The Bank of Canada announced in a report published on October 5th that digital central bank funds (CBDC) may pose some security risks for users. The bank stated that some measures could be taken, from various security protocols to money transfer restrictions, in order to reduce these risks.
The Canadian Central Bank states in the report that it is more appropriate to create digital central bank money protected with a private key, but some risks may arise in such CBDCs. These risks include forgetting the private key, code vulnerabilities and fraud.
Risks that can be seen in CBDCs
The Bank of Canada divides the problems that CBDCs kept at anonymous addresses may encounter into 3:
- Forgetting or losing private keys,
- Various code vulnerabilities in electronic wallets that can lead to theft of accounts,
- Falling victim to fraud or misinformation.
The bank states that in addition to the above risks, it may also be exposed to external risks. These risks include the theft of high-balance accounts, and the lowering of security standards by competitive regulations by providers. According to the report, these risks will continue to exist unless users and authorities have adequate intervention and precautions.
What are the possible solutions to these problems?
According to the Canadian Central Bank, if central banks can apply rules similar to the liability rules applied to cash and traditional bank accounts for CBDCs, users will be encouraged to be more careful when managing their balances and making transactions.
However, it may not be easy for CBDCs to apply such rules or to determine liabilities for possible losses. If the design of CBDCs allows users to store their digital currencies, the likelihood of users to store CBDCs in third party accounts will increase, and it will prevent access by a local authority. This will be a factor that makes it difficult to apply any liability rule for CBDCs.