The recently held Bitcoin Expo 2020 at the Massachusetts Institute of Technology (MIT) on 7 March saw crypto enthusiasts and experts discussing the limitations faced by central bank-issued digital currencies.
Better to be Sure than Sorry
Central bank experts namely Bob Bench of the Federal Reserve Bank of Boston, Sonja Davidovic of the International Monetary Fund (IMF), and Robleh Ali of the MIT Digital Currency Initiative and a former Bank of England official argued that distributed ledger technologies (DLT) can play a significant role in improving the global financial sector but are however limited in their capacity by challenges including privacy concerns, security breaches and interoperability of blockchain networks.
DLT can be played out to its advantage by its ability to program CBDC to perform desired functions but the demand for privacy and interoperability seems to be the biggest concern.
Central banks would have to work together to manage the various DLT-enabled networks and legacy networks. The inability of the banks to properly analyze the technology would bring about the inclusion of third party and commercial vendors increasing the risk of security and data attacks.
Sonja Davidovich stressed on the need to slow down the blockchain roll and to proceed with caution after proper analysis of the new technology. She stated that most of the central banks have proceeded with the technology without proper testing and regulatory requirements.
Bitcoin: An “Interesting” Security Model
Bob Bench, Director of the Applied FinTech Research Division at the Federal Reserve Bank of Boston expressed his concern stating that although cryptocurrencies like Bitcoin deliver a well-rounded security model, they may not be suited for CBDC. The main reason would be that central banks require a system that possesses the capacity to move networks at a consistent, secure and high speed.