A blockchain developer claims to have reverse-engineered the source code of Brazil’s pilot central bank digital currency (CBDC) and discovered functions that could grant a central authority the power to freeze funds or reduce balances. While some argue that these functions could have potential benefits, concerns have been raised regarding financial freedom and privacy implications. The source code, posted on GitHub by Brazil’s top bank, is still subject to changes as it undergoes testing in a controlled environment.

Unveiling the Code:

Pedro Magalhães, a blockchain developer and founder of Iora Labs, successfully “reverse engineered” the open source code of Brazil’s Digital Real. The code revealed functions such as freezing and unfreezing accounts, balance adjustments, token transfers, and token creation or destruction. Magalhães suggests that these functions may be used for secured loan operations and other financial activities on decentralized finance protocols. However, concerns arise due to the lack of specificity in the code regarding the circumstances and authority executing these actions.

Transparency and Public Engagement:

Magalhães highlights the need for public disclosure and discussion of such control functions within smart contracts. The population should be aware of the conditions under which tokens can be frozen and who holds the power to execute these actions. Currently, the lack of transparency raises concerns among the cryptocurrency community about potential infringements on financial freedom and privacy.

Balancing Concerns and Benefits:

While acknowledging the concerns raised by the Brazilian public, Magalhães suggests that a CBDC could offer certain benefits. It could enhance tax traceability, enabling citizens to inspect how tax funds are allocated and monitor state purchases on-chain, thus strengthening transparency in parliamentary processes. Additionally, proponents argue that a CBDC could provide a safer and more reliable environment for entrepreneurs to innovate while potentially preventing bank runs.

The Digital Real Pilot:

The Digital Real pilot project is reportedly running on Hyperledger Besu, a privately operated Ethereum Virtual Machine (EVM)-compatible blockchain. Unlike the permissionless Bitcoin or Ethereum mainnets, individuals seeking to participate as nodes on the Digital Real network will require approval from the central bank. This controlled approach aims to maintain oversight and regulation over the CBDC’s operations.

The revelation of control functions within Brazil’s CBDC source code has ignited a debate on the balance between benefits and potential drawbacks. While concerns over financial freedom and privacy persist, proponents argue that a CBDC could bring traceability and transparency to tax allocation and state purchases. The ongoing pilot project and further public engagement will be crucial in shaping the future of Brazil’s digital currency and addressing the concerns of its citizens.