The central bank of Canada issued a new staff analytical note analyzing the risk of issuing a central bank-backed digital currency. The central bank analyzes the risks of users holding their own tokens or entrusting them to third-party services. Bank of Canada examines the security risks for a hypothetical token-based CBDC. The paper, written by the University of Illinois professor Charles Khan and Bank of Canada staffer Francisco Rivadeneyra, claims that “the safety of a CBDC would depend on the competition between providers of aggregation solutions and the interaction of individual security protocols chosen by each supplier.
“Digital currency users can lose their private keys.”
The methodical staff note, which doesn’t necessarily reflect Bank of Canada’s official stance, reports that digital currency users can lose their private keys and, thus, their cryptocurrency holdings. That stands somewhat in contrast to bank accounts. If you get locked out of your online Bank of America account, you can typically call and prove you’re the owner to get back access. At which point, the liability issues get tricky. Holders could use a wallet service, but if that service fails or if the user loses that password, the user may find it difficult to recover his funds.
Central banks continue to explore digital currencies around the world.
Central banks worldwide have expressed interest in CBDCs, and many of them are working actively on the same. The People’s Bank of China (PBoC) is all set to become the first major nation to launch its national digital currency. The central bank has been working on its national digital currency, dubbed DCEP, for the last five to six years and is now very close to issuing it to the general public. As reported earlier, the Bank for International Standards revealed that CBDC was more searched than bitcoin and Libra this year.