Blockchain developer Pedro Magalhães analyzed the source code of the Brazilian CBDC under testing.
Brazil has been developing a CBDC for some time. If all goes according to plan, the digital Real will be launched sometime in 2024.
Once launched, it will support retail payments for anyone willing to use it, backed by funds in users’ bank accounts.
plan in advance
However, the Brazilian CBDC will not interfere with other payment methods common in Brazil, such as Pix.
A Brazilian government spokesperson said the decision to move forward with the CBDC project was to open up new avenues for technological improvements. A digital real could also reduce the cost of credit and other customer-facing financial products, allowing banks to reach a wider customer base.
“This can reduce the cost of credit, i.e. the cost of investment, and increase returns on investment. There is huge potential for new service providers, fintechs, democratizing market access and providing new services.”
Unfortunately, the current version of Brazil’s CBDC contains some interesting code that could allow the government to directly intervene in users’ wallets.
Possible privacy violation
While there is no shortage of CBDC advocates, many in the tech space have long been skeptical of government-backed digital currencies. Critics argue that CBDCs eliminate the beneficial aspects of cryptocurrencies’ decentralization and anonymity, essentially turning them into the same abstract numbers shown on bank balances.
As a result, digital currencies will be subject to partial lending and similar practices, with consumers having no real incentive to use them.
However, an overextended government might be very interested in technology that could keep a permanent and immutable list of financial transactions.
After reviewing Digital Real's source code, full-stack developer Pedro Magalhães submitted his findings on LinkedIn.
According to Magalhães, the source code contains some interesting features that allow the government to directly freeze and unfreeze accounts, move, create and destroy CBDC tokens in other people’s accounts, and transfer assets on behalf of users.
While these capabilities might simply be used to help banks provide loans and other financial products to customers or track financial crime, there are more sinister possibilities.
No representative of the Brazilian government has yet to comment on the matter.