By
Bena Ilyas
May 7th, 2024
Brazil is one of several countries around the world in various phases of CBDC implementation and adoption.
Pedro Magalhães, a prominent blockchain developer and founder of tech consulting firm Iora Labs, is said to have reverse-engineered the source code of Brazil’s pilot Central Bank Digital Currency (CBDC) and uncovered a stunning finding.
The developer claims to have discovered code features that might potentially offer a central authority the ability to freeze funds or change balances. This finding raises questions about the supposed decentralized nature of blockchain technology and the consequences for financial sovereignty.
Brazil’s CBDC Experiment
The recent publication of the source code for Brazil’s Digital Real pilot project on the GitHub portal has drawn attention to the country’s efforts in building a CBDC. The Brazilian Central Bank stressed that the project is only for testing purposes and that the disclosed architecture may be modified further.
This approach allows for the identification and rectification of any potential issues or vulnerabilities before the CBDC progresses to a live operational stage. Following the publication, Pedro Magalhães made significant claims regarding his ability to “reverse engineer” the open source code of Banco Central do Brazil’s Digital Real.
His analysis has revealed various functions within the code that provide significant control over the digital currency. These functions include the ability to freeze and unfreeze accounts, manipulate balances, transfer Digital Real between addresses, and create or burn Digital Real from specific addresses.
The developer has since argued that these functions could serve certain beneficial purposes despite the fact that they were initially viewed as a potential threat to the decentralized nature of blockchain technology, Magalhães suggests that Brazil’s Central Bank may likely maintain these functions to facilitate secured loan functions and other financial operations on Decentralized Finance (DeFi) protocols.
Focus of the Brazilian CBDC
Brazil is one of several countries around the world in various phases of CBDC implementation and adoption. Brazil’s Central Bank’s initiative to introduce the Digital Real as an extension of the country’s physical currency represents a significant step toward greater financial inclusion.
The Digital Real can be exchanged on a one-to-one basis with the traditional currency, maintaining the same price and value. This unique approach combines the stability of fiat currencies with the benefits of decentralized technology, allowing for faster and more secure transactions.
According to reports, Banco Central do Brasil, has strategically chosen to focus its Digital Real solution primarily on wholesale transactions rather than retail. This decision is motivated by the fact that Brazil already has a highly effective digital payment system known as Pix.
Pix, which was launched back in 2020 by the Brazilian central bank, has quickly gained popularity, with over 60% of Brazilians currently using it for e-commerce payments. Rather than competing with Pix, the Central Bank aims to follow its successful model in other areas of financial services, particularly at the wholesale level.