On March 20, 2023, the Riksbank, Sweden’s central bank, released the final report of its e-krona pilot project. This phase marked a significant departure from the project’s Phase 2 proposal, which primarily focused on mobile phones for storing offline transaction data. Instead, the central bank adopted a new approach involving a “shadow wallet” integrated with an contact system and a payment card.
Background: A Shift from Mobile Phones to Payment Cards
The e-krona pilot project, which began in 2020, aimed to explore the feasibility of a central bank digital currency (CBDC) in Sweden. In its earlier stages, the project focused on mobile phones for managing offline transactions through an e-krona wallet app. However, as the project progressed, it became clear that mobile phones might not be the most suitable solution for offline transactions due to concerns regarding security and user experience.
Incorporating a “Shadow Wallet” and Payment Card
To address these concerns, the Riksbank introduced a new approach in its fourth phase. This alternative solution consisted of an contact system with a “shadow wallet,” which maintained a mirror image of the user’s e-krona balance. The central bank also issued a payment card designed to function as both a payment method and a tracker for offline balance adjustments.
Four Key Use Cases
During the pilot project, four main use cases were explored: loading and unloading funds to the payment instrument, conducting offline payments at points of sale via Near Field Communications (NFC), executing offline card-to-card transfers, and applying restrictions on the card’s balance and transaction volume.
Technical Challenges and Security Measures
The report outlines several challenges in ensuring the e-krona system’s seamless functioning, particularly in offline modes. One notable issue is synchronizing payment cards post-transactions to maintain shadow wallet liquidity. To address this problem, the project employed a solution using counters to correctly sequence offline payments and prevent replay attacks, where the same e-krona could be misused in multiple transactions.
Another concern was the need for predefined transaction limitations on payment cards. The report suggests that changes to these limits would necessitate issuing new cards. Furthermore, security protocols between payment cards and the intermediary platform, R3’s Corda, were strengthened using digital certificates. However, the report stresses the importance of a trusted and verified infrastructure for the e-krona system’s eventual rollout.
The Importance of the E-krona Pilot Project
The Riksbank’s e-krona pilot project showcases its dedication to understanding and potentially adopting a CBDC. The insights gained from this trial project strengthen the bank’s ongoing research, underlining its preparedness to move forward with CBDC development, contingent upon necessary legal consent.
Conclusion
The e-krona pilot project’s conclusion marked a significant milestone in Sweden’s journey towards CBDC adoption. By exploring different approaches and addressing potential challenges, the Riksbank has taken an essential step towards ensuring a robust, secure, and user-friendly digital currency system. The knowledge gained from this project will undoubtedly contribute to the central bank’s ongoing research and development efforts in the realm of CBDCs.
