Central Bank Digital Currencies (CBDCs) are part of the digital economy’s evolution. However, as these digital assets gain traction, they also become targets for cyber attacks, especially those associated with Decentralized Finance (DeFi).
The Bank of International Settlements (BIS) has risen to this challenge, devising a plan to safeguard CBDCs from such threats.
The BIS, renowned for supporting global monetary and financial stability, has developed a framework to fortify CBDCs against cyberattacks in the DeFi sector. The strategy specifically targets vulnerabilities associated with Distributed Ledger Technology (DLT) and smart contract technologies that CBDCs often employ.
Responding To DeFi Risks
Highlighting the urgency of the initiative, the BIS report mentioned that the attacks on distributed ledger technology protocols and smart contracts in decentralized finance highlight possible operational and reputational threats.
Losses in DeFi have been reported due to past breaches in smart contracts; this illustrates the potential security risks that central bank digital currency systems might encounter. The report noted:
The large-value attacks on DLT protocols and smart contracts in the DeFi space underscore the potential operational and reputational risks. Recent examples of smart contract hacks, which have led to the loss of a significant amount of value in DeFi, serve as an example of the potential security risks CBDC systems could face.
With the growth of the internet and telecommunications networks, the cyber threat landscape has become more complex. These risks aren’t just limited to online components but could also extend to offline elements of CBDC infrastructure.
The BIS suggests that the threats could be DLT-related attacks on consensus protocols, cross-chain bridges, oracles, smart contracts, or offline CBDC components.
Project Polaris: A Beacon For CBDC Security
The newly published BIS framework is an element of Project Polaris, a global initiative designed to establish “secure and resilient CBDC systems, offline and online.” The project aspires to offer central banks worldwide a framework for CBDC design, implementation, planning, and operational considerations.
The BIS’s strategy recommends central banks enhance their defense mechanisms to deflect such cyber attacks. It advocates for the formation of “security and resilience functional teams.” These dedicated teams would be intimately involved in every stage of a CBDC program, ensuring that requirements are implemented to thwart cyber attacks.
In the report’s concluding remarks, the BIS underscores the importance of central banks acknowledging the complex threat landscape created by CBDC systems and the need to adopt modern technologies to bolster security and resilience where appropriate.
Notably, these precautions will be crucial to their long-term viability and acceptance as digital currencies become more prevalent. Meanwhile, the crypto market has seen a slight uptrend of nearly 1% in the last day. The valuation of the global cryptocurrency market currently stands at $1.22 trillion at the time of writing.
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