Numerous private sector consortiums, central banks, and governments around the globe are debating the need and the potential that central bank digital currencies (CBDC) may bring to their society. The European Central Bank (ECB) and Bank of England (BoE) have dedicated working groups exploring the opportunities and risks at play, with several design choices drafted and published. Specifically, the Hackathon sought to address the potential risk of fragmentation in payments markets and retail deposits, unless interoperability between existing and new forms of money can be solved with this retail CBDC design. The Hackathon required participants to connect to Barclays’ simulation of a central bank, Payment Interface Providers (PIPs), commercial banks, and other ecosystem services. This simulation was based on the Bank of England’s (BoE) platform model for retail UK CBDC provision. The teams represented a range of players, including IBM, Lloyds Banking Group, Mastercard, Industria, REGnosys, Rethink Ledgers, UST, SDK.finance, and Barclays (Barclays was not eligible for a place).

Working with a variety of technologies to bring their solution to life, such as Corda, Ethereum, Java, Digital Asset Modelling Language (DAML) and others, the teams were asked to complete the following challenges:

Challenge 1: Deposit physical cash into a CBDC account Challenge 2: Transfer value between two CBDC accounts Challenge 3: Transfer value from a CBDC account to a commercial bank account Challenge 4: Pay at merchant website using CBDC Challenge 5: Crowdfunding via multiple debits and a single credit

The sixth ‘stretch challenge’ encouraged participants to demonstrate more novel or creative functionality within their solution. Lloyds Banking Group, for instance, added a stretch solution to offer a ‘safe settlement’ mechanism leveraging smart contracts and QR codes. Other teams’ stretch ideas included the provision of offline payments, security layers, CBDC ‘cards’ for financial inclusion, and cross border settlement.

Awarded first place in the competition, Lloyds Banking Group’s novel approach to the competition saw them reject the BoE’s premise, and propose that by merging distributed ledger technology (DLT) with regulated commercial bank money, the same CBDC outcomes can be achieved while avoiding disruptions to the credit supply. Peter Left, head of prudential liquidity management for Lloyds Banking Group and spokesperson for the team, explained that he’d prefer to focus on ensuring that the “bank’s money is more useful and interoperable rather than trying to work on a new CBDC. If we can embed specifications such as FSCS protection, or recovery and resolution playbooks into smart contracts, we could make a Lloyds Bank coin, Barclays coin, HSBC coin, Natwest coin, which would effectively end up with the same status as a CBDC.” Despite being the only team having to work remotely due to the ongoing war in their country, Ukraine, fintech SDK.finance took out second place in the competition by managing to complete all six challenges and deliver a pre-recorded youtube demo of their solution. The team’s only representative present in London was CTO and founder Pavlov Sidelov, who wants to see more of this type of collaboration not only with regulators, but between large financial institutions and smaller tech providers. “It’s hard to reach this level of openness from banks toward technology providers or startups,” observed Sidelov. “When we have an idea and propose it to banks or public institutions, we just want them to take a look because it could be a huge opportunity. Let us experiment, gives us a sandbox, gives us anything in which we can start to play or test before they make their own decisions.” One of the Hackathon’s three judges, Lee Braine, managing director, chief technology office, Barclays, and member of the Bank of England’s CBDC Technology Forum was particularly impressed by the variety of solutions the teams put forward, and believes that this type of hands-on engagement is crucial to moving forward. “The key takeaway as we look forward to post-pandemic, is that people are getting back into the mindset that it’s good to be shoulder to shoulder discussing things and working on it together,” Braine commented. “What also came out of this is the recognition that we need to collaborate across the industry. We already are doing this via official institutions and working groups, but to design CBDC properly, with so many design choices, we all need to keep engaged and kick the tyres on what people are presenting to understand whether it really does make sense or not,” Braine concluded. The other two judges were Max Malcolm, head of solution architecture, European CEO Office, Visa, and Keith Bear, fellow, Centre for Alternative Finance, University of Cambridge.

EY was an independent observer during the event and will publish a summary report in the coming weeks.