2022) 264–270

To help to close the gap and provide guidance for CBDC Table 1
design, we conduct a comprehensive analysis of existing typ- Comparison of three kinds of blockchain.

ical CBDC schemes based on blockchain. Then analyze re- Public Consortium Private
blockchain blockchain blockchain
quirements and scenarios of CBDC and potential applications
Openness High Medium Low
of blockchain in CBDC. Finally, challenges and open issues
Permissioned No Yes Yes
of blockchain based CBDC are discussed. Speed Low Medium high
There are also some researches on blockchain and CBDC. Scalability Low Medium high
In [5], World Economic Forum makes a survey on how central Decentralization High Medium Low
Cost Low Medium High
banks use blockchain to solve financial and monetary chal-
Throughout Low Medium High
lenges, experimentation and implementation of CBDC are also Example Bitcoin, Fabric, –
involved. In [6], Codruta Boar and Andreas Wehrli make a Ethereum Corda,
survey on CBDC from 65 central banks all over the world in Quorum
late 2020 about their engagement in CBDC work, their moti-
vations and intentions are regarding CBDC issuance. In [7],
Natalia Dashkevich et al. summarize central bank usecases 2.1.2. Classification of blockchain
of blockchain, including CBDC. In [2], Ayisi Opare and There are three kinds of blockchain, as public blockchain,
Kwangjo Kim present a survey on blockchain based CBDCs consortium blockchain and private blockchain.
from central banks. However, it only focuses on CBDCs which Public blockchain is permissionless and anyone can partic-
have completed proof-of-concept prototypes, so many ongoing ipate in the blockchain. Public blockchain is highly decentral-
ized, but has some drawbacks such as performance, privacy
CBDC programs are not taken into consideration. Compare
and security. Bitcoin and Ethereum are two most famous
to these works, blockchain based on CBDC schemes both
public blockchains.
from central banks and research communities are taken into Consortium blockchain is permissioned and is built by
consideration in our work. consortia with several organizations. Each organization is one
The paper is organized as follows. Section 2 introduces node of the blockchain, if other organizations want to join
some background information about blockchain and CBDC. the consortium blockchain, authorization from consortia is
Section 3 is a literature review on blockchain based CBDC necessary. Consortium blockchain is less decentralized than
schemes. Section 4 discusses blockchain and CBDC and chal- public blockchain, but with higher throughput and better per-
lenges and open issues on blockchain based CBDC and Sec- formance. Hyperledger Fabric, Corda, and Quorum are repre-
tion 5 concludes the paper. sentatives of consortium blockchain. Quorum is an enterprise
version of Ethereum.
Private blockchain is also permissioned and more cen-
2. Background information tralized than consortium blockchain and public blockchain.
Private blockchain is controlled by only one organization,
2.1. Blockchain
which control who can participate, execute a consensus and
maintain the shared ledger. Private blockchain is more trusted
2.1.1. Characteristics of blockchain among participants and performance is much better than con-
Blockchain is a distributed ledger technology, cryptographic sortium blockchain. Table 1 is detailed comparison of these
techniques and consensus algorithms are utilized to achieve three kinds of blockchain.
features like decentralization, traceability, immutability,
anonymity, transparency, security [8]. As a decentralized dis- 2.2. CBDC
tributed ledger, decentralization is key feature of blockchain,
which can help to reduce cost and increase efficiency. Only CBDCs can be categorized as wholesale and retail CBDC
transactions confirmed can be recorded on the blockchain. And by usage scenarios [9]. Retail CBDC is a digital version of
once validated by other nodes, transactions cannot be altered. cash and mainly used for payments among individuals and
Since each of the transactions on the blockchain is validated businesses. Retail CBDC can increase access and usability
for users, reduce costs for e-commerce and cross-border pay-
and recorded with a timestamp, all nodes in the blockchain net-
ments, and help to enhance monetary policy. Wholesale CBDC
work can verify these transactions. The ledger is shared among
is a new infrastructure for inter-bank settlements, such as
all participants in the blockchain network, which can provide
payments between banks and other entities that have direct
transparency. With cryptographic techniques, blockchain can relationship with the central bank. Wholesale CBDC can im-
guarantee that data recorded on the ledger cannot be tampered. prove inter-bank payment settlement, reduce risks and costs of
Smart contract is among the most important features of cross-border payment transactions.
