CBDCs: Defending Your Nation's Digital Assets

Any nation that plans to implement a CBDC in the near future must make sure it is prepared to defend its digital assets, and most importantly, its private keys.

The future of finance is digital, and central banks are taking notice. The use of cash is rapidly declining, and apps like Venmo and Cash App are becoming more popular. COVID-19 has also accelerated the decline in cash usage, leading to more interest in digital currencies. This trend is likely to continue, as people demand more convenient and efficient payment solutions.

The idea of central bank digital currencies (CBDCs) has gained momentum as crypto adoption continues to expand. Governments across the world have been flirting with, and examining, the idea of issuing their own CBDCs, with a handful already launching.

Looking ahead, it's hard to say when central bank digital currencies (CBDCs) will become normalized. But one thing is certain: they won't resemble Bitcoin's (BTC) decentralized characteristics. That's because, by definition, a central bank is a centralized entity. However, CBDCs can provide some of the same benefits as Bitcoin, such as reducing payment verification times and providing proof of transaction. There are still quite a few challenges to overcome, but the potential benefits make it worth exploring further.

Cybersecurity risks are a major challenge for central banks considering issuing digital currencies. Blockchain technology, while offering potential benefits, also has inherent vulnerabilities that could be exploited by scammers. It is still unclear whether central banks will ultimately leverage blockchain technology for digital currencies, but it is clear that safeguarding these reserves will require a different mindset than traditional fiat currency reserves.

There is no doubt that central banks are under increasing pressure to explore the use of digital currencies. However, as with any new technology, there are potential risks and vulnerabilities associated with CBDCs. One of the key concerns is the exposure of central banks to new types of cyber threats. These potential threats could manifest themselves in a number of ways.

Cybersecurity: The Constant Challenge

As hackers become more and more sophisticated, their attacks are becoming more brazen. This is a problem for both traditional finance and blockchain protocols, as both are vulnerable to malicious intent. For example, Denmark's central bank was hacked as part of the SolarWinds operation in late 2020. This should be a wake-up call for governments around the world.

This would be a catastrophic event for any country whose central bank's private key was compromised in such a way. The potential for economic ruin would be immense, as the hackers would effectively have control over the country's entire treasury. This highlights the importance of ensuring that private keys are kept secure at all times.

It is clear that a major digital currency breach could have devastating consequences for both individuals and businesses alike. The global economy would be sent into chaos and the world would be left reeling. It is imperative that we do everything we can to protect against such an attack and ensure that our digital currencies are as secure as possible.

There is no doubt that any government would invest heavily in cyber security to protect its newly established digital infrastructure. However, simply investing more resources is not a guarantee against hacks. Any central bank launching a digital currency would be an attractive target, so it is important for government to take all necessary precautions to safeguard against attacks.

There are a few ways that a country can protect its treasury from criminals when launching its own CBDC. One way is to make sure that the currency is well-protected and not easy to access. Another way is to track the movements of the currency and make it difficult to anonymous.

Treasury security tightens in wake of national insecurity.

Disincentivizing malicious cyber attackers is no easy task, but it is possible. They are always on the lookout for new and rewarding targets while exploiting the slightest vulnerabilities. Crypto hackers are adept at identifying attack surfaces, exploiting them, injecting malicious code, and taking control of individuals’ and organizations’ private keys. However, by increasing awareness of these dangers and by investing in strong cybersecurity measures, we can make it harder for them to succeed.

As the world increasingly moves online, banks are investing more and more to defend their digital assets. While they are familiar with information security, safeguarding digital assets requires a vastly different approach than traditional assets. With the right tools and strategies in place, banks can protect their assets and keep their customers' information safe.

If central banks leverage blockchain technology, they must consider how existing banking frameworks can be adapted to blockchain's distributed architecture. Extra attention must be paid to the system architecture, governance and consensus mechanisms.

As the world increasingly moves towards digital currencies, it is important that banks take measures to protect their private keys and ensure the security of their CBDCs. Today's custody solutions have come a long way, but they still have a long way to go to be truly secure. One of the biggest challenges facing digital currencies is the fact that all transactions must be conducted while connected to the internet at some point. This makes them vulnerable to hackers and other malicious actors. However, if banks take the necessary precautions, they can safeguard their CBDCs and ensure the safety of their customers' funds.

Governments should find a way to store and manage private keys for CBDCs without having them connected to the internet. This would provide greater security and allow for on-chain settlements.

I believe that most central banks are taking their time and conducting due diligence to properly assess the risks and rewards of CBDCs. Some may decide to delay their involvement, particularly given the volatility of the cryptocurrency market. However, any nation implementing a CBDC in the near future must ensure that it is prepared to defend its digital assets and, more importantly, its private keys.

Central banks need to rethink their approach to IT security if they want to launch digital currencies with confidence. Blockchain technology presents new challenges that require a different approach to security. Only by understanding these challenges and taking appropriate action can central banks hope to launch digital currencies successfully.

I am Lior Lamesh, co-founder and CEO of GK8. I am proud to have led the company from its inception to a successful acquisition for $115 million in November 2021. In 2022, Forbes put Lior and his business partner Shahar Shamai on its 30 Under 30 List. I believe that GK8's custodial solution for financial institutions is a critical innovation in the blockchain space, and I am committed to continuing to grow the company and its impact in the years to come.