What is known about digital currency in Norway
2023.01.21 09:52
What is known about digital currency in Norway
By Tiffany Smith
Budrigannews.com – On the global crypto map, the small Nordic nation of Norway may not be particularly well-known. Even at the regional level, the nation doesn’t stand out with its 22 blockchain solution providers.
However, the Scandinavian nation is taking an active stance on its own national digital currency as the race to test and implement central bank digital currencies (CBDCs) accelerates daily. In fact, in 2016, it was one of the first nations to begin work on a CBDC.
Some Norwegian banks have decided to eliminate all cash options in recent years due to concerns about cash-enabled illicit transactions and an increase in cashless payment methods.
Trond Bentestuen, an executive at the major Norwegian bank DNB at the time, made the following proposal in 2016:
“The country’s central bank, Norges Bank, can only account for 40% of the 50 billion kroner that are in circulation today. This indicates that 60 percent of spending is uncontrollable.
A year prior, Nordea, a large Norwegian bank, also refused to accept cash, leaving only one Oslo Central Station branch with the ability to continue accepting cash.
DNB enabled its customers to buy BTC via its mobile app, local courts demanded that convicted drug dealers pay their fines in cryptocurrency, and local newspapers extensively discussed investments in digital assets—all of which coincided with the enthusiasm for Bitcoin (BTC).
Torbjörn Hgeland, executive director for financial stability at Norges Bank, Norway’s central bank, described the project’s objective of replacing cash use in the nation last year:
“With this background, the project is driven primarily by the decline in cash use and other structural changes in the payment system.”
The Norwegian CBDC’s experimental phase will last until June 2023 and conclude with the central bank’s recommendations regarding whether a prototype should be implemented.
The Ethereum-backed digital currency sandbox’s open-source code was made available by Norges Bank in September 2022. The sandbox, which can be found on GitHub, was made to provide an interface for interacting with the test network, making it possible to mint, burn, and transfer ERC-20 tokens.
The second part of the source code, which was supposed to be made available to the public by the middle of September, has not yet been made public.
A blog post stated that the initial use of open-source code was merely a “good starting point for learning as much as possible in collaboration with developers and alliance partners,” not a “signal that the technology will be based on open-source code.”
The bank previously disclosed Nahmii, a Norway-based developer of a layer-2 scaling solution for Ethereum bearing the same name, as its primary infrastructure partner.
The company has its own network and tokens, and it has been developing this scaling technology for Ethereum for several years. The Norwegian CBDC’s test network uses a private version of the enterprise blockchain Hyperledger Besu, not the public Ethereum ecosystem at this point.
At the end of 2022, Norway joined Project Icebreaker, a joint investigation into how CBDCs can be used for cross-border payments with the central banks of Israel, Norway, and Sweden. The three central banks will connect their domestic proof-of-concept CBDC systems within its framework. The project’s final report is expected in the first quarter of 2023.
The Norwegian CBDC project, in addition to its hopes and fears, is characterized by the national regulatory context. A recent study by EU Blockchain Observatory estimated Norway’s total equity funding at a modest $26.9 million.
Like its geographical neighbors, Norway is known for its cautious approach to the digital assets market, which includes high taxes and the relatively small scale of its domestic crypto ecosystem.
Sander Andersen, a Norwegian serial entrepreneur whose fintech company recently relocated to Switzerland, is skeptical that the forthcoming project will coexist peacefully with the crypto industry. He stated that the country’s tech entrepreneurs face more than enough challenges:
“These advantages do not extend to the digital realm despite the country’s strong infrastructure for entrepreneurs in other industries, such as low energy costs and free education. It is nearly impossible for digital businesses to compete with businesses based in jurisdictions that are more business-friendly due to the tax burden they face.
Andersen doesn’t think Norway is an exception because central bank digital currencies have the potential to compete with private cryptocurrencies and the goal of any government is to tightly control financial transactions:
“The CBDC project of the Norwegian central bank may also threaten the legal status of private stablecoins in the country. Private stablecoins may face increased regulation and oversight as a result of the introduction of a CBDC, making it more difficult for these businesses to operate.
Speaking candidly, Michael Lewellen, head of solutions architecture at OpenZeppelin, a company whose contracts library is contributing to the Norges Bank project, does not sound as pessimistic. He emphasized that private stablecoins can trade and operate alongside CBDCs on both public and private Ethereum networks from a technical standpoint, particularly if they use compatible token standards like ERC-20.
However, the CBDC appears to be a natural progression because, from a policy perspective, there is nothing that can prevent central banks from carrying out financial gatekeeping and enforcing the Know Your Customer (KYC) standards. Lewellen stated that there is a lot of shadow banking activity taking place on the blockchain, and he added that banks will not sit back and watch as the ecosystem for blockchain grows.
“CBDCs give central banks the ability to better perform gatekeeping and enforce KYC rules on CBDC holders, whereas it is much more difficult to enforce the same standards against entities using non-governmental stablecoins.”
Could the CBDC in Norway provide any assurances regarding user privacy? Lewellen stated that it is virtually impossible from both a technological and strategic standpoint. Regarding the use of CBDCs, there is currently no mature solution that would permit privacy in a manner that is compliant.
Using KYC and other methods utilized by banks today, every address associated with any national digital currency would almost certainly need to be linked to an identity. In fact, the CBDC will offer less privacy for a single customer and less public transparency regarding blockchains if implemented on a private ledger, such as the one Norges Bank is currently testing.
