🌐CBDCs may pose security risks, but responsible design can turn them into opportunities🌐

TheDinarian

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? The Dinarian on Locals brings you the latest in news, interviews, in-depth conversations, and stories from across the blockchain and global communities—within and beyond cryptocurrency ?. Experts delve into how blockchain technology is reshaping industries, enhancing business networks ?, transforming transaction workflows, and advancing distributed ledger systems ??. We also explore intriguing topics that may venture into the realm of conspiracies—and so much more!

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thedinarian@thedinarian

September 01, 2022

🌐CBDCs may pose security risks, but responsible design can turn them into opportunities🌐

In the typically cautious world of central banking, the idea of a central bank digital currency (CBDC) is moving at lightning speed. Atlantic Council GeoEconomics Center research shows that 105 countries and currency unions are currently exploring the possibility of launching a CBDC, either retail—issued to the general public—or wholesale, used primarily for interbank transactions. That’s up from an estimated 35 as recently as 2020. It is not just smaller economies that are interested, either; 19 Group of Twenty (G20) countries are considering issuing CBDCs, and the majority have already progressed beyond the research stage.

But as more countries launch CBDC pilot projects, concerns about cybersecurity and privacy loom large. Federal Reserve Chair Jerome Powell recently listed “cyber risk” as his number one worry relating to financial stability, and a recent UK House of Lords report specifically described cybersecurity and privacy risks as potential reasons not to develop a CBDC.

These concerns are not unfounded. CBDC vulnerabilities could be exploited to compromise a nation’s financial system. CBDCs would be able to accumulate sensitive payment and user data at an unprecedented scale. In the wrong hands, this data could be used to spy on citizens’ private transactions, obtain security-sensitive details about individuals and organizations, and even steal money. If implemented without proper security protocols, a CBDC could substantially amplify the scope and scale of many of the security and privacy threats that already exist in today’s financial system.

Technology enables central banks to ensure that both cybersecurity and privacy protection are embedded in any CBDC design.
Until recently, little work had been done publicly in the cybersecurity and central banking world to actually understand the specific cybersecurity and privacy risks associated with CBDCs. Few have considered whether CBDC designs could mitigate risks or perhaps even improve the cybersecurity of a financial system.

Our new research, published in the Atlantic Council’s recent report, titled “Missing Key–The Challenge of Cybersecurity and CBDCs,” analyzes the novel cybersecurity risks CBDCs may present for financial systems and makes the case that policymakers have ample options to safely introduce CBDCs. There are many design variants for CBDCs, ranging from centralized databases to distributed ledgers to token-based systems. Each design needs to be considered before reaching conclusions about cybersecurity and privacy risks. These designs also need to be compared with the current financial system—the one that keeps Powell up at night—to determine if new technology could deliver safer options.

So what are some of the main new cybersecurity risks that could arise in a CBDC? And more important, what can be done to mitigate these risks?

Centralized data collection
Many of the proposed design variants for CBDCs (particularly retail CBDCs) involve the centralized collection of transaction data, posing major privacy and security risks. From a privacy standpoint, such data could be used to surveil citizens’ payment activity. Accumulating so much sensitive data in one place also increases security risk by making the payoff for would-be intruders much greater.

However, the risks associated with centralized data collection can be mitigated either by not collecting it at all or by choosing a validation architecture in which each component sees only the amount of information needed for functionality. The latter approach can be aided by cryptographic tools, such as zero-knowledge proofs, which authenticate private information without revealing it and allowing it to be compromised, or cryptographic hashing techniques. For example, Project Hamilton (a joint effort by the Boston Federal Reserve and the Massachusetts Institute of Technology to explore a US CBDC) has designed a system that separates transaction validation into phases, and each phase requires access to different parts of the transaction data.

These cryptographic techniques can be extended even further to build systems that verify transaction validity with only encrypted access to transaction details like sender, receiver, or amount. While these tools sound too good to be true, they have been tested extensively in privacy-preserving cryptocurrencies such as Zcash and are based on significant advances in the cryptography community. The bottom line is that technology enables central banks to ensure that both cybersecurity and privacy protection are embedded in any CBDC design.

Transparency vs privacy
A common concern with privacy-preserving designs (including those that use specialized cryptographic techniques) is reduced transparency for regulators. Regulators generally require enough insight to identify suspicious transactions, enabling them to detect money laundering, terrorism financing, and other illicit activities.

International standard-setting and more knowledge sharing between banks is critical at this moment of rapid development and adoption.
But even this is not an either/or decision. Cryptographic techniques can be used to design CBDCs that provide cash-like privacy up to a specific threshold (for example, $10,000) while allowing government authorities to exercise sufficient regulatory oversight. This kind of threshold is not so different from the current system in the United States, which allows reduced reporting for transactions under $10,000. The reality is that in many ways, a new CBDC system would not need to reinvent security protocols but could instead improve on them.

