In the fast-evolving landscape of digital currencies, central banks around the world are exploring the potential of issuing Central Bank Digital Currencies (CBDCs). However, as these digital currencies gain popularity, they also become targets for cyber threats, including decentralized finance (DeFi) hacks. Recognizing this vulnerability, the Bank for International Settlements (BIS) has taken steps to safeguard CBDCs from DeFi hacks by introducing a resilience framework known as Project Polaris.

The BIS acknowledges that recent events, such as the high-profile hack of the Bangladesh Bank and numerous DeFi hacks in 2022, highlight the urgent need to fortify the infrastructure surrounding CBDCs. If retail CBDC operations are not adequately protected by a resilient cybersecurity framework, threat actors could potentially destabilize economies and erode central bank trust. To prevent such scenarios, the BIS emphasizes the importance of hardening the infrastructure banks use when issuing CBDCs.

Introducing Project Polaris

Project Polaris is the BIS’s response to combat cyber threats in a two-tier CBDC system. In this system, the central bank maintains knowledge of member balances, while commercial banks handle retail functions and enforce anti-money laundering measures. The resilience framework of Project Polaris prompts banks to evaluate their baseline operations, including management structures, business continuity plans, and data protection measures.

Under Project Polaris, banks are encouraged to streamline their software security testing through DevSecOps, a methodology that ensures software development speed without compromising security. Zero-trust technologies and established methods to protect user data are also key considerations. It is crucial for retail endpoints to be fortified, and each bank should maintain a dedicated emergency response team. Additionally, the CBDC system must be scalable to minimize the risk of denial-of-service attacks.

Collaboration and Information Sharing

To effectively combat cyber threats, the BIS emphasizes the need for banks to share cyber intelligence and establish a baseline for normal transactional activity. Regular security checks should be conducted to detect and address vulnerabilities promptly. By fostering collaboration and information sharing, banks can collectively strengthen their defenses against DeFi hacks.

AnChain.ai, a company utilizing artificial intelligence to combat cyber threats in the DeFi space, underscores the importance of swift detection in mitigating the impact of hacks. According to AnChain.ai, the time taken to detect a hack is critical, and efforts should be made to minimize this window of vulnerability.

While major economies and banks have primarily focused on testing settlements between banks rather than retail payments, it is essential to extend protection to retail CBDC payments as well. As witnessed in the successful testing of retail peer-to-peer payments by the UK’s project Rosalind, it is evident that progress is being made in this direction. However, concerns remain regarding data privacy policies, and public consensus varies on the necessity of a digital euro.

The post Bank for International Settlements To Protect CBDCs From DeFi Hacks appeared first on Crypto Academy.

---

Filed under: Bitcoin - @ July 9, 2023 11:16 pm