Financial Experts At MIT Bitcoin Expo: Blockchain Needs Proper Testing Before CBDC Launch
- Global finance experts at the 2020 MIT Bitcoin Expo offered their opinions on central bank digital currencies (CBDCs) and blockchain technology and the impact on the financial services industry.
- Most agree blockchain is still a far way off from providing a stable platform for central banks given the challenges in privacy protection, scalability and interoperability problems.
- Digital currencies still charter the future path of central banks in a quest to embrace technology and improve the global financial system.
On March 7th, the MIT Bitcoin Expo brought together three top global financial experts; Bob Bench of the Federal Reserve Bank of Boston, Sonja Davidovic of the International Monetary Fund (IMF), and Robleh Ali of the MIT Digital Currency Initiative (also worked in Bank of England); who discussed the global financial system and the role CBDCs are playing in shaping it.
According to the panelists, blockchain offers solutions to the never ending problems of speed and fees in legacy systems but all agreed that the system still faces deficiencies that pose privacy and security risks. Furthermore, the experts said that the advanced tests by central banks across the world on implementing a digital currency should be done with caution given the risks and uncertainties the field offers including scalability, privacy issues, phishing attacks etc.
“It’s about the weakest link”
Speaking on the panel, Sonja called out the current rush to blockchain as the solution to every problem. She said,
“What we've seen a lot is that there's a hype out there and people are quickly jumping to choosing that technology just because it's popular. That certainly happened with blockchain.”
The current rush has caught on to central banks who directly engage with the technology without putting up sound policies in place. She added,
“The result of that is that we've seen central banks that are directly engaging with it without going through the proper process of testing the technology in a proof of concept, selecting vendors through an open bidding process, and having a request for proposals.”
While she believes CBDCs will be different from the private cryptocurrencies currently in the market, she warns that central banks will need to use third party applications and outsource development to make the project work introducing extra risk. She said,
“It's about the weakest link. You can have a secure system, but if the people who're operating the system click on a phishing email or allow a security breach, your most robust system is not going to help with security.”
A hybrid DLT system?
Ali shared the views of Davidovic stating the risks present will likely push central banks to adopt a kind of hybrid system, with decentralized features but centralized governance. He said,
“You'll likely end up with a hybrid in the end. I don't think every central bank would choose the same system. How they interact with each other will be key, so you can sort them into a single system.”
Questions of scalability still arose from the panel with Bench questioning if the CBDC blockchain would be able to handle huge central bank transactions in limited time. He said,
“[DLT] might work, but what if you get to the 10 or 30 trillion volume and pieces start falling off the shelf? That's something that any central bank that's thinking about putting their full faith and trust of their government's currency behind a platform needs to understand.”
At the moment, a number of countries have taken up a CBDC projects with the People’s Bank of China leading the way in implementation.