Code that Freezes or Reduces Funds in Brazil’s CBDC Pilot

• Brazil’s central bank digital currency (CBDC) pilot contains a source code that could change the course of DeFi space
• Pedro Magalhaes plays a huge role in describing the source code functionality

 A blockchain developer, Pedro Magalhaes, did reverse engineering on a source code of Brazil’s central bank digital currency pilot. After completing that procedure, he discovered that the code contains a function that can freeze or reduce funds, allowing any central authority to freeze or remove specific funds at their own will. Although this function is deemed risky,, it might sometimes be beneficial, as argued by Pedro Magalhaes. In addition, on July 6, the Brazilian central bank decided to publish the source code of this CBDC pilot project on the GitHub portal. Later, the central bank clarified that the project would only be used in a test environment and a  few more modifications will be made before going public. 

What is the Possible Impact of the CBDC Source Code?

Surprisingly, before Brazil’s CBDC went public with the source code, Pedro Magalhaes had already completed a reverse analysis. Being a blockchain developer and founder of Lora Labs, Magalhaes is quite ahead of the curve. He specified that the functions included locking and unlocking accounts, changing balances, and transferring or destroying digital currency from a single address. On further inquiry, Magalhaes also claimed that the central bank of Brazil would hold the key to those functions and use them for securing loans and other transactions conducted over decentralised finance protocols. 

However, Magalhaes raised his concerns regarding the lack of specification within the code. For instance, anyone who holds the key can freeze or reduce funds whenever they want. Thus, its impact on the cryptocurrency community would be huge from the financial freedom and privacy perspective. However, Pedro Magalhaes also pointed out a few benefits CBDC could provide users. 

Probable Benefits of CBDC Source Code

On July 10, in a post, Pedro Magalhaes explained a few points that brought some ease to people’s minds. In those points, he stated that CBDC could now easily track the taxes without much scrambling. Moreover, even the public cancheck how their taxes are getting used. Therefore, a greater degree of transparency is implemented in the program to urge more people to participate. 

Furthermore, inJuly 2022, Fabio Araujo, an economist at Brazil’s central bank, made interesting points. According to him, the use of this source code, the long queues at bank counters could be reduced. This would make the financial space more secure and reliable than previous notions. 

Most importantly, the digital real pilot is supposed to be running on Hyperledger Besu, an Ethereum Virtual Machine compatible blockchain. However, this blockchain is privately managed, which means it requires permission from the central bank of Brazil before going operational. Unlike Bitcoin and Ethereum, which are public chains, this new digital pilot requires verification and authentication. 

Conclusion

The implementation of this source code could change the way decentralised protocol’s function. It has an equal chance of providing benefits and depleting the financial freedom which people experience heavily. Therefore, the source code discovered by CBDC could bring a long overdue change.