blockchain. A smart contract can be executed automatically
when predetermined conditions are met, which can help to 2.2.1. Participants
improve transaction efficiency, reduce transaction costs and In a CBDC system, there are three kinds of participants
make transactions simple. as central bank, commercial banks and end users. Central
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bank is responsible for monetary policy making, currency 3. Literature review on blockchain based on CBDC
issuance, withdraw and circulation. Commercial banks act as
proxies to bridge central bank and end users. End users can Blockchain is the key and fundamental technology of cur-
create transactions and make direct payments. End users can rent digital cryptocurrencies. Central banks around the world
be individuals, small businesses and large companies, and are actively researching and exploring potential applications
payments can be inner-bank payments, inter-bank payments, of blockchain in CBDC. Since 2016, many central banks
and cross-border payments. have initiated projects on adoption of blockchain in CBDC.
Some projects have finished and developed proof-of-concept
2.2.2. Application scenarios prototypes. In this section, we make a literature review on
As for CBDC, there are two main application scenar- blockchain based on CBDC projects and schemes both from
ios as domestic payments scenarios and cross-border pay- central banks and research communities, as shown in Table 2.
ments scenarios. Domestic payments scenarios are designed
for domestic users and domestic payment systems, such as 3.1. Blockchain based CBDC schemes from central banks
retail payment, payment between enterprises and individuals.
Cross-border payments scenarios are mainly for cross-border 3.1.1. Bitcoin based CBDC
transactions. Bitcoin is the most successful cryptocurrency and is also
considered by central banks in early blockchain based CBDC
2.2.3. Design requirement of CBDC researches, such as DNBcoin/Dukaton and RSCoin.
As a payment method and digital fiat money, CBDC should
DNBcoin/Dukaton. In 2015, Dutch central bank developed
increase payment diversity. Just like current fiat money (cash),
a blockchain based CBDC prototype, DNBcoin/Dukaton [10].
CBDC should offer low-cost, fast and safe payments both for
The first version of DNBcoin was adapted from Bitcoin
domestic and cross-border scenarios. As for currency func-
blockchain and focused on sustainability in the payments sys-
tions, CBDC should provide features like offline and instant
payment, anonymity and privacy, security, resilience, control- tem. Then Dutch central bank tested different consensus and
lable regulation, availability, scalability, convenience and user validation mechanisms in subsequent four blockchain proto-
friendliness [4,9]. types. Finally, Dutch Central Bank concluded that blockchain
Offline and instant payment. CBDC should have the ability technology cannot be an option for financial infrastructures
to provide dual offline and instant transactions like cash. Dual for its limitations on capacity, efficiency and certainty of
offline payment means both parties of a transaction are offline. payment. Unfortunately, there are no public technology details
What’s more, payments should be processed and finished as on Dukaton project.
soon as possible. RSCoin. In 2016, the Bank of England and University
Anonymity and privacy. As cash is anonymous during College in London proposed RSCoin [11] as a blockchain
currency circulation and anonymity is an important feature for based CBDC prototype system. RSCoin is based on Bitcoin
online transactions. CBDC should provide enough privacy for and UTXO (Unspent Transaction Output) model is used. There
end users, including anonymity of user identity and privacy of are two kind of ledgers in RSCoin as high level global ledger
transactions. and low level ledger. Central bank is responsible for issuing
Security. Considering the digital nature of CBDC, secu- currency and maintaining the high level global ledger. The low
rity is the key to CBDC. CBDC should be against potential level ledger is maintained by payment interface providers and
fraud and attacks, provide security features like no double will be submitted to central bank. Payment interface acts as
spending, anti-counterfeiting, non-repudiation, and verifiabil- a proxy between payment interface providers and end users.
ity. No double spending is a basic security requirement for Central bank is also responsible for dealing with potential
digital currency, which means a CBDC cannot be used in one conflicts in transactions and maintaining the global consistency
transaction if it is used in another transaction before. Just like of global ledger.
cash, CBDC should be anti-counterfeiting to maintain security.
