Brazilian CBDC Raises Alarm as Developer Discovers Fund Freezing Feature

Brazilian CBDC Raises Alarm as Developer Discovers Fund Freezing Feature

The Brazilian CBDC: A Threat to Financial Freedom?

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A recent discovery by a blockchain developer has raised concerns about the Brazilian central bank-backed digital currency (CBDC) and its potential impact on financial freedom. Pedro Magalhaes, the founder of Web3 consulting company Iora Labs, revealed that he had found a code in the Brazilian CBDC pilot that would allow the government to freeze or even drain accounts at will. This finding has sparked a debate about the extent to which CBDCs can encroach on individuals’ financial autonomy.

Unveiling the Code

Magalhaes took to social media to share his findings after reverse-engineering the code behind the Brazilian CBDC pilot. He discovered a feature that grants the government the power to freeze funds and manipulate balances within the system. The source code of the CBDC’s pilot project was publicly available on Github, as part of the central bank’s effort to promote transparency.

Confirmation from the Central Bank

Local journalist Vini Barbosa confirmed Magalhaes’ findings with the Brazilian central bank. According to Barbosa, the central bank plans to retain these functions in the final CBDC product. Brazilian legislation allows monetary authorities to exercise control over financial assets in order to comply with legal proceedings. The central bank argues that replicating these functionalities in the CBDC is necessary to ensure compliance with existing legislation.

“According to Brazilian legislation, the courts, in the proper conduct of legal proceedings, have the prerogative to freeze or arrest amounts held in the National Financial System (SFN). These functionalities, therefore, currently exist in the SFN and must be reproduced on the Real Digital platform in order to guarantee its compatibility with the legislation in force.”

CBDC: A Tool for Encroaching on Financial Freedom

Initially, Magalhaes believed that the freeze function was limited to decentralized finance (DeFi) or centralized finance (CeFi), where it might be necessary to freeze balances temporarily to complete smart contract operations. However, the central bank’s response clarified that they could exercise this power at any time. This revelation has raised concerns about the potential abuse of power by the monetary authority.

Magalhaes emphasized the importance of reporting such control mechanisms on social media as a means of resisting excessive control over the CBDC. He pointed out that given Brazil’s history, the fear among the public is justified. In 1990, President Fernando Collor de Mello froze the finances of all Brazilians for over a year, just two weeks after being elected. This historical event serves as a reminder of the potential dangers associated with a centralized control system.

Privacy advocates have long warned about the risks of CBDCs, as they grant governments unprecedented authority and surveillance capabilities over individuals’ finances. The fear is that CBDCs could be utilized as a mass surveillance tool, enabling governments to exert control over their citizens.

To summarize, the discovery of the code in the Brazilian CBDC pilot project has sparked concerns about the potential threat to financial freedom. While the central bank argues that these functionalities are necessary to comply with existing legislation, critics fear that such control mechanisms may lead to abuse of power. As the debate around CBDCs continues to unfold, it is essential to strike a balance between regulatory requirements and preserving individuals’ financial autonomy.