Brazilian CBDC has a freeze & fund reduction function: Report

On Jul 12, 2023

A blockchain developer claimed that Brazil’s central bank digital currency has a special code, which can freeze the funds in the CBDC ledger.

Crypto trading is legal in Brazil but cryptocurrencies are not legal financial instruments under the jurisdiction of Brazil, which means no one can use cryptocurrencies in the form of payment or as a legal tender directly. The Brazilian central bank is working on blockchain technology-powered centralized currency, to replace the existing traditional financial system.

On 6 July 2023, Brazil’s central bank published the source code of the Brazilian central bank digital currency (CBDC) on the popular source code-sharing platform GitHub.

At the time, the central bank said that people are welcome to test & after that, they will bring new changes, on behalf of the test results.

On 11 July 2023, Pedro Magalhães, a blockchain developer and founder of tech consulting firm Iora Labs, tested & investigated the Brazilian CBDC source code.

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The developer said that he found that there is a code in the Brazilian CBDC that has a money freeze & money reduction function. That means the central bank authority will be able to freeze or reduce people’s money with a click.

4/ This audit entered the radar of a number of developers, who began to analyse the code. Finding out about a few unknown code functions.

These functions allow the controllers to make several (and relevant) changes in the data of the CBDC’s ledger, direct affecting its users.
— Vini Barbosa (@vinibarbosabr) July 10, 2023

According to the developer, this critical function can affect the CBDC users in several ways, as the data in the CBDC Ledger will be changeable with the help of this function.

Overall reverse engineering on the Brazilian CBDC source code showed that the central bank’s authority will be able to freeze/unfreeze a particular amount of funds, increase/decrease funds, transfer the CBDC form of money from one address to another, and mint new CBDC money easily via specific addresses.

This report sparked a discussion in the crypto sector, where the majority of the people are opposing the concept of CBDCs in the world and they are thinking that every kind of CBDC may have similar kind of functions & the use of CBDC will not be safe because of the potential censorship features.