OMG Network 2020: Plasma Blockchain & CBDC

In Blog, Enterprise, Leadership, OMG Network by Vansa Chatikavanij

This blog is Part 2 of the How’s OMG Network Going series and explores how the Plasma blockchain can run Central Bank Digital Currencies. Part 1 explores Plasma and Loyalty Points.

Throughout human history, we’ve seen multiple forms of money emerge to meet societal demands — from bartering and gold to coins, notes, and credit cards.

Today, we see the emergence of digital value (cryptocurrencies). Central banks are taking note and are accelerating research and experimentation in digital money of their own: Central Bank Digital Currency (CBDC).

The concept of a CBDC isn’t new and was introduced decades ago by Tobin in 1987. There are two different types of CBDC at large: wholesale and retail CBDC.

Wholesale CBDC aims to be the new instrument for settlement between financial institutions. In comparison, retail CBDC aims to replace cash with the properties of central bank liability.

To date, most central bank experiments revolve around wholesale CBDC. But with notable central banks like China, UK, and Thailand experimenting with the retail version, it’s on the horizon — and we know this is an area where plasma can add value.

The recent BIS survey of central banks found that 80% are engaged in CBDC work (63 central banks replied representing 90% of world’s economic output). Up by ~70% in 2018, and ~65% in 2017.

Plasma is designed to overcome the scaling issues constraining the underlying architecture of Ethereum, including both the public Ethereum Network and private instances. As a result, the scalability of a plasma childchain rooted in the security of an Ethereum-based rootchain is well suited for a CBDC Platform.

It is important to note that the decision to issue CBDC will stretch the technical capacity and resources of even the most advanced central bank. There is also the open question of what sustainable and accessible business models based on issuance, distribution, transfer of CBDC will look like.

At a merchant level, this means gaining access to potentially new and technically sound transaction reconciliation and settlement rails — rails that can leverage the opportunities provided by digitized asset-based currency. For example, instantly approved credit finance at POS in retail.

Switching merchants to a whole new infrastructure will not happen overnight, and hybrid models (public-private blockchain) will be a requirement during the introduction and implementation phase.

Moreover, regulations, laws, and supervisory frameworks to cover this new form of money will also need to be in place. All of the above are complex and significant design challenges.

But the advantages of CBDC on plasma make this an exciting prospect for central banks. With CBDC on plasma, banks can better control monetary policies by issuing, lending, and offering CBDC efficiently to increase market liquidity. They’ll also be able to bridge the gap between traditional and fintech worlds, unlocking:

  1. A multitude of digital innovations;

  2. Enabling cheap, fast, and secure digital payments nation-wide, and best of all;

  3. Fostering financial inclusion with a digital currency that can be accessed and used without a bank account.

CBDC on plasma can sustainably promote the growth of a nation’s economy, bringing us closer to our goal of financial inclusion and fairness via the blockchain.

Wrapping It Up

When we founded OMG Network, our sole goal was to solve the scalability issue facing Ethereum. Now that we’re here, I understand that a Layer-2’s responsibility is so much bigger. Scaling solutions like OMG Network are crucial if we want to see blockchain be adopted globally.

With technology like plasma that’s optimized for payments and value transfer, we have a solution that can form the basis of any financial operation. Whether it is blockchain transactions or CBDC or loyalty points, we’ll keep looking for more and more ways where OMG Network can help cut costs, make transactions faster, and benefit the end-user. All while providing the security and trustlessness expected of a blockchain solution.

Vansa manages the direction of key leadership and business strategy of the company. Previously, Vansa was responsible for implementing international development programs around financial inclusion, infrastructure investment, and social development at the World Bank.
Vansa Chatikavanij, CEO, OMG Network

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