Blockchain developers claim to have reverse-engineered the source code of a pilot Brazilian digital currency central bank (CBDC) and invented functionality that could give central authorities the power to freeze funds or reduce balances. While some argue that these functions could have potential benefits, concerns have been raised regarding the financial freedom and privacy implications. The source code, posted on GitHub by a top Brazilian bank, is still subject to change as it undergoes testing in a controlled environment.
Pedro Magalhães, blockchain developer and founder of Iora Labs, successfully “reverse-engineered” the open source code of Digital Real Brasil. Codes reveal functions such as freezing and unfreezing accounts, balance adjustments, token transfers, and token creation or destruction. Magalhães suggests that these functions can be used for safe lending operations and other financial activities on decentralized finance protocols. However, concerns are raised by the lack of specificity in the code regarding the circumstances and powers of carrying out these acts.
Transparency and Public Engagement:
Magalhães highlighted the need for public disclosure and discussion of the function of such controls in smart contracts. Residents should be aware of the conditions under which tokens can be frozen and who has the power to carry out this action. Currently, the lack of transparency raises concerns among the cryptocurrency community about potential breaches of financial freedom and privacy.
Balancing Problems and Benefits:
While acknowledging the concerns raised by the Brazilian public, Magalhães suggested that CBDCs could offer certain benefits. This can improve tax traceability, allowing citizens to check how tax funds are allocated and monitor state purchases on-chain, thereby strengthening transparency in parliamentary processes. Additionally, proponents argue that CBDCs can provide a more secure and reliable environment for entrepreneurs to innovate while potentially preventing bank runs.
Digital Real Pilot:
The Digital Real pilot project is reportedly running on Hyperledger Besu, a privately operated Ethereum Virtual Machine (EVM) compatible blockchain. In contrast to the permissionless Bitcoin or Ethereum mainnet, individuals wishing to participate as nodes in the Real Digital network will need approval from the central bank. This controlled approach aims to maintain oversight and regulation of CBDC operations.
Disclosure of the control function in the Brazilian CBDC source code has sparked a debate about the balance between benefits and potential downsides. While concerns over financial freedom and privacy remain, proponents argue that CBDCs can bring traceability and transparency to state tax allocations and purchases. Ongoing pilot projects and further public engagement will be crucial in shaping the future of Brazil’s digital currency and addressing the concerns of its citizens.