Samsung Agrees to Research Offline CBDC With South Korea

2 mins
Updated by Geraint Price
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In Brief

  • South Korea and Samsung signal cooperative intent on new CBDC technology.
  • They previously tested an offline CBDC.
  • Offline payments protect against centralized failure.
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Samsung has signed a memorandum of understanding with South Korea’s central bank to research an offline central bank digital currency (CBDC).

The two entities agreed to continue CBDC research in a signing ceremony in Suwon, South Korea. The CBDC will test offline wire transfers and payments using Samsung Galaxy devices.

South Korea Wants to Simplify Cross-Border Settlements

While not necessarily legally binding, a memorandum of understanding helps clarify the expectations of both parties before they sign a contract.

It forms the basis for future negotiations. Electronics giant Samsung previously partnered with the Bank of Korea to pilot NFC payments between Galaxy devices.

Galaxy smartphones and watches boost payment security and reliability through an embedded Secure Element security chip. An eSE is a relatively expensive smartphone component resilient to physical and side-channel attacks.

The Korean central bank tested cross-border remittances linking multiple CBDCs in 2021 and 2022. Its governor Chang Yong Rhee said in a September 2022 speech that the test prioritized compliance over privacy.

The central bank set up a virtual anti-money laundering and counter-terrorism financing mechanism to collect transaction data.

Rhee said crypto’s distributed ledger technology could not scale to accommodate CBDC transaction volumes.

Bitcoin’s blockchain can handle seven transactions per second, while Ethereum processes about 30. Scaling solutions like Bitcoin’s Lightning Network can theoretically process up to a million transactions per second but experiences low adoption. The pilot could handle up to 2,000 transactions per second.

South Korea’s crypto regulation could become effective later this year.

Offline CBDCs Protect Against Denial of Service

Central banks favor an offline CBDC’s financial inclusion, resilience, and resemblance to cash. Offline payments accommodate residents in low-network coverage areas and permit ATMs to transfer funds to a digital wallet.

According to a Bank for International Settlements handbook, an offline CBDC can dispense with the need to maintain a persistent connection to a centralized ledger.

It can support instant peer-to-peer value settlement with or without an intermittent connection to a central ledger. An alternative architecture could enable offline value transfer, which the central bank settles online.

Offline CBDC architectures
Offline CBDC Architectures | Source: Bank for International Settlements

Offline CBDCs can protect users from civil or political unrest, depriving them of network access and the ability to spend money. The architecture must allow the user to distinguish offline and online balances to prevent double-spending.

In a recent pilot, farmers in Nigeria could apply for aid using an NFC system that captured their identities in remote locations for later upload to a server.

The server could entitle qualifying farmers to fertilizer discounts by appending vouchers to their records.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...