The small islands taking tech to the next level
Though cities are often seen as centres of innovation, small islands have been quietly outpacing larger, more established financial hubs in digitally transforming their monetary systems.
Though all eyes have been on the likes of China, Sweden and the US, the small nation of the Bahamas is set to roll out the world’s first working central bank digital currency, known as the sand dollar, by October.
Market commentators argue that while the sand dollar may not have the same implications as a digital renminbi or digital dollar for the global economy, the Bahamas provides the optimal testing ground through which to watch the forces of this pioneering technology unfold.
Benefits of smaller infrastructures, political and economic stability, topped with a tech-savvy population, act as solid pillars and make the Bahamas the ideal testing bed for a potentially highly disruptive innovation.
Elsewhere in the Caribbean, the Covid-19 pandemic is helping create a more fertile ground for innovation, given that the virus outbreak was hugely detrimental to small islands’ tourism industries.
The Bank of Jamaica’s courting of global tech companies to develop and test a potential CBDC has resulted in technology companies increasingly looking to this sunny corner of the world to grow their influence.
For any CBDC to thrive in today’s threat landscape, a highly versatile and scalable security solution must be factored into the design. Multi-party computation is a powerful cryptographic tool that is setting a standard unlike any other in the safeguarding of digital assets.
The novel solution of MPC affords wallet holders robust protection from potential security breaches. Its specialised mathematical approach to private key management eliminates the need for a master private key. Instead, MPC distributes key shards among the devices of participating parties. As a whole key is never created in the first place, it therefore cannot be compromised.
Although MPC systems would meet central banks’ high requirements for confidentiality and integrity more than any other known key management system, technological barriers remain. Central banks including the BoJ are addressing these challenges, acknowledging that proper interoperability for cross-border, multi-currency payments will require direct collaboration with private sector technology firms.
Despite their small size and remote location, it is thanks to this embrace of technology and smart collaboration that we expect to see the BoJ and other central banks in the Caribbean continue to make headlines around the world, and take the digital currency tech industry to the next level.