Non-repudiation refers that all actions related to CBDC should
3.1.2. Permissioned blockchain based CBDC
be logged and can be repudiated. Verifiability means that all
With the maturity of permissioned consortium blockchain,
CBDC transactions can be verified.
central banks have been attempting application of consor-
Resilience. CBDC system should have the ability to recover
from potential hardware or software failures. tium blockchain in CBDC. Most widely used consortium
Controllable regulation. CBDC should be compliant with blockchain in CBDC are Ethereum, Corda, Hyperledger Fab-
regulations. ric and Quorum. The main application scenarios of these
Availability. CBDC should provide 24/7 payments with no projects include inner-bank payments, inter-bank payments,
planned downtime. cross-border payments and settlements.
Scalability. CBDC should be scalable and can handle in- Project Jasper/CAD-coin. In 2016, the Bank of Canada
creased transaction volumes as necessary with affordable costs. launched Project Jasper [12] as a blockchain based whole-
Convenience and user friendliness. CBDC should be conve- sale CBDC. Project Jasper developed a proof of concept of
nient and friendly to all users including those without smart- payment system on high amount inter-bank payments. In the
phones. Central banks could offer devices supporting offline first phase, Ethereum is used to make payments between
transactions. participants. In the second phase, Corda blockchain is tested.
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Table 2
A summary of blockchain based on CBDC.
Project name Project status CBDC types Blockchain Blockchain Use cases Country Year
types
DNBcoin Prototype – Bitcoin Public – Dutch 2015
Dukaton [10]
RSCoin [11] Prototype – Bitcoin Public Domestic payments England 2016
Project Prototype Wholesale Ethereum, Corda Consortium Inter-bank payments Canada 2016
Jasper/CAD-
coin [12]
Project Prototype Wholesale Ethereum, Corda, Consortium Inter-bank payment and Singapore 2016
Ubin [13] Hyperledger Fabric settlements, cross-border
and Quorum settlement payments, Delivery
versus Payment, cross border
payments
Project Prototype – – Consortium Cross border payments, ECB and 2017
Stella [14] securities delivery versus Bank of Japan
payment, cross-border
payments
Project Prototype – Quorum Consortium Inter-bank payments and South African 2018
Khokha [15] settlement
E-krona [16] Prototype Retail Corda Consortium Domestic retail payments, Swedish 2018
inter-bank payment
Project Prototype Retail and Corda, hyperledger Private Inter-bank settlements Thailand 2018
Inthanon [17] wholesale
Project Prototype Retail and Corda Consortium Inter-bank settlements HK, China 2018
LionRock [18] wholesale
Project Prototype – – – Cross border payments Thailand and 2019
LionRock- HK, China
Inthanon [18]
Australia Research Wholesale Ethereum Consortium Wholesale financial market Australia 2020
project [19] transactions
Sun et. al [20] Research – HyperLedger, Consortium – Research 2017
Ethereum community
Panda [21] Research – – – – Research 2018
community
Han et. al [22] Research – – – Cross-border payments Research 2019
community
AFCoin [23] Research – Ethereum Consortium – Research 2019
community

The two phases demonstrate that central bank can benefit Project Stella. In 2017, The European Central Bank (ECB)
from blockchain based wholesale payment system, which can and Bank of Japan initiated Project Stella [14], which fo-
increase efficiency and reduce costs. To explore more appli- cuses on cross-border payments with blockchain. The phase 1
cations of blockchain, in 2017, the Central Bank of Canada tests the processing of large-value payments with blockchain,
extended Project Jasper and developed a blockchain based and phase 2 investigates securities delivery versus payment
CBDC prototype, CAD-coin. Apart from Bank of Canada, with blockchain; and phase 3 evaluates the applicability of
many commercial banks joined and cooperated to build the blockchain in improving cross-border payments.
experimental inter-bank payment system with CAD-coin. Project Khokha. In 2018, South African Reserve Bank
Project Ubin. In 2016, The Monetary Authority of Singa- launched Project Khokha [15] as a proof-of-concept inter-bank
payment and settlement system based on Quorum blockchain.
pore launched a blockchain based CBDC, Project Ubin [13],
Project Khokha does not involve currency issuance and only
to explore the use of blockchain for clearing and settlement
focuses on inter-bank payments, which shows that blockchain
of payments and securities. Five phase experiments prove
can help accelerate transaction processing and lower transac-
that blockchain can be applied in CBDC. In the phase 1, tion costs.