Several countries have committed to or even deployed retail CBDCs whose underlying infrastructure is based on distributed ledger technology. Nigeria’s eNaira, launched in October 2021, is a good example. Such designs require the involvement of third parties as validators of transactions. This introduces a new role for third parties (for example, financial and nonfinancial institutions) in central bank money operations. Critically, the security guarantees of the ledger would depend on the integrity and availability of third-party validators, over which the central bank may not have direct control. (Although it is possible to implement distributed ledger technology with all validators controlled by the central bank, doing so largely defeats the purpose of using the technology.) The associated risks can potentially be mitigated through regulatory mechanisms such as auditing requirements and stringent breach disclosure requirements. However, there is not a clear blueprint for devising these regulations in a system as time-sensitive and closely interconnected as a distributed-ledger-based CBDC. This is why the need for international standard-setting and more knowledge sharing between banks is critical at this moment of rapid development and adoption.

Threat or opportunity?
Over the past 18 months some central banks have prematurely decided that a CBDC poses too many cybersecurity and privacy risks. We wanted to determine what is truly a threat and what is actually an opportunity. We concluded that governments have many CBDC design options to choose from, including new variants that have not yet been fully tested in current central bank pilots. These variants present different trade-offs in terms of performance, security, and privacy. Governments should choose a design option based on a country’s needs and policy priorities. Based on our evaluation of these trade-offs, CBDCs are not inherently more or less secure than existing systems. While responsible designs must take cybersecurity into account, that should not prevent consideration of whether to design and test a CBDC in the first place.

One thing is abundantly clear in our research. Fragmented international efforts to build CBDCs are likely to result in interoperability challenges and cross-border cybersecurity risks. Countries are understandably focused on domestic use, with too little thought for cross-border regulation, interoperability, and standard-setting. Regardless of whether the United States decides to deploy a CBDC, as issuers of a major world reserve currency, the Federal Reserve should help lead the charge toward development of global CBDC regulations in standard-setting bodies. International financial forums, including the Bank for International Settlements, IMF, and G20 have a similarly critical role to play.

CBDCs’ cybersecurity and privacy risks are real. But solutions to these challenges are within the grasp of technologists and policymakers. It would be unfortunate to preemptively decide the risks are too high before developing solutions that could actually help deliver a more modern and stable global financial system.

https://www.imf.org/en/Publications/fandd/issues/2022/09/Central-bankers-new-cybersecurity-challenge-Fanti-Lipsky-Moehr

CBDC TRACKER: https://www.atlanticcouncil.org/cbdctracker/

WWW.IMF.ORG

Central Bankers’ New Cybersecurity Challenge

CBDCs may pose security risks, but responsible design can turn them into opportunities

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Source: The Dinarian ⚡ Claude AI

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thedinarian@thedinarian

May 31, 2025

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The Stellar Development Foundation (SDF) is deeply committed to helping ensure that the highest security standards are available for projects building on the Stellar network. Last year SDF launched the Soroban Security Audit Bank, an initiative to provide projects access to auditing experts and tooling that are proven to help prevent hacks by catching potential bugs, inefficiencies, and security flaws before contracts go live. Through the Soroban Security Audit Bank, we’re empowering teams building on Soroban with comprehensive security audits from leading audit firms, enhanced readiness support, and robust tooling, significantly elevating the ecosystem’s safety and efficiency.

Since launch, the Soroban Security Audit Bank has successfully conducted over 40 essential audits, deploying over $3 million to support security of the smart contracts on Stellar. Check it out!

Ecosystem Success Stories: How the Soroban Audit Bank Drives Security Forward

By making automated formal verification available to developers, in addition to allocating significant budget for securing many of the top DeFi protocols built on top of Stellar, SDF has established a new security standard in the Web3 ecosystem. –Mooly Sagiv, Co-Founder of Certora

SDF has been a strong partner as we’ve worked with teams across the Stellar ecosystem. SDF’s Audit Bank initiative allows for a smooth and streamlined review process, and is a clear reflection of the Stellar ecosystem’s enhanced commitment to security. –Robert Chen, CEO of OtterSec

Leading projects within the Soroban ecosystem have highlighted the impact of the Audit Bank

Finding a good auditor is difficult, expensive, and high-stakes. The Audit Bank streamlines the process and supports ecosystem projects with security review at critical growth milestones. –Markus Paulson, Co-Founder of Script3

