Blockchain developer Pedro Magalhaes discovered the feature and took to social media to demand answers from the central bank.
Blockchain developers reverse-engineered the code behind Brazil’s central bank digital currency (CBDC) and discovered a troubling feature: the government built in the ability to freeze funds and adjust balances.
Pedro Magalhaes, founder of Web3 consultancy Iora Labs, which reviewed the API published by the monetary authority on its Github account, said the government has yet to provide an explanation.
“They tend to remain closed and generally don’t communicate with non-bank people,” he told reporters, though he said he had engaged in some general discussions on Github about CBDC implementation. “Honestly, they don’t even need to care about public opinion.”
Vini Barbosa, a reporter for Brazilian crypto news outlet Portal Do Bitcoin, claimed on social media that he spoke with Brazilian authorities and confirmed Magalhaes’ findings.
"According to the Central Bank of Brazil, the ability to 'freeze or seize amounts' in this system is protected by current Brazilian legislation," Barbosa said on Twitter.
Brazil's banking authorities did not respond to requests for comment.
Magalhaes, who initially posted the discovery on his LinkedIn profile for “educational purposes,” first thought the feature referred only to DeFi or CeFi, where “balances may need to be frozen to complete smart contract operations,” but he said the official response was that central banks could take action at any time.
He said Brazilians were frightened because of the country's financial history, when the president froze the finances of all Brazilians for 18 months in the 1990s.
Magalhaes said the only way to combat excessive central bank control over CBDCs is to report on them on social media.
“They will try to adopt it, and they have the ability to do it,” an expert on Ethereum’s Solidity programming language told Decrypt. “As a blockchain developer, the only thing I ask is: please, provide public smart contracts so Brazilians know what the central bank is doing.”