The Bank of Japan will create a proof of concept (PoC) for the digital yen to assess the feasibility of issuing state cryptocurrency from a technical point of view.
According to a recent report, the Bank of Japan “will test the possibility of issuing state cryptocurrency from a technical point of view, and will work with other central banks and relevant institutions to explore the possibility of issuing a digital yen.” However, the final schedule and the decision to issue the state cryptocurrency has not yet been adopted.
According to the Bank of Japan, there are two main technical barriers to issuing state cryptocurrency: universal access and fault tolerance. The first relates to ensuring the availability of cryptocurrency for a wide range of users. According to Nikkei, as of 2018, only 65% of Japanese owned smartphones.
By “fault tolerance” is meant the availability of the digital yen offline when a power outage occurs. The Bank of Japan emphasized the importance of the availability of cryptocurrency even in an emergency, such as during an earthquake.
The Central Bank of Japan is considering the use of blockchain to create a state cryptocurrency. A centralized system has the advantages of “high throughput and high transaction speed,” but the entire system can fail at the same time due to the existence of a single point of failure.
Cryptocurrency based on Distributed Registry Technology (DLT) can solve the problem of a single point of failure and demonstrate higher fault tolerance, but it requires more time for transactions, since the blockchain needs consensus between several validators. The Bank of Japan concluded:
“Both centralized and decentralized systems have their pros and cons. For mass transactions for retail use in developed countries, it is better to introduce a centralized type. If the transaction amount is limited, fault tolerance and future development opportunities are important, it makes sense to consider a decentralized type system. ”
Recall that back in 2018, the Deputy President of the Bank of Japan stated that state cryptocurrencies are an inefficient economic instrument. However, last fall, Bank of Japan Governor Haruhiko Kuroda said the bank has no plans to issue digital currencies, but is conducting research in case this becomes necessary in the future.
At the same time, in January, the Deputy Governor of the Bank of Japan Masayoshi Amamiya announced his readiness to issue a state cryptocurrency in the event of widespread public demand.
