Federal Reserve Concerned about Security Risks for Digital Currency
Jerome Powell, governor of the U.S. Federal Reserve, recently spoke out against the security risks of digital currency at a conference at Yale Law School. He compared the architecture of Bitcoin and other digital ledger technology (DLT) to the systems used in mainstream U.S. banking.
The Federal Reserve is concerned that “DLT will in the long run render parts of the banking and payments system obsolete, as the intermediation of funds through the banking system will become unnecessary.” If America does go through that type of transition, the banks need to be prepared.
Powell mentioned there is always a need for innovation, and digital currencies are the modern-day pioneers of the financial industry. But it is impractical to believe they will one day be issued be central banks if they cannot improve their security measures and adhere to certain regulations.
Using DLT on a large scale could make America vulnerable to global cyberattacks, putting the financial stability of the country at risk.
“A digital currency issued by a central bank would be a global target for cyber attacks, cyber counterfeiting, and cyber theft,” said Powell. “Issues of reliability, scalability, and security remain very important.”
Upgrading payment systems to accept digital currencies is an expensive process. Many retailers and banks are still trying to make the transition to chip card readers, let alone software that accepts digital currency.
“Upgrades are often costly, lengthy, and risky, particularly if the technology is still being proven.”
The Federal Reserve is open to the idea of financial innovations, but only if safety and security remain a top priority.