South Korea is moving to bring blockchain-based payments into everyday commerce through a new project designed to reduce payment costs for small and micro businesses.
The Korea Internet and Security Agency (KISA) and the Ministry of Science and ICT launched the Deposit Token Payment Infrastructure Expansion Project on July 22. The initiative will develop a payment system using deposit tokens, digital versions of bank deposits that can be transferred through blockchain technology.
The project has a budget of 9.6 billion won and involves the Korea Financial Telecommunications and Clearings Institute, nine commercial banks, eight payment service providers and two major demand-side partners. The Ministry of Economy and Finance and the Bank of Korea are also expected to participate.
Traditional banking and blockchain to coexist together
South Korea is not the first country to test how blockchain can work with traditional banks. Project mBridge, led by the Bank for International Settlements and the central banks of China, Hong Kong, Thailand and the UAE, tested blockchain for cross-border payments with 20 commercial banks. During a 2022 pilot, the banks completed 164 payment and foreign exchange transactions worth more than $22 million, showing that blockchain could be used alongside existing banking systems.
But bringing the two systems together has not been easy. Banks must deal with regulations, privacy rules, liquidity and legal issues that were not designed for blockchain-based networks. The mBridge project had to develop new rules and governance structures to support the shared ledger. South Korea will face similar challenges as it tests whether deposit tokens can work within its existing financial system without creating new risks for banks and customers.
South Korea’s blockchain payment push could face global competition
South Korea is not alone in exploring blockchain-based payments. China is developing its digital yuan, while India is testing the use of its digital rupee for payments. The European Union is also working on a digital euro, while stablecoins such as USDT and USDC are increasingly used for cross-border transactions.
South Korea’s challenge will be turning its project into a system that can scale beyond the pilot stage. If deposit tokens deliver clear advantages in cost and settlement speed, the country could develop a practical model for bringing blockchain into everyday payments without requiring consumers to use cryptocurrencies or merchants to overhaul existing systems.
In another initiative, South Korea’s first central bank digital currency pilot is facing new scrutiny after a local report claimed the project moved forward without an independent government security inspection, raising concerns about oversight as the country expands its blockchain-based payment initiatives.
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