South Africa Rolls Out Blockchain-Based Payment Scheme

South Africa Rolls Out Blockchain-Based Payment Scheme

South Africa’s central bank has unveiled its payment system driven by blockchain, the institution said in a statement on Tuesday. 

The South African Reserve Bank (SARB) launched its Project Khokha, a proof-of-concept (PoC) devised “to simulate a ‘real-world’ trial of a distributed ledger technology (DLT)-based wholesale payment system,” adding the central bank managed to attain their goals. 

This interbank payment scheme is built on Quorum, a private blockchain based on ethereum, which utilizes Istanbul Byzantine Fault Tolerance (IBFT), Pedersen commitments, and range proofs to look into resilience, scalability, confidentiality, and finality of the platform. 

The project centered on giving seven participating banks practical experience on different uses of DLT in a realistic test environment by using various deployment models. 

Blockchain incubator ConsenSys and global audit and accounting company PricewaterhouseCoopers Inc. (PwC) are SARB’s technical and support partners, respectively, for this initiative. 

According to the SARB, it coordinated with the country’s Real Time Gross Settlement System (SAMOS), which operates round-the-clock, for up-to-date settlement of all interbank obligations in central-bank money. 

Each bank is responsible for modifying its own node on the network and would mint tokens on a blockchain, instead of producing money to settle all these obligations. 

It tested two encryption methods: Pedersen commitments and range proofs. SARB stated it has never been done on a Quorum network using IBFT. 

According to a ConsenSys representative, these methods maintain balances in a random number format to be able to conceal the balance of these participants. 

For that matter, the central bank would integrate a decrypting key for liquidity monitoring and regulatory oversight purposes. 

Since both methods are moving swiftly, the pilot project managed to facilitate SAMOS’ huge payments transaction volumes throughout distributed sites within the indicated timeframe.  

SARB’s report, however, noted the program could “have considerable implications.” 

“If one starts from the point where money is tokenized…and then represented on a DLT system, then this system can be developed to enable other uses beyond wholesale settlement. Examples include the exchange of tokenized money for other tokenized assets, like bonds or securities.” 

While investigating blockchain’s potential, SARB has recently declared that cryptocurrencies are “cyber-tokens” since they “don’t meet the requirements of money,” it added.  

Two months ago, the SARB formed a self-regulatory organization to supervise advancements in the cryptocurrency arena to avert “systemic risk.”

The central bank, however, emphasized it was vigilant not to “throttle growth” in the booming industry. 

The said organization, according to Bridget King, the central bank’s director of banking practice, would come up with its own guidelines and standards to avoid systemic risk while allowing the nation’s burgeoning crypto sector to remain competitive across the globe. 

“Regulating cryptocurrencies prematurely could have the negative consequence of throttling the growth and innovation of the industry. In addition, if laws are drafted based on existing technology, which is still in its growth phase, there is a risk that the technology may have moved so much by the time the legislation is enacted, that the legislation is obsolete or requires updating almost immediately to align with the latest technology,” King said at that time.

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