In a recent discovery, a blockchain developer named Pedro Magalhães claims to have reverse-engineered the source code of Brazil’s pilot central bank digital currency (CBDC). Within the code, he found functions that could allow a central authority to freeze or reduce funds at will. While Magalhães argues that these functions might have beneficial applications, concerns have been raised within the cryptocurrency community regarding financial freedom and privacy.
The source code of the Real Digital pilot project was made available on GitHub by Brazil’s top bank on July 6. It was emphasized that the pilot project was intended for testing purposes only, and the architecture presented could undergo further changes. Magalhães, the founder of tech consulting firm Iora Labs, claimed to have “reverse engineered” the code, exposing various functions such as freezing and unfreezing accounts, modifying balances, transferring tokens between addresses, and creating or burning tokens.
Magalhães expressed concerns about the lack of specificity in the code regarding the circumstances under which funds can be frozen and who holds the power to execute these actions. He stressed the need for such details to be publicly disclosed and discussed with the population. Many individuals worry that a CBDC could compromise financial freedom and intrude upon personal privacy.
Despite these concerns, Magalhães acknowledged potential benefits of a CBDC, such as enhanced traceability of taxes and increased transparency in governmental spending. The public would be able to inspect how tax funds are allocated and monitor on-chain purchases made by the state, bolstering transparency in parliamentary amendments.
The Digital Real pilot reportedly utilizes Hyperledger Besu, a privately operated Ethereum Virtual Machine-compatible blockchain. As it is not permissionless like the Bitcoin or Ethereum mainnets, users would require approval from the central bank to become a node.
This discovery highlights the importance of public discussion and transparency when it comes to the development of CBDCs. Striking a balance between the potential benefits and the protection of financial freedom and privacy is crucial. The findings by Magalhães provide an opportunity for feedback and further refinement of the CBDC project.