Each country with a significant stake in the global economy has been confronted with the advent of a new technology in central banking: the central bank digital currency (CBDC). At its most fundamental level, a CBDC is a digital version of a currency issued by a national bank.
In this article, Sky Guo, Chief Executive Officer at Cypherium, explains more on the security of CBDCs and what challenges lay ahead in the future.
Those familiar with the central banking space will know that the digitization of central bank currencies is not itself a new phenomenon. Today, central banks issue two kinds of currencies: retail (cash) and wholesale (reserve). Central bank reserves, which are not available to the public for retail use, already exist in digital form in many countries throughout the globe. However, CBDCs are poised to renovate these systems in their entirety.
Most of the serious conversations and investigations surrounding CBDCs focus on the practicalities of moving public retail money onto DLTs and, specifically, blockchains. If this is to be the first era in which nationally issued currencies go digital, central banks around the world are asking if blockchains are the most suitable and most reliable framework for this major shift. Increasingly, these studies, such as this year-long research report published recently by the Saudi and Emirati central banks, are proving that blockchains will not only conserve the function of public currencies in our digital era but, in fact, will vastly improve our currencies’ operations and security. These inquiries, which are happening throughout Asia following the large investment that China has put into its DC/EP project, focus on security beyond everyday monetary practice, toward the more practical and perhaps more urgent concern of national security when dealing with a necessarily international, digital financial system.
Retail is, of course, the far more complicated front end, as it is the half of the CBDC equation that poses the challenges around adoption. However, wholesale CBDC security will be improved as well: many of the improvements of blockchains are generally applicable to the entire system. The Real-Time Gross Settlement (RTGS) systems that currently operate wholesale can be digitally bolstered by blockchains and distributed ledger technologies so that if they suffer a vulnerability to attack or some other stoppage, the CBDC can continue to operate based off of DLT’s back-up capacities. Blockchains naturally eliminate centralized points of failure, which are the greatest vulnerabilities of large-scale sensitive systems. Additionally, blockchains reduce the cost of on-boarding and operation, facilitating cooperation and collaboration with private fintech companies and cutting-edge financial instruments.
Read more: https://thefintechtimes.com/cypherium-analysis-security-of-cbdcs-in-asia/