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Harmony Blockchain Solutions Oy Ltd

Consultancy by Kaj Aronsson

Prometheus SH.P.K,
in favor of Harmony Blockchain Solutions Oy Ltd

Digital National Currency

Harmony Blockchain based system

A brief explanation / memorandum on how a digital national currency could function on a

blockchain based system.

At the heart is a blockchain based ledger, and The blockchain has addresses which can hold
balances.

A parallel network makes the payment system more robust. A solution based on
blockchain technology and tokens means that one creates an infrastructure that to a
great extent functions parallel to today’s payment infrastructure.
Central bank digital currencies (CBDC) are a new and relatively unexplored area that
is currently being analysed by several central banks around the world.

Many central banks are analysing central bank digital currencies. Central banks have
been supplying a form of digital money since the 1980s, through their central bank
settlement systems for large-value payments between banks.

This money is banks’ deposits with the central bank. A central bank digital currency
(CBDC) refers to digital central bank money that is more widely available, for instance
to the general public.

Many central banks are currently investigating the possibility of issuing CBDC and
different CBDC concepts. The Nordic central banks have mainly been interested in a
version that is broadly available to the general public, while other international
interest has been greater with regard to a CBDC with a more limited counterparty
circle, and often in connection with questions regarding new technology in the form
of distributed ledgers (DLT) and blockchains.

The current systems for large-value payments are starting to become outdated in a
number of central banks. The central banks in, Canada, and the euro area have
started pilot tests to investigate whether interbank payments based on DLT can be
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made safer, more efficient and cheaper than in the current systems based on central
databases.

Technological developments move very quickly and it is difficult at present to say

what DLT can make possible both in terms of interbank payments and other areas of
use in the future.

Some central banks have shown an interest in a CBDC that is also accessible to
households and companies. Most of the investigations of this type are purely
theoretical and analyse possible motives for issuing a CBDC and the consequences
for the central bank's balance sheet, monetary policy and financial stability.

In the Nordic region, the question of a CBDC that is accessible to the general public
has become topical as a result of the low use of cash. The Nordic countries have
produced several reports and analyses concerning CBDC.

The arguments in favour of analysing a CBDC to be offered to the general public have
been based on the idea that a CBDC is expected to increase financial inclusion and
reduce the use of cash, which is considered costly, risky, to have negative
environmental effects and to facilitate the black economy.

Now to move real currency onto the blockchain you would want to follow the following pattern.

1. There is a single issuer of currency on the blockchain

2. This issuer address has the special privilege of creating new coins
3. This address also serves to move currency out of the blockchain
4. For anyone to send money to the blockchain you would send your real
USD/EUR/Etc to the bank account of the issuer
5. Attached to your money transfer you would include your blockchain address
6. In return the issuer creates the same amount of money received in the bank and
sends that to the blockchain address attached to the bank transfer

This alone already creates an auditable chain of events for all parties to follow. More auditable
options:

1. Issuer attaches a message to the digital transfer with unique bank transfer id
2. Issuer could require that only registered digital addresses or addresses matching
the bank transfer sender are processed.
3. Non-compliant bank transfers could be returned or manually processed

Through blockchain techniques like multi-signature transactions we can require that more than 1
signature is required for the issuance of currency. In such a scheme different computer systems
each hold different keys and only when all systems agree and all sign the transaction will it issue
the money.
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Here one system could do compliance regarding KYC and another can enforce other rules like
maximum issuance per account per period.

Multi signature systems are also a very useful tool as it can serve to issue new keys when lost or
when keys need to be rotated. One could store keys offline and using these special keys the
blockchain can be told to accept new keys that are issuer keys from now on. Again this can be
performed through separated systems with their own rules and security.

To move money from the blockchain into the bank account of a user the process would work as
follows.

1. The user would send the digital money to the issuer or one of its special addresses
2. Optionally this digital transfer includes bank transfer details like recipient address
or other data to attach to bank transfer
3. Upon receiving this digital money the issuer can follow different approaches here.
4. Always a bank transfer is performed of the same amount, following step options
are
a. send digital money to burn address and attach the bank transfer identifier
b. keep the digital money in an address for reuse on new deposits
c. Burning the digital money has the advantage that it doesn't have to be
secured no more

Inter address transfers (users on the system) can be made conditional in various ways.

1. Automated in protocol rules could set rules at the blockchain level in which cases
who can spend what to who
2. Manual out of protocol rules can be made by requiring again multiple signatures,
here the extra signature (apart from the users key) could be from a compliance
address overseeing transactions.

Information

Harmony Blockchain Solutions Oy Ltd can provide the complete Blockchain

technology to Digital National Currency project.

Annex / Technical info – White Paper

01.12.2021

For more information please contact:

Harmony Blockchain Solutions Oy

Executive Chairman
Turkka Rantanen
+358 50 401 9725
harmonyblockchain@gmail.com