Open-Source Coding: A Partial Solution to CBDC Dilemmas, Not a Panacea
Summary:
The article discusses the growing skepticism towards Central Bank Digital Currencies (CBDCs). Policymakers are considering open-source coding for transparency; however, it is not a solution to all concerns due to the potential for hidden vulnerabilities and surveillance tools in the code. The text indicates that while transparency is important, it does not address larger issues around the centralization of money and governmental power over citizens' economic choices. The author suggests decentralized cryptocurrencies provide users more control and ability to act on accessible information.
There's a growing awareness that central bank digital currencies (CBDCs) might be more trouble than they're worth. Nonetheless, to deal with these issues, policymakers are becoming increasingly interested in deploying open-source code to add a layer of transparency and perhaps build public confidence. While this openness is certainly a positive thing, it is by no means a foolproof solution.
Cryptocurrency enthusiasts are already familiar with the concept of open-source code. For those less familiar, it means the source code of a project is published openly, rather than keeping it as a closely guarded secret. Bitcoin (BTC), for instance, uses this very model—its code is freely available for anyone to view. This ability to publicly scrutinize a project's code has several benefits, such as facilitating external audits and potentially uncovering hidden vulnerabilities or malicious elements within the project.
Using Bitcoin as an example once more, the availability of its code lets people confirm the 21 million supply cap isn't just a marketing promise, but rather an integral part of its design. Essentially, open-source coding can help people understand who they can trust. However, it isn't an ultimate solution for the difficulties that afflict CBDCs.
Take Brazil's experience. The central bank there published the source code for its proposed CBDC, but within just four days, observers noticed it contained tools for surveillance and control. In contrast to a decentralized cryptocurrency where users have the option of a chain fork or non-use, such latitude isn't feasible with a CBDC, which represents the epitome of government-controlled money, managed by unelected officials not directly accountable to the public.
A similar dilemma can be found in the U.S. code – it is openly available, revealing 20 exceptions that permit the government to sidestep individual financial privacy rights. While this transparency provides an understanding of how the government establishes its comprehensive financial surveillance network, mere transparency isn't sufficient to rectify the issue.
Norway presents yet another example. Its central bank released the code behind its CBDC project. A difficulty here is that what can be open-source one day can be non-open-source another day, especially when decisions are made by a central authority like a government.
The same inconsistency is seen in the United States. Despite the Federal Reserve initiating the open-source "Project Hamilton" for a CBDC model in collaboration with MIT, it seems to have dropped any binding commitment to the project or any other open-source model.
These events serve as valuable lessons. While policymakers’ attempts to embrace transparency is praiseworthy, the public must not be misled into thinking transparency is a cure-all for CBDC issues. Despite open-source technology being a pillar in cryptocurrency development, the added value of decentralized cryptocurrency is the power it gives people to act on the information they can access. CBDCs can’t mimic this benefit, for their issues run deeper than the sometimes arcane activities of central banks and touch upon how much control a government exercises. CBDCs risk amplifying government control over citizens' economic choices, making them too central to ever truly be decentralized.
Nicholas Anthony, policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, wrote this piece. His work includes "The Infrastructure Investment and Jobs Act’s Attack on Crypto: Questioning the Rationale for the Cryptocurrency Provisions" and "The Right to Financial Privacy: Crafting a Better Framework for Financial Privacy in the Digital Age". He contributes to Cointelegraph. His views are his own and may not represent those of Cointelegraph. This article is informational and should not be considered legal or investment advice.
Published At
5/11/2024 1:59:42 AM
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