Ethereum is used to conduct inter-bank payments. In the phase E-Krona. In 2018, Swedish central bank proposed E-krona
2, Corda, Hyperledger Fabric and Quorum are used to ex- [16], a Corda blockchain based CBDC. E-krona is a two-tier
plore decentralized inter-bank payments. In the phase 3, smart and private blockchain based model. In the first tier, central
contracts are used to explore Delivery versus Payment. Phase bank masters the private blockchain network tier and can
4 conducts experiments on cross-border settlement payments approve and add new participants to the network. Besides, the
with blockchain. As a continuation of phase 4, phase 5 uses central bank is also responsible for issuing and withdrawing e-
blockchain and CBDC to conduct cross-border payments and kronor. Participants in the e-krona network distribute e-kronor
explore the development of multi-currency payments model. to end-users through the second tier, then end users can use
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e-krona for different purposes. E-kronor is domestic focused user’s privacy. With permissioned blockchain, superchain can
and application scenarios are mainly on retail payments, such assure that all digital currencies are created and issued by
as payments among individuals. central bank. In local area blockchain and branch blockchain,
Project Inthanon. In 2018, Bank of Thailand (BOT) both the scalability and performance are greatly improved.
launched project Inthanon [17], which aims to develop a proof- MDBC is also implemented in HyperLedger and Ethereum,
of-concept for domestic wholesale CBDC with blockchain. and experiments show that MDBC is with good performance,
Project Inthanon runs on a private-permissioned Hyperledger scalability and speed of transaction execution. MDBC matches
Besu network and focuses on wholesale CBDC. Project well with requirements of commercial banks.
Inthanon enables commercial banks to conduct domestic funds Tsai et al. [21] present Panda as a multi-blockchain based
transfers through a wholesale CBDC, such as inter-bank settle- CBDC model. Like current banking systems, account model
ments. Project Inthanon proved that blockchain based CBDC instead of UTXO model is used in Panda. Experiments show
can help to improve payment efficiency, expand operational that Panda is with high throughput, low latency, low en-
scope, reduce operational and compliance risks. ergy consumption, security, privacy, monitoring, reliability and
Project LionRock. In 2017, Hong Kong Monetary Author- timeliness. Besides, Panda model is scalable as many financial
ity (HKMA) proposed a blockchain based program, Project institutions and individuals can be added.
LionRock [18], to explore benefits and risks of blockchain Han et al. [22] propose a blockchain based CBDC frame-
based CBDC. Project LionRock evaluates technical feasibility work with three layers, as supervisory layer, network layer
of CBDC issuance with blockchain and develops a proof- and user layer. Then, take cross-border payments as an ex-
of-concept CBDC with Corda blockchain. Both retail and ample to explain the entire life cycle of CBDC, as currencies
wholesale scenarios are taken into consideration in LionRock. issuance, currency circulation, currency withdrawal, inter-bank
Project LionRock-Inthanon. To further explore other poten- payments, and cross-border payments.
tial CBDC scenarios like cross-border payments, the HKMA AFCoin [23] is an Ethereum blockchain based CBDC
and BOT proposed Project Inthanon-LionRock [18] to test model with account model. In AFCoin, smart contracts are
blockchain based cross-border payments at wholesale level used to process transactions and maintain the account status
in 2019. In project Inthanon-LionRock, a blockchain tun-
of commercial banks. Commercial banks can submit trans-
nel network is used to connect LionRock and Inthanon, two
action information and status information to central bank for
blockchain based CBDC. Compared with traditional cross-
regulatory and compliance purpose. Compared with payment
border payments, LionRock-Inthanon enables real-time cross-
services with third parties, AFCoin can provide both better
border payments, which greatly improve efficiency and reduce
privacy and regulation.
costs of cross-border payments. Besides, LionRock-Inthanon
is the first to bridge two blockchain based CBDC.
Australia. In Jan 2020, Reserve Bank of Australia [19] 4. Discussions
announced a project to explore a wholesale CBDC based on Blockchain technology can bring unique advantages to
Ethereum. The CBDC project aims to explore the implications CBDC and financial systems. Characters like auditability and
of CBDC for efficiency, risk management, and innovation in immutability make blockchain ideal to meet requirements
wholesale financial market transactions. of CBDC. Besides, blockchain based CBDC model has an
DC/EP. DC/EP (Digital Currency Electronic Payment) [24] advantage of regulation and can help to reduce cost and
is China’s CBDC system. In DC/EP, blockchain is used for
improve payment efficiency. Fig. 1 is a blockchain based
right confirmation registration and security enhancement. Cen-
CBDC design scheme. Even though some central banks have
tral banks and commercial banks unite to build a decentralized
already confirmed that they are working on blockchain based
ledger, which can provide others with query services for
CBDC, it is still controversial on adoption of Blockchain.
