Brazil’s government claims its new digital currency, Drex, will not be used to monitor transactions or introduce new taxes. However, technical documents, policy moves, and recent events tell a different story.
They raise serious concerns about privacy, surveillance, and tax enforcement. Drex operates on a private blockchain system called Hyperledger Besu. The Central Bank controls all validator nodes, meaning it can see and track every transaction in real time.
This setup contradicts official statements that Drex will not expand government surveillance. During the pilot phase, which was delayed, privacy flaws forced the Central Bank to keep Drex on a closed network, away from the public internet.
Efforts to add privacy, such as using zero-knowledge proofs, failed because they limited the bank’s ability to trace transactions. As a result, major partners like Microsoft and Ernst & Young reduced their involvement.
On the tax front, the government claims Drex will not create new taxes. Yet, the Ministry of Finance and Central Bank are developing tools to automate tax collection through Drex and Pix, Brazil’s instant payment system.
These tools can deduct taxes directly from digital transactions, including those involving cryptocurrencies. This move, part of the 2023 consumer tax reform, would make it much easier for the government to enforce tax laws and track financial flows.
Notably, this would be possible even without introducing new taxes specifically for Drex. Security and governance remain unresolved. Stress tests have exposed cybersecurity weaknesses in Drex’s closed network.
The Central Bank admits its privacy solutions are still “immature,” delaying any public rollout. Of the 101 proposed use cases for Drex, only 16 advanced to the second phase, reflecting technical and regulatory limitations.
Public trust in Drex is low. In early 2025, a petition signed by federal deputies accused the government of seeking “total control over financial life.”
Polls show 63% of Brazilians disapprove of President Lula’s economic policies, and many worry Drex could allow the government to freeze accounts or block transactions with ease.
Brazil’s experience with Drex highlights the risks of central bank digital currencies. While officials promise privacy and no new taxes, the technical reality shows Drex could give the state more control over people’s money than ever before.
As other countries watch closely, Brazil’s digital currency debate may set the tone for the future of financial privacy and government power.