At the Massachusetts Institute of Technology (MIT) Bitcoin Expo 2020 held on 7th March 2020 the central bank representatives said that blockchain and DLT could beef up the global monetary system; however, demand careful consideration of how they can be integrated and implemented.
Amid all the coronavirus fears that led to the postponement or cancellations of major cryptocurrency events around the globe, one event that went ahead as planned was the much-anticipated Bitcoin Expo 2020.
The panelists consisted of crypto and financial experts who got together to discuss the opportunities presented by the central bank digital currencies (CBDCs) and the potential risks that come with them, some of which include data and privacy, scalability issues surrounding blockchain and compatibility.
CBDCs, blockchain and DLT steal the focus at Bitcoin Expo 2020
Sonja Davidovic, who is working with the International Monetary Fund (IMF), which is an organization of one hundred and eighty-nine countries dedicated to foster and oversee global monetary cooperation, said that although it is a good sign that central banks are getting actively involved in researching and development of blockchain and Distributed Ledger Technology (DLT), they are requested not to make hasty decisions when it comes to implementing them.
Blockchain and DLT have certainly attracted immense attention from central banks. Considering the rising demand for technology, it is natural for everyone to get on board with the idea instantly. However, there is a greater need for banks to engage in proper and systematic process assessing the technology with regards to its proof of concept, she explained.
I urge banks to choose third-party vendors only through an open bidding process upon receiving proposals accurately weighing pros and cons. Don’t rush into decisions without testing the technology, Davidovic added.
Davidovic also said that despite a wide selection of DLT systems available to the central banks, they have been unable to pass the bar when it comes to interoperability and data security. In fact, when there are third-party vendors involved, that help in integrating the technology, the security risks double.
Further explaining the problem, Davidovic said that technology could be as secure as a vault. However, whenever there is manual intervention involved, there are always risks involved as it would only take one staff member to click on a malicious phishing email to enable a significant security breach and lose control of the entire data.
Robleh Ali, an ex-Bank of England employee and a research scientist with MIT, predicts that the central bank digital currencies would finally become an amalgamation of several different technologies.
I don’t think there will be a one fixed system to rely upon. It would eventually be a combination as a lot would depend on how central bank systems communicate with each other, Ali added.
Lastly, Bob Bench, who works at the Federal Reserve Bank of Boston, argued that although Bitcoin is an exciting concept, it cannot scale up to meet the tremendous amount of transaction load that central banks have to bear on a daily basis. If you wish to build something that can support the gigantic retail economy such as China’s, you need a system that can process trillions of transactions at a time, without falling apart, Bench asserted.
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