Bank of Canada raises concerns and risks around digital currencies

Bank of Canada analysts raised concerns over the use of Central Bank Digital Currencies as countries around the world weight the use of digital tokens instead of paper-based money.

Code vulnerabilities in e-wallets and account providers, which can result in theft of the keys.

Falling victim to fraud and wrongdoing conducted by the account providers.

Analysts noted these risks will be shared between users and providers.

"Evidence shows that theft of private digital currencies and wrongdoing by account providers are quite common," the bank said, citing a 2019 report by on-chain security provider Ciphertrace.

For the uninitiated, users of any digital currency have access to a private key belonging to that address must be used during a particular transaction.

The bank said that such potential losses can be avoided if one makes use of a reputed crypto wallet.

As the bank noted, developers of e-wallets do not typically bear liability in case of loss, "Regardless of whether the loss results from vulnerabilities in their code or carelessness of the user." This creates additional concern.

"Enforcement of liability rules would be further complicated if the design of the CBDC allows any individual or firm to directly hold the digital tokens."

The bank analysts concluded, "Designing a CBDC that is universally accessible but that can be stored only at approved intermediaries is a technological challenge that should be investigated."