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The National Bank of Ukraine adopts the Stellar Protocol for piloting the digital currency e-hryvnia

The National Bank of Ukraine (NBU) has joined the multitude of central banks in the world that are considering developing their own digital currency in order to build an e-currency called the e-hryvnia. However, the fear of threatening the fiat currency and the country’s financial stability was a major problem.

Still, in the analytical report on the E-hryvnia pilot, NBU claimed that it would use distributed ledger technology, precisely a private version of the Stellar protocol, to observe and study the benefits of digital currency development, as well as carryover from the pilot.

While NBU intends to build a digital currency that offers, among other things, simplicity, speed, scalability and optimal security, it has been found that the Stellar protocol can offer such criteria, which is why it chose the network.

The system’s application software for the platform on which the currency is to be built will be based on the Stellar Network SDK with Stellar Core Horizon API, the report says.

However, the NBU noted that it would discard some important features of DLT that negate the development of appropriate financial information systems for their country. NBU identified the decentralization of the transaction validation function as a feature that violates the principle that only grants NBU the right to issue e-hryvnia.

NBU noted in the report that the main advantage of DLT is that it eliminates a single trust center and gives everyone the opportunity to review every transaction. According to the NBU, this cannot be used together with the centralized e-hryvnia emissions model. However, DLT can be used to issue and distribute e-hryvnia.

Using a private version of the Stellar blockchain protocol that meets the National Bank’s requirements may be unlikely as the platform cannot upgrade to the basic Stellar blockchain protocol.

As mentioned by NBU, the private version lacks new features for the basic blockchain protocol and it is not possible to fix some of the bugs and weaknesses of the Stellar blockchain protocol.

“In addition, because of the private version of the blockchain protocol, the system is heavily reliant on the company’s development of a particular version of the protocol, creating competitive advantages for that company throughout the life of the platform,” said NBU.

The NBU concludes that it would rather develop the national system like the public versions of modern powerful blockchain protocols.

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