Cryptocurrencies

More people are noticing every day that central bank digital currencies, or CBDCs, are not worth it

More people are noticing every day that central bank digital currencies, or CBDCs, are not worth the risk. However, to combat these concerns, some policymakers are increasingly looking toward open source programming as a way to provide transparency and potentially gain public trust. But make no mistake, while transparency is welcome, it is not a silver bullet.

For those who are familiar with cryptocurrencies, the concept of using open source code needs no introduction. However, for those who may not be familiar, the concept simply refers to publicly publishing the source code behind a project rather than keeping it away as a secret or trade secret. For example, the code behind Bitcoin (BTC) is free and open for everyone to see.

Making the project open source has many advantages. For example, doing so opens the doors to external audits. After careful review, someone may find a vulnerability that was not obvious to the original designers. Or perhaps more worryingly, someone might find something malicious embedded deep within the project.

Related: 3 Trends to Consider Before Bitcoin’s Uptrend Resumes

Returning to the Bitcoin example, making the code freely available allows people to verify that the 21 million supply cap is more than just an advertising slogan – it is built into the design. In fact, publishing the code behind the project helps people know who they can (or can’t) trust.

However, open source encryption is not a silver bullet – especially when it comes to the problems plaguing central bank digital currencies.

Let us consider what happened in Brazil last year. Brazil’s central bank published the source code for its beta version of a central bank digital currency (CBDC), and it only took four days for people to notice that the CBDC had monitoring and control tools built into its code. If this were the case with a decentralized cryptocurrency, people could forge a new path and split the chain, or simply not use it. But what solution is there for users of central bank digital currencies (CBDC) when a CBDC is an example of government-controlled central money?

People can speak out, but central banks are often run by unelected officials who do not respond to the people. People can choose an alternative currency, but governments often try to eliminate competition for the currency. So, while transparency is useful to understand how to do this The system worksBy itself, it does little to help citizens who want to change the regime.

Shifting the focus slightly, the US blog provides an illustrative example. Anyone can open US law, look at Title 12, Chapter 35, Section 3413 and Section 3414 to see that there are 20 different exceptions that allow the government to effectively ignore your right to financial privacy. Such transparency is certainly useful for understanding how the government maintains such an expansive system of financial oversight, but transparency alone is not enough to fix the problem.

Another example of why open source code is not a silver bullet for CBDC reform can be seen in Norway, where the Norwegian Central Bank has also published the code behind its CBDC project. However, the problem here is a little different, it shows that what is open source today may not be open source tomorrow. When dealing with a central entity such as a national government, this decision can come quickly and without public consultation. The Norwegian Central Bank has acknowledged this point quite clearly by pointing out that its current focus in no way represents a long-term commitment to open source code.

As a final example, the US experience also demonstrates that past statements do not represent a future commitment to open source technology. The Federal Reserve has been researching and experimenting with central bank digital currencies (CBDC) for years. However, one notable project was a collaboration with MIT. This project, referred to as the “Hamilton Project,” led to the creation of an open source model for a Central Bank Central Bank (CBDC). However, nothing links the Fed to the results of the Hamilton project or any open source model. In fact, the Fed appears to have abandoned the project.

Related: Jerome Powell Pivot Heralds a Boring Summer for Bitcoin

We are still in the very early stages of central bank digital currency (CBDC) development, but these examples are telling. Policymakers should be commended for embracing transparency, but the general public should not be fooled into thinking that transparency is a panacea that solves all the problems posed by central bank digital currencies.

Although the use of open source technology has been one of the cornerstones of cryptocurrency development, people should not lose sight that decentralized cryptocurrency also gives people the ability to act on that information. This is the case that revolutionized the way people think about money and finance.

There is no way a CBDC can replicate this feature. The problems here extend beyond the often ambiguous behavior of central banks and go directly to the fundamental question of how much power the government should have. Fundamentally, the problem with central bank digital currencies is that they risk centralizing money more than ever before, to the point that they risk giving the government almost unlimited power over citizens’ economic choices.

Nicholas Anthony He is a guest columnist for Cointelegraph and a policy analyst at the Cato Institute’s Center for Monetary and Fiscal Alternatives. He is an author The Infrastructure Investment and Jobs Act’s attack on cryptocurrencies: Questioning the rationale for cryptocurrency provisions And The right to financial privacy: crafting a better framework for financial privacy in the digital age.

This article is for general information purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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