CBDC ownership.

3.2. Blockchain based CBDC schemes from research 4.1. Permissioned blockchain vs. permissionless blockchain
communities
Decentralization is a key feature of blockchain, which
Besides central banks, research communities are also in- is contrary to traditional centralized management in central
terested in blockchain based CBDC. Some blockchain based banks. So some people think that blockchain is not suitable for
CBDC schemes have been proposed by research communi- CBDC. Current cryptocurrencies like Bitcoin are lack of regu-
ties in recent years, and multiple-blockchains model is also latory means and are prone to money laundering, extortion and
adopted in these schemes. other criminal activities. So public (permissionless) blockchain
Sun et al. [20] propose MBDC as a multi-blockchain based cannot meet requirements of financial systems in regulation,
CBDC architecture. In MBDC, there are one superchain and scalability, and efficiency and is not suitable for blockchain
multiple local area blockchains and branch blockchains, all based CBDC. Compared with permissionless blockchain, per-
these blockchains are permissioned. Central bank is respon- missioned blockchain is more suitable for CBDC. More than
sible for maintaining the superchain and can analyze data 46 central banks all over the world are considering CBDC
on the superchain, avoiding double-spending and protecting schemes with permissioned blockchain [4].
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4.2.3. Usage scenarios

As for usage scenarios, blockchain based CBDC should
consider issues related to usage scenarios, including offline
payment, user privacy, regulation, security and convenience.
Just like cash, CBDC should support dual offline payments
and protect user privacy. The prevailing proposals on dual
offline payments are hardware based wallet. Thus, security
of hardware wallet is the key to security of user funds. As
fiat money, blockchain based CBDC should be inclusive and
convenient for all, including people without smartphone. So
these issues related to usage scenarios should be resolved as
soon as possible.

5. Conclusion
There is a hot debate on adoption of blockchain in CBDC
Fig. 1. Blockchain based CBDC design. design. Characteristics of blockchain are suitable for require-
ments of CBDC design. In the paper, we make a literature
review on blockchain based CBDC schemes both from central
4.2. Challenges and open issues
banks and research communities. Compared to permission-
less blockchain, permissioned blockchain is more suitable for
Most central banks are positive to CBDC schemes with CBDC design. However, there is no central bank who has
blockchain, many even have proposed blockchain based CBDC implemented a blockchain based CBDC. Because there are
prototypes. However, these banks only explore application of some challenges to be solved in blockchain based CBDC,
blockchain in CBDC and no central bank has implemented including performance, scalability, cross-chain interoperability
a blockchain based CBDC. Because there are still some and usage scenarios. Our work is timely and can provide
challenges to overcome both in blockchain and blockchain guidelines for blockchain based CBDC design.
based CBDC, such as performance, scalability, cross-chain
interoperability and usage scenarios. Declaration of competing interest

4.2.1. Performance and scalability The authors declare that they have no known competing
In 2019, FastFabric [25] is proposed as an extension of Hy- financial interests or personal relationships that could have
perledger Fabric, which increases transaction throughput from appeared to influence the work reported in this paper.
3000 to 20,000 TPS (transactions per second). However, Visa
can process 76,000 transaction per second [26]. Performance Acknowledgments
of current blockchain system is still lower than traditional This work was supported by Guangxi Key Laboratory of
centralized systems. And blockchain should have the good Trusted Software, China (kx202016), Guangxi Key Laboratory
scalability to deal with increasing transactions. However, there of Cryptography and Information Security, China
are no perfect solutions to resolve these issues in blockchain. (GCIS201806), Key Lab of Film and TV Media Technology
Performance and scalability are also two main challenges for of Zhejiang Province, China (2020E10015), Fujian Provincial
blockchain based CBDC. Key Laboratory of Financial Science and Technology Inno-
vation, Fuzhou University, Fujian Jiangxia University, China
4.2.2. Cross-chain interoperability (KF1901), Key Laboratory of Oceanographic Big Data Mining
As different countries and central banks are exploring & Application of Zhejiang Province, China (obdma202001).
blockchain based CBDC schemes, different blockchains are
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