Norway leading the way towards CBDC
- Norway joined Israel and Sweden in September 2022 to test the feasibility of CBDCs as a way to facilitate cross-border payments
- The Norwegian Central Bank has made the open-source code for its Ethereum-backed digital currency Sandbox available on GitHub.
- The second part of the code is yet to come out, while the test network is leveraging Hyperledger Besu now instead of Ethereum.
The prevalence of digital assets and the intensity of the crypto-economy in Norway is at a moderate stage compared to some of its neighboring countries.
While Swedish and Danish crypto startups have raised 40 million and 32.5 million Euros, respectively, so far from Initial Coin Offerings, Norwegian crypto companies have raised 27 million Euros.
If we compare Norway’s volume of ICO funds with Lithuania and Estonia, it lags by an even wider margin. For instance, in Lithuania, blockchain startups have raised nearly 1.1 billion Euros, and the figure has touched 285 million in Latvia.
In terms of the number of blockchain solution providers, Norway has 22, while Denmark has 24, Finland 18, and Latvia 15. The numbers show that while the volume of funds raised in Norway might be less, there is no lack of blockchain solution providers in the country.
It is in such context that Norway has taken up a CBDC project in collaboration with countries like Israel and Sweden.
Project Icebreaker: A Joint Exploration on CBDCs
In late 2022, the Bank of International Settlements (BIS) and the Central Banks of Israel, Norway, and Sweden jointly launched Project Icebreaker. The project’s core rationale was to see how Central Bank Digital Currencies can facilitate cross-border payments.
The banks decided to connect the domestic proof-of-concept CBDC systems and publish the exploration outcome report during the first quarter of 2023.
The architecture of the Icebreaker, a retail CBDC cross-border project, involves five stakeholders: the end user, retailer, FX Provider, Wallet provider, and the Central Bank. The project aims to enable and test the feasibility of immediate retail CBDC payments across borders at a significantly lower cost than traditional systems.
Norway has long been trying to eliminate any over-dependence on traditional payment systems, significantly cash.
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Norway’s Problems With Cash
Trond Bentestuen, a then executive at a major Norwegian Bank DNB, proposed restraints on the use of cash in 2016, citing that the country’s Central Bank could account for only 40% of its use, while 60 percent of the usage was outside of any control.
In 2015, another Norwegian bank, Nordea, refused to accept cash except for its Oslo Central Station branch in a similar instance.
Inclination towards non-cash means of transactions ran parallel to it. However, the country took another six years to launch digital currency initiatives on the ground.
The Norwegian CBDC
In September 2022, the Norwegian Central Bank made the open-source code for the Ethereum-backed digital currency Sandbox available on GitHub. The second part of the code was decided to be revealed in mid-September 2022. However, it has not come out to date.
The purpose of the digital currency sandbox was to offer an interface to interact with the test network and enable functions like minting, burning, and transferring ERC-20 tokens.
To explain the release of the first phase of the open-source code, the Norwegian Central bank said that it was to offer a good starting point for learning and not to imply that the technology will be based on open-source code.
At this point, the Norwegian Test Network is not using the public Ethereum ecosystem anymore but leveraging a private version of Hyperledger Besu, an enterprise blockchain.
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The Norwegian Central Bank’s principal partner in building the CBDC project’s infrastructure is Nahmii, the developer of a layer-2 scaling solution for Ethereum.
Overall, the progress of Norwegian CBDC development is yet to reach a state where conclusive opinions around its feasibility can be drawn. Both Project Icebreaker and the country’s domestic CBDC project are still on their way to fruition. One would have to wait until the end of Q1 2023 to get a better idea of the direction in which things are to move.
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