Hedera CBDC

Central Bank Digital Currencies (CBDCs) merge the efficiency of digital payments with the credibility of central banking institutions. As countries evaluate implementation strategies, the selection of underlying infrastructure becomes a critical factor. Hedera Hashgraph, with its advanced consensus model and enterprise-grade architecture, offers a compelling platform for supporting CBDC development and deployment.

Hedera

Hedera is a distributed ledger platform that uses the Hashgraph consensus algorithm—a non-blockchain, graph-based model that enables fast, secure, and fair transaction ordering. Unlike traditional blockchain systems, Hedera's architecture does not rely on miners or proof-of-work, allowing for higher performance, lower energy consumption, and faster finality. It is governed by a council of global enterprises and designed to support enterprise and public sector applications, including CBDCs.

Throughput

Scalability is a critical requirement for CBDCs, which must support high transaction volumes with consistent speed and reliability. Hedera Hashgraph delivers high throughput and low latency, processing thousands of transactions per second. Its consensus mechanism, based on directed acyclic graph (DAG) architecture, ensures efficient and timely validation, making it well-suited for national-scale financial infrastructure.

Security

A secure and stable infrastructure is essential for any CBDC to achieve public trust. Hedera offers advanced security capabilities, including asynchronous Byzantine Fault Tolerance (aBFT), which enhances resilience against malicious activity. This level of protection is critical for central banks, ensuring the digital currency remains reliable and resistant to cyber threats.

“The Byzantine Agreement problem involves coordinating a group of n participants, where up to t participants may be faulty or malicious.”  (Kursawe, K. 2023)

Hedera addresses the Byzantine Agreement challenge through its Hashgraph consensus algorithm, which implements asynchronous Byzantine Fault Tolerance (aBFT). This ensures that consensus can be achieved even when some participants are unresponsive or malicious. The algorithm uses a gossip protocol combined with virtual voting to reach agreement on transaction order, enabling secure, efficient validation without centralized coordination or excessive communication.

Governance

CBDCs require a governance framework that balances transparency with institutional control. Hedera’s governance is managed by a council of global organizations across multiple sectors, providing decentralized oversight and structured decision-making. This model supports the regulatory and operational requirements of central banks, ensuring accountability, compliance, and public trust.

Integration

Interoperability is essential for CBDCs to function within both domestic and international financial systems. Hedera enables this through its consensus and token services, allowing seamless integration with existing digital payment platforms and other digital assets. This capability supports broader adoption and enhances the operational utility of the digital currency.

Sustainability

Sustainability is a growing priority for financial infrastructure. Hedera’s consensus algorithm is significantly more energy-efficient than traditional blockchain models, offering a low-power alternative suitable for national deployment. By leveraging Hedera, central banks can support environmental objectives while advancing digital currency initiatives.

Programmable

Hedera supports advanced programmability through its consensus and token services, enabling central banks to implement features such as conditional payments, automated regulatory compliance, and customized financial instruments. These capabilities increase the functional value of CBDCs, promoting broader adoption and enabling innovative monetary applications.

Operational

Maintaining national financial infrastructure requires cost efficiency. Hedera offers a predictable, low-cost fee structure, making it a financially practical option for central banks. This supports the sustainable implementation and long-term operation of CBDCs without creating excessive fiscal pressure on issuing authorities.

Framework

• Central Bank
• Hedera Network
• Hedera Nodes
• Hedera Consensus Service (HCS)
• Hedera Token Service (HTS)
• Users (Individuals, Merchants, Banks)
• Interoperability with Financial Systems

Central bank

Issuance
The central bank uses the Hedera Token Service (HTS) to issue the CBDC. It defines the token’s supply, distribution method, and regulatory parameters.

Control
The central bank monitors and regulates CBDC activity through tools on the Hedera platform, enabling full compliance with financial and policy requirements.

Policy Tools
Using HTS, the central bank can implement monetary policy, including adjusting supply and applying interest rates or economic controls.

Hedera network

Infrastructure
Serves as the core platform supporting security, performance, and scalability for CBDC operations.

Decentralization
Managed by the Hedera Governing Council—comprising major global organizations—to ensure a secure and trusted governance framework.

Network nodes

Consensus Role
Nodes execute Hedera’s consensus algorithm, validating and sequencing transactions across the network.

Security
Nodes enforce data integrity and prevent issues like double-spending, ensuring the network remains secure and reliable.

Consensus service

Ordering
The Hedera Consensus Service (HCS) provides decentralized, fair ordering of all transactions, maintaining transparency and auditability.

Timestamping
Each transaction is timestamped to support traceability and compliance.

Messaging
HCS also manages message sequencing tied to transactions, ensuring reliable recording and processing.

Token service

Creation
HTS enables central banks to create a CBDC token with specific properties—such as fixed supply and compliance features.

Management
Supports full token lifecycle operations, including issuance, burning, and transfers.

Compliance
HTS integrates with Know Your Customer (KYC) and Anti-Money Laundering (AML) processes to meet regulatory standards.

Users

Wallets
Individuals, merchants, and banks can hold and manage CBDC via mobile apps, web interfaces, or hardware wallets.

Transactions
Users can make and receive payments, transfer funds, and interact with the CBDC through approved channels.

Integration
Banks and merchants can embed the CBDC into their existing systems for seamless financial operations.

Financial systems

Integration
CBDCs on Hedera can be connected to current financial infrastructure and other digital currencies, ensuring interoperability and usability.

Cross-Border Use
Enables fast, low-cost international payments and remittances through direct integration with global systems.

Hedera Hashgraph provides a technically sound and operationally viable foundation for central banks pursuing digital currency initiatives. Its high scalability, strong security architecture, transparent governance, and energy efficiency position it as a reliable platform for national and cross-border CBDC systems.

By adopting Hedera, central banks gain a secure and efficient infrastructure capable of supporting advanced monetary functions and regulatory requirements. This enables not only safe deployment but also continued innovation in digital financial services.

Reference

1. Kursawe, K. (2023). Asynchronous Byzantine Fault Tolerance. In: Jajodia, S., Samarati, P., Yung, M. (eds) Encyclopedia of Cryptography, Security and Privacy. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-27739-9_1672-1