Lithuania’s central bank is one month away from minting money too advanced for nearly anyone to use.
That’s because Lietuvos Bankas’ upcoming coinage is no pocket change or banknote – it’s a digital currency on the NEM blockchain. The Bank of Lithuania is issuing “LBCoin” tokens – a commemorative digital token exchangeable for physical legal tender – with technology its own officials say no shopkeeper has the e-wallet necessary to accept.
LBCoin’s planned July launch follows more than two years of blockchain experiments by the Bank of Lithuania, at a time when interest is mounting in central bank digital currencies (CBDCs).
However, Lithuania’s plans for distributed ledger technologies stretch far beyond numismatic novelties. Since March 2018, the central bank has been teaching itself all about blockchain, said Head of Innovation Andrius Adamonis, who is also the bank’s blockchain project manager.
“[LBCoin] will be a very interesting project because some people say it’s like a small-scale experimentation about CBDC,” Adamonis told CoinDesk.
In addition to these collectible cryptos, blockchain sandbox LBChain demonstrated how Lithuania can foster and grow fintech startups. The Bank of Lithuania is now even more ambitious about blockchain, Adamonis said. He wants to pitch Lithuania’s ministries of energy and health on a cross-agency, multi-blockchain platform called LTChain that the whole government could use.
LBChain’s 11 participating fintechs built blockchain-based applications for the financial sector. For example, Ledgity, a French project, ginned up a “Digital Private Bank” in IBM’s sandbox that streamlined enforcement of investing in tokens.
Other fintechs developed Credit Default Swaps (CDS) insurance smart contracts, blockchain-based RegTech programs and digital bond-buying platforms for their respective LBChain projects, to name a few. The project was implemented by pre-commercial procurement.
Some projects simultaneously demonstrated the value and market pitfalls of widely deploying blockchain tech. Adamonis noted that a shared know-your-customer (KYC) platform promised to let clients “move from one bank to another bank very easily” – a win for customers. But not the commercial banks who feared losing accounts to competitors.
“For us it was very good to experiment as a market regulator because we were using test money, dummy data,” Adamonis said.
Lithuania's blockchain future
LBChain’s three-phase research stage is now complete, meaning the stakes are about to get real. Adamonis said the bank is now preparing to take LBChain live with the public.
The sandbox will feature two cohorts of five fintechs building out applications in either Corda or Fabric over extendable six-month stints. Adamonis is open to adding more blockchain platforms to LBChain over time.
LBChain taught the bank to work with blockchains and showed it where they might prove useful – in financial services and beyond, Adamonis said. The bank is now looking into expanding the trial for wider use across Lithuania’s IT infrastructure.
“We don’t need to limit ourselves to one market, to one sector, to finance,” Adamonis said. He pointed to interconnected systems, like a tax authority collecting fees, or an energy provider collecting payments, or a health ministry provider seeking to build networks between providers.
All of them could benefit from an interoperable blockchain system of their own. Adamonis called it LTChain. He said the central bank will begin discussions with government ministries soon.
In the short term, LBCoin is hurtling toward debut. Last week, the Bank of Lithuania commenced final security tests on what may well be the world’s least usable central bank issuance.
Commemorative coins seldom circulate. Made of metals more precious than their face value, these coins tend to land in safes and display cases, not cash registers, Adamonis said. But LBCoin, as a blockchain-based token, will never land in a cash register.
Adamonis said Lithuanian merchants “do not have e-wallets on their machines” to accept LBcoin tokens, which are not legal tender while on the blockchain (The physical LBCoins the tokens represent are legal tender, however).
“We thought that we would limit daily usage of this coin [by issuing its token] in a way that no shop in Lithuania could accept,” he explained.
Nabbing one of the bank’s 4,000 LBCoins will be an admittedly obtuse ordeal. Prospectors must first amass six distinct digital tokens by trading for them with fellow owners of a bank-issued, randomized six-pack token stack.
Adamonis compared LBCoin trading to the NBA player sticker books that he said were once popular in Lithuania. Then, as now, “you will need to trade with colleagues or people from around the world” to finish the collection.
Traders can keep their digital tokens in the bank’s e-wallet, transfer them to a public NEM wallet, exchange or regift them, said Pavel Lipnevič, LBCoin project manager. Eventually, savvy collectors can trade in their blockchain mintage for a physical silver coin.
Lipnevič said the physical coin could “theoretically could be used as a legal tender.” But he advised against it, and stressed that LBcoin has no such status while on the blockchain.
The bank claims LBCoin, which commemorates Lithuania’s independence from Russia 102 years ago, is the central banking world’s first blockchain-based collector’s item. (Coincidentally, Russia’s central bank issued a silver coin commemorating blockchain earlier this year.)
If LBCoin sounds like a grand marketing gimmick on a blockchain, that may be because the project is, sort of.
“We want to cheer up numismatics, which is a dying area,” Marius Jurgilas, a central bank board member, told The Baltic Course last year. “Probably, a very small number of young people are now interested in collecting [coins], but this is what central banks do, and we think of ways to remain in this changing environment.”
But appeasing a new age of money lovers is only the public-facing angle in LBCoin’s dual mandate. The other, deeper purpose was to train the bank on yet one more application of blockchain tech.
“We seek to gain experience and knowledge in the field of creation of the virtual currency,” said Lipnevič. “This topic is gaining particular importance in light of discussions on CBDC.”
UPDATE (June 10, 2020, 17:45 UTC): This article has been updated to reflect that the LBChain sandbox was a pre-commercial procurement project, rather than a competition for competition for commercial contracts with the Bank.