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Blockchain developer involved in reverse-engineering the pilot central bank digital currency (CBDC) reveals code the central authority could use to freeze and reduce balances. 

Pedro Magalhães, identified as a blockchain developer, indicates that the central authority could utilize the code to freeze and drain the balances at will. The discovery of the code supporting the functions prompted him to project that it could become beneficial. 

Brazil Projects Subsequent adjustment to the Pilot Architecture

The revelation coincides with the Thursday, July 6, publication of the source code linked with the Digital Real pilot on the GitHub portal. The move by Brazil’s central bank explains that the Digital Real pilot targets its use within a test environment. The top bank restated that the presented architecture is bound to have additional changes. 

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Magalhães, the lead blockchain developer and founder of Lora Labs, confirmed being the reverse engineer in Brazil’s CBDC project. The executive of the tech consulting firm confirmed his involvement in the open-source code utilized by the Banco Central do Brazil for its Digital Real.

Magalhães restated that the code supports various functions, including freezing and unfreezing the accounts and varying the balances. Also, the code supports moving Digital Real to other addresses. He confirmed that the central authority can leverage the code in creating and burning Digital Real in specific addresses. 

Involve Populations and Discuss the Aspects of CBDC’s Smart Contrats Publicly

Magalhães holds that Brazil’s central bank could retain the functions to benefit the secured loan functions. The functions will favor financial operations one can execute on the decentralized finance protocols.

Magalhães decries that the code lacks specificity concerning the circumstances one can freeze the tokens. Also, the party exercising such power to execute the functions remains unknown. 

The blockchain developer laments that most projects fail to discuss various aspects of their smart contracts publicly. He illustrated that Brazil is yet to involve the population in aspects such as executing DeFi operations through multiple blockchains and the existence of code-supported functions to freeze and vary balances.

The CBDCs projects have attracted criticism from the crypto community on the potential of infringing financial freedom. Such likelihood is evident in the Digital Real code allowing a central authority to influence account access and balances available. Many consider CBDC to provide a unified channel that could easily encroach on an individual’s private space.

Benefits of Brazil’s CBDC Project 

Magalhães admitted in a Monday July post that the concerns aired by the Brazilians are genuine and understandable for the CBDC project. Nevertheless, he considers that including the features could yield several benefits. 

Magalhães considers that CBDC would make taxes more traceable. It would facilitate the public to inspect the allocation of tax funds. Inspecting purchases would strengthen resource utilization mechanisms while bolstering transparency during parliamentary amendments.

An economist attached to Brazil’s central bank had in July 2022 projected the Digital Real to help halt bank runs. Fabio Araujo added that CBDC would offer entrepreneurs safe and reliable innovation content. 

Magalhães observed that Digital Real runs on the Hyperledger Besu, identified as a compatible Ethereum Virtual Machine (EVM) blockchain. The absence of permissionless deployment in Ethereum and Bitcoin mainnets implies central bank exercises approval rights in becoming the node. 

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Michael Scott

By Michael Scott

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