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[Exclusive] Digital currency

Naver joins Korean central bank's digital currency initiative

By May 14, 2021 (Gmt+09:00)

Naver joins Korean central bank's digital currency initiative

South Korea’s platform giant Naver Corp. is taking the leap into the digital currency platform market with its plans to participate in the Bank of Korea-led central bank digital currency (CBDC) project.

According to the IT industry on May 13, the Bank of Korea is set to kick off the CBDC pilot program in the second half of this year, in which Naver will participate via its subsidiaries Naver Financial Corp. and LINE Plus Corp. 

Naver is eyeing digital currency as one of its growth engines, alongside commerce and content.

The CBDC pilot program will test the utility and security aspects of the project, such as creating, distributing and issuing digital currencies as well as making transfers and payments.

“This pilot project is a mandatory step ahead of officially adopting CBDC. Blockchain firms that participate will definitely have an advantageous position in the CBDC segment,” said an IT industry official.

Some countries are ahead in terms of adopting CBDC. Earlier in February, China issued a total of 10 million yuan (around 1.7 billion won) in digital currency to 50,000 citizens in Beijing.

NAVER, KAKAO BATTLE TO SECURE LEAD IN DIGITAL CURRENCY MARKET

Industry watchers say that the competition between Naver and Kakao Corp. is likely to be fiercest in this new segment considering that both firms are actively pursuing new growth drivers. Also, the two companies operate their own blockchain platforms and have been expanding their fintech operations. 

Over the past year, Naver and Kakao have been going head-to-head in the internet sector, mostly over content areas such as webtoon and web novels. Both companies have been aggressive in their recent overseas content platform acquisitions: Naver buying Toronto-based web novel platform, Wattpad; and Kakao scooping up US-based mobile fiction startup Radish Fiction. 

Naver’s decision to participate in the CBDC pilot program is seen as the company embracing a golden opportunity to establish credibility in the rising digital currency market.

“Rather than profitability, Naver's ultimate goal is to secure the credibility that comes with being a government partner,” said an industry official.

Naver Financial is well-versed in online payment platforms and the domestic payment landscape thanks to its fintech operations such as Naver Pay. Also, LINE has the technology to process large batches of payments simultaneously and effectively, which is essential to the CBDC project. It also operates payment and fintech services abroad, including in Japan, Taiwan and Thailand.

LINE is reputed to have a high-level understanding of the CBDC platform given that it participated in Bank of Korea's research process last year for the CBDC pilot program.

“We’re prepared to develop CBDC platforms that would be suitable for the domestic ecosystem," said a Naver official.

Ground X's cryptocurrency wallet, Klip
Ground X's cryptocurrency wallet, Klip

Meanwhile, Kakao’s blockchain arm Ground X is also prepping to jump into the CBDC scene. Since last month, the company, which developed the public blockchain platform Klaytn, has been collaborating with the US-based blockchain firm ConsenSys to improve Klaytn’s performance.

Through its collaboration with ConsenSys, GroundX plans to increase its compatibility with other blockchains and boost scalability, which will guarantee speedy transactions that can handle a large pool of users.

Also, IT service provider LG CNS is considering joining the CBDC pilot program given that the company, backed by technological prowess, has the ability to issue blockchain-based CBDC and develop payment systems.

Last year, LG CNS set up the pilot platform for Shinhan Bank’s digital currency and took part in the Bank of Korea’s CBDC analysis and consulting operations.

“There won’t be many firms that attempt to join the CBDC project since it requires the highest level of technology in blockchain and related areas,” said a blockchain industry official, adding that companies hoping to participate are likely to give it their best to avoid missing the boat. 

Write to Joo-wan Kim and Ik-hwan Kim at kjwan@hankyung.com

Danbee Lee edited this article.

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