Mentions DeFi as one of the potential risks
The Innovation Hub of the Bank for International Settlements (BIS) today proposed a framework for central bank digital currency (CBDC) security. Among them, DeFi (decentralized finance) is also listed as one of the risks.
In recent years, there have been a series of large-scale attacks on the DeFi sector’s distributed ledger (DLT) protocol and smart contracts, pointing out that this is a potential risk.
It also points out that in some cases DeFi hacking attacks were made possible by security flaws related to smart contracts. BIS said:
Recent examples of smart contract hacks that have stolen large amounts of value in DeFi are just one example of the potential security risks that CBDC systems can face.
As BIS points out, DeFi hacking costs are on the rise. For example, according to De.Fi, a digital asset management app, the loss due to hacking in the DeFi market in the second quarter (April-June) of 2023 will exceed approximately 29 billion yen ($204 million). , which was about seven times higher than the same period last year.
Developers are looking for features to prevent such damage.
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What is DeFi (decentralized finance)?
Refers to financial services or systems that utilize blockchain and are performed in the absence of a central administrator. Abbreviation for “Decentralized Finance.” DeFi financial services include stablecoin issuance, currency lending, and cryptocurrency exchanges. Many platforms use the Ethereum blockchain.
The BIS points out various potential risks to CBDCs other than DeF hacking.
Actors that pose threats to central banking systems include nation states, organized crime groups, cybercriminals, and insiders. He explained that there is a possibility of being caught in a gap.
BIS said the security framework is presented because new technologies used in CBDC systems are often unproven at operational scale.
The potential for overlooking new security and operational risks needs to be considered and addressed. In ensuring the security of CBDCs, the BIS specifically requires central banks to:
- Recognizing the challenges and emerging threats associated with CBDC systems
- Employ the latest technology to aid security and system resilience
- Explore existing solutions for use in CBDC systems
- Identify areas that need improvement and new features that need to be implemented
He also recommended using the MITER ATT&CK database, which records past cyberattacks, their methods, and the technologies used.
What are CBDCs
A digital currency issued by the central bank of a country or region. It stands for “Central Bank Digital Currency”. The big difference from virtual currency is that CBDC is a legal tender. While it is expected to reduce costs and improve efficiency in currency management and settlement, there are many issues to be considered, such as protection of personal information and privacy, security measures, and impact on the financial system.