September 1 • 2023

Brazil announces Drex CBDC: CBDC’s what are the fraud risks and what to do about them? 

Cybercrime is low risk, low investment, and high return. Not surprisingly, illegal financial gain is one of the biggest reasons for cyber-attacks. The result is a predicted USD 10 Trillion of damages by 2025. Our vision is to change that.

Central Bank Digital Currencies (CBDCs) are gathering pace across the globe. There has been recent proposed legislation in the EU, pilots in the UK and elsewhere and the recent announcement from Brazil about DREX. This blog will cover what a CBDC is at a high level, the key fraud risks and how CYBERA can help reduce these risks. 

What is a CBDC? 

A CBDC or Central Bank Digital Currency is a digital replacement for Central Bank Issued fiat currency, i.e. in notes and coins. The money in your bank accounts is a form of digital money, but it is Commercial Bank, i.e. private fiat money and not directly backed by a Central Bank. As such it is at risk if the bank goes bust. 

The majority of central banks are investigating CBDCs in some form or other. A CBDC could be built on some sort of distributed ledger technology (DLT), similar technology to crypto currencies such as bitcoin. However, this is not a pre-requisite, they can be built on more traditional centralised technology models. Different central banks are reviewing the potential options for the best way to deliver their CBDC to achieve their aims. 

The push from Central Banks to develop CBDCs is mainly in response to the rise of cryptocurrencies, whether decentralised or not. This response is to ward off the threat of financial instability that they may cause, which is also resulting in legislation to regulate different types of crypto assets, especially stable coins. 

PIX (the Brazilian real time payment system) and other real time payment systems have a number of similarities with CBDCs and crypto, whilst there are also differences.  

From a fraud and scam perspective there are a number of key risks across the types: 

Key differences between them are: 

As we have seen with real time payments and crypto, fraudsters are using these rails to commit scams and fraud against consumers and businesses. There are all sorts of scams as I’ve outlined int previous CYBERA blogs, and some are listed here, but most involve some form of impersonation getting the victim to transfer funds. 

As such a CBDC which offers some of the same attributes, will likely also see these sorts of frauds and scams as they roll out. 

What needs to be in place to help reduce the ability of CBDCs to be abused by scammers?

Central Bank Digital Currency (CBDC) whether based on DLT or some form of centralised infrastructure will have the following key areas for security related to payments: 

CYBERA can help here: 

Scammers target any fast-moving funds transfer systems and usually focus on the weak link, which is usually the consumer. There is no reason for CBDC’s to be any different to this, so expect to see frauds and scams here as they ramp up. The solutions are similar to those in other payment systems and require better, faster reporting and improved data sharing, which governments are legislating for.