Cambodia’s Bakong Blockchain: Transforming the Financial Landscape

In a bold move to modernize its financial system, the National Bank of Cambodia launched the Bakong Blockchain, a digital payment infrastructure aimed at revolutionizing the way Cambodians handle money. This initiative, developed in collaboration with the Japanese technology company Soramitsu, leverages blockchain technology to facilitate secure, efficient, and inclusive financial transactions across the country.

Introduction to Bakong

Bakong is a blockchain-based payment system that enables immediate mobile payments using QR codes and mobile numbers. This system connects digital wallets through a decentralized ledger, allowing users to make transactions without the need for traditional banking intermediaries. Bakong is fiat-backed, meaning users can make payments using their dollar or riel reserves, ensuring stability and reliability.

Key Features of Bakong

Financial Inclusion

One of Bakong’s primary goals is to increase financial inclusion in Cambodia. Despite a high percentage of smartphone users, only 22% of adults over the age of 15 have a bank account. Bakong addresses this gap by allowing users to create a digital wallet without needing a bank account. Money can be transferred through simple methods like QR codes or mobile numbers, making financial services accessible to a broader population.

Enhanced Security and Efficiency

Bakong’s blockchain foundation ensures high security and efficiency. Transactions are recorded on an immutable ledger, making them tamper-proof and transparent. This transparency helps reduce fraud and corruption, providing a secure environment for financial activities. The system’s ability to process transactions within seconds enhances efficiency, benefiting both consumers and businesses.

Promoting Local Currency Use

Another significant objective of Bakong is to promote the use of the local currency, the Cambodian riel. By providing a convenient and secure platform for digital transactions, Bakong encourages residents to rely less on the US dollar and more on their national currency, supporting the central bank’s de-dollarization efforts.

Technical Aspects

Hyperledger Iroha

Bakong is built on the Hyperledger Iroha blockchain, a permissioned blockchain framework designed for ease of use and implementation. Soramitsu, the primary developer behind Iroha, created a solution that allows each digital wallet to be tied to a financial institution. This setup ensures that while the central bank controls the master ledger, commercial banks maintain nodes with duplicate data, ensuring redundancy and security.

User Registration

Registering for Bakong involves submitting a picture ID and a selfie for verification. The system uses OCR to process the ID and match it with the selfie. The smartphone app offers four main functions: sending money to registered users, sending money via QR code, receiving money by displaying a QR code, and transferring funds to a bank account. For users without smartphones, transactions can be conducted using the recipient’s mobile number.

Impact on the Economy

COVID-19 Mitigation

Director General Serey Chea highlighted that Bakong’s e-payment system would help mitigate the spread of COVID-19 by reducing the need for physical cash transactions. This digital approach supports public health efforts while maintaining economic activity.

Economic Ecosystem

Shin Chang Mun, President of Phnom Penh Commercial Bank, stated that Bakong would establish a comprehensive economic ecosystem benefiting all stakeholders. By integrating multiple financial institutions into a single platform, Bakong facilitates seamless transactions and cooperation among different financial entities.

Future Prospects

Expanding Financial Services

The successful implementation of Bakong sets a precedent for other developing countries looking to enhance their financial systems through digital means. As blockchain technology continues to evolve, Bakong could expand its services to include more advanced financial products and services, further integrating Cambodia into the global digital economy.

Potential for Growth

The interest from the crypto sector in Bakong’s development indicates a broader trend of central banks exploring digital currencies. Bakong’s success could inspire similar projects worldwide, showcasing how blockchain technology can improve financial inclusion, security, and efficiency in both developing and developed nations.

Conclusion

Cambodia’s Bakong Blockchain represents a significant step forward in the country’s financial modernization efforts. By leveraging blockchain technology, Bakong enhances financial inclusion, security, and efficiency while promoting the use of local currency. As Bakong continues to grow and evolve, it will likely serve as a model for other nations seeking to harness the power of digital payments and blockchain technology to transform their financial landscapes.