Offline DLT for retail CBDC

Users carry their own ledger for offline payment verifications and transactions

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Inspiration

Offline DLT Mobile Payment for Retail CBDC, a trillion dollars market potential and achieve sustainable ESG goals.

Background

Offline payments are first employed in transit ticketings like Octopus cards. Starting as a technology supplier for Octopus (HK) Limited in 2000, we (the iBonus team) were fascinated with offline payments. We came up with a similar card system in 2003 that received Hong Kong Industrial Award for merits. With a proprietary algorithm, our system can reconstruct lost data if data on POS terminals are lost before being synchronized to the servers. This helped us to launch an offline card payment system for the US Army in Afghanistan and Iraq where the Internet was not available and POS terminals were easily damaged in the war. Currently, the Bank of China (HK) is one of the customers using card offline payment systems in their canteens for their staff.

Funded by the Hong Kong Government ESS Fund, our offline Mobile Payment is based on proprietary QR-BLE-QR as a replacement for NFC to support all smartphones (iOS and Android OS) and received several awards including UK Juniper Research Future Digital Gold Award for True Mobile Transit Ticketing.

With the proliferation of the Internet and the rise of Alipay, retail payments are dominated by online payment methods where transactions are completed over the servers. Offline payments are limited to a few applications like transit ticketing.

What it does

It is a mobile digital wallet that supports payment transactions offline without the need for the Internet.

The problem:

DLT (Distributed Ledger Technology) will be very likely to be the key component for transaction verification for most retail CBDC. However, DLT is found too slow to support huge traffic and cannot support usage without the Internet.

How we built it

Solution/Technologies

Offline DLT: Users will carry their own ledger on smartphones, and transactions can be verified instantly using proximity communication like NFC without the need for the Internet.

Patent-pending Technologies

  • Offline DLT: ledger on user smartphone.
  • Trusted Cryptography Systems: to ensure the ledger is secure and cannot be modified
  • QR-BLE-QR – proximity communication works with all smartphones without the need for NFC.

Challenges we ran into

Technical Challenge for retail CBDC

  1. Double spending
  2. Restore and pay (hacking)

Solution:

Double spending is solved by using Offline DLT technology. The Restore and Pay will be handled by a server-side user token with an expiry date and also a maximum upper transaction limit.

Accomplishments that we're proud of

Our activities related to retail CBDC:

  • Integrated with Paypal
  • Q4 2020 Sandbox of double offline payment for China Digital Currency with HSBC bank,
  • Q1 2021 Dialog with the Bank of Thailand (Retail Digital RMB) referred by Hong Kong Monetary Authority.
  • Q4 2021 FinTech Award - Offline DLT for CBDC (ETNET/Cyberport)

What we learned

Huge benefits and impact on ESG sustainable goals:

I) Financial inclusion is one of the goals and challenges of CBDC by BIS reports, PBOC White Paper E-CNY 7-2021, and Global CBDC Challenge Report 2021 by Monetary Authority Singapore. Offline payment can support places and countries with poor Internet infrastructure.

2) Energy consumption and CO2 emission challenge of retail CBDC. "CBDCs presents the opportunity to set a marker for how future payment and settlement ecosystems are designed for optimal energy efficiency whilst achieving necessary functional, performance and resilience aims", G7 Public Policy Principles for Retail CBDC.

"Our current financial system consumes 264TWh per year, equivalent to 1% of world total energy consumption. If the remaining 40% of the money will be digitized, mainly small value transactions, the energy consumption of more than 2000TWh and huge CO2 emission will be a major concern. Payment transactions done offline will be necessary, " told by Sopnendu Mohanty (MAS Chief Fintech Officer), an advocator of green and sustainable finance, during a zoom conference with us.

What's next for Offline DLT for retail CBDC

Plan Activities:

  • 2022 Through a partner in Singapore, a POC for Offline DLT was submitted to the Singapore Ministry of Monetary Authority.
  • 2022 CBDC Pilot organized by HKMA in Greater Bay Area, China

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