‘Open source’ CBDC won’t protect you from governments

People are becoming more aware every day that central bank digital currencies (CBDCs) are not worth the risk. But to combat these concerns, some policymakers are increasingly looking to open source coding as a way to provide transparency and gain public trust. But make no mistake. Transparency is welcome, but it is not a panacea.

For those familiar with cryptocurrency, the concept of using open source code needs no introduction. But for those unfamiliar, the concept means that instead of locking a project’s source code under confidentiality or trade secrets, you simply publish the source code behind the project publicly. For example, the code for Bitcoin (BTC) is free and visible to anyone.

There are many advantages to making a project open source. Doing so opens the door to external audits, for example. After careful review, someone may discover vulnerabilities that were not obvious to the original designer. Or, more worryingly, someone might discover something sinister lurking deep inside your project.

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Going back to the Bitcoin example, making the code freely available allows people to see that the 21 million supply limit is built into the design and not just an advertising slogan. In fact, publishing the code behind your project lets people know who they can (or can’t) trust.

But open source coding is not a panacea. This is especially true when it comes to the issues plaguing CBDCs.

Consider what happened in Brazil last year. Brazil’s central bank released the source code of its pilot CBDC, and it only took four days for people to notice that the CBDC’s code had monitoring and control tools built into it. In the case of decentralized cryptocurrencies, people can blaze new paths and fork chains or simply not use them. But if CBDCs are the epitome of centralized money under government control, what recourse are available to CBDC users?

People have a voice, but central banks are often controlled by unelected officials who do not answer to the public. People can choose alternative currencies, but governments often try to prevent currency competition. So transparency helps us understand how, but the system worksBy itself, it does little to help citizens who want to change the system.

Shifting focus slightly, the US code provides an example. Anyone can open the United States Code and look at Title 12, Chapter 35, Sections 3413 and 3414, and you will see that there are 20 exceptions that allow the government to effectively override your financial privacy rights. While this transparency certainly helps us understand how governments maintain such extensive financial surveillance systems, transparency alone is not enough to solve the problem.

Another example of why open source code is not a panacea for CBDC modifications can also be seen in Norway, where the Central Bank of Norway has released the code behind the CBDC project. But the problem here is slightly different. This shows that what is open source today may not be open source tomorrow. When dealing with centralized bodies such as central governments, decisions can be made quickly and without consultation with the public. The Central Bank of Norway has acknowledged this point very explicitly by noting that its current focus does not imply a long-term commitment to open source code.

As a final example, experience in the United States shows that previous statements do not represent a future commitment to open source technology. The Federal Reserve has been conducting CBDC research and pilot projects for several years. However, one notable project was a collaboration with MIT. This project, called “Project Hamilton”, led to the creation of an open-source CBDC model. But nothing binds the Fed to the results of Project Hamilton or the open source model. In fact, the Fed seems to have all but abandoned this project.

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We are still seeing the early stages of CBDC development, but these examples are telling. Policymakers should be commended for embracing transparency, but the public should not be fooled into thinking that transparency is a panacea that will solve all the problems CBDCs pose.

Although the use of open source technology has been one of the cornerstones of cryptocurrency development, people should not forget that decentralized cryptocurrencies also give people the power to act on that information. And it is precisely those conditions that have revolutionized the way people think about money and finance.

There is no way a CBDC can replicate these benefits. The problem here goes far beyond the often obfuscated actions of central banks and goes straight to the core question of how much power governments should have. Fundamentally, the problem with CBDCs is that they run the risk of centralizing money more than ever before, giving governments virtually unlimited power over the economic choices of their citizens.

This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.