The audit firms we worked with deeply understood the full ecosystem and the underlying protocols used. Their expertise and the tools from the Audit Bank strengthened our security and supported user and investor trust. –Esteban Iglesias Manríquez, Co-Founder of Palta.Labs

What's New in 2025: Enhanced Audit Support for Soroban Builders

Teams building financial protocols, high-dependency data services, high-traction dApps funded by the Stellar Community Fund are able to request an audit and will typically be matched with a reputable audit firm within two weeks. We recently restructured the program for this year to enhance audit efficiency and incentivize accountability, and rapid and complete vulnerability remediation:

Complimentary Initial Audit: Projects will need to contribute 5% of the audit cost upfront, but this co-payment amount is eligible for a full refund, provided that critical, high, and medium vulnerabilities identified are swiftly remediated within 20 business days of receiving the initial audit report (learn more).
Incentivized Security at Key Traction Milestones: Complimentary, extensive follow-up audits are available as projects achieve critical traction milestones (e.g., $10M and $100M TVL). These audits include deeper assessments such as formal verification or competitive audits, significantly boosting project security at pivotal stages.
Advanced Security Tooling: Projects can enhance their security self-serve through complimentary or discounted access to specialized tooling, which provide vulnerability detection and formal verification capabilities (see full list of available tooling). These tools are encouraged to capture ‘easy-to-spot’ issues prior to audit as well as a final check post-audit to increase the effectiveness and thoroughness of audits.
Enhanced Audit Readiness Support: Projects receive structured preparation support, including the implementation of best practices and security standards based on the STRIDE threat modeling framework. This ensures project teams are thoroughly prepared, optimizing audit efficiency and minimizing delays.

Get Started Today

If you're already funded through the Stellar Community Fund, meet the criteria and ready to secure your smart contracts, check your email for an invitation to submit an audit request–if you haven’t received one, contact [email protected].

If you haven't built on Stellar yet, we encourage you to start your journey with the Stellar Community Fund to become eligible for future security audits and ecosystem support. For any broader questions on the program, contact [email protected].

Also, we’re organizing an exciting series of workshops–join us for the kick-off on Soroban Security Best Practices on Friday, May 30, 2025 at 2 PM ET on @StellarOrg. Together, we're shaping a secure and resilient future for smart contracts on Stellar.

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thedinarian@thedinarian

May 31, 2025

Santander mulls stablecoin, crypto offering

Bloomberg reported that Banco Santander is mulling introducing euro and dollar stablecoins, or potentially making a third party coin available to clients, citing sources. This move aligns with broader crypto ambitions, as its digital bank, Openbank, has reportedly applied for a European cryptocurrency license under the Mica Regulations and may enable retail access to digital assets.

Systemically important banks embrace stablecoins?

Major banks are now moving from observers to participants in this expanding market. Should Santander confirm plans to launch a stablecoin, it will be the fourth global systemically important bank (G-SIB) to do so. Societe Generale’s FORGE subsidiary launched the EURCV euro coin in 2023. Deutsche Bank is a partner in ALLUnity, another stablecoin initiative with plans to launch this year, subject to regulatory approval. And Standard Chartered is part of a joint venture in Hong Kong that intends to introduce a stablecoin.

Santander’s involvement could extend beyond an individual initiative. The bank is a shareholder in The Clearing House, where the Wall Street Journal reported that US banks are exploring the potential to create a joint stablecoin. If a US initiative took that route it could involve nine more G-SIBs including Bank of America, Barclays, BMO, BNY Mellon, Citi, HSBC, JP Morgan, TD Bank and Wells Fargo.

Apart from these initiatives, our research shows that more than 20 other banks have been involved in stablecoin projects.

Until recently stablecoins were mainly used to settle cryptocurrency transactions and by residents in countries with volatile domestic currencies. During the last year stablecoin infrastructure has been expanding, especially for mainstream cross border payments. Plus, President Trump issued an executive order prioritizing stablecoins. One of the administration’s motivations is this increases demand for US Treasuries, lowering the interest rate the government pays on the Treasury bills.

Santander as an early digital assets mover

Santander’s stablecoin consideration builds on years of blockchain experience. The bank was an early Ripple investor and previously used Ripple’s permissioned network for payments (not XRP), while also embracing permissionless blockchain activities including issuing a digital bond on Ethereum in 2019. This dual approach led to collaborations with other major players – alongside Societe Generale FORGE and Goldman Sachs, Santander participated in the European Investment Bank’s first digital bond, also on Ethereum. Currently, the bank’s most significant digital money initiative involves Fnality, the wholesale blockchain-based settlement network, where Santander ranks among 20 institutional backers and is part of the early adopter group alongside Lloyds Bank and UBS.

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