In addition to green components, IMF-recommended central banks include other features in their CBDCs, such as: B. Compliance, higher resilience and offline capabilities.
A study by the International Monetary Fund on energy consumption has revealed the importance of design choices within the crypto ecosystem in building an environmentally friendly mainstream payments system.
In the study, titled Digital Currencies and Energy Consumption, the IMF examines the energy consumption of crypto assets through their different design elements to assess the ideal mechanism for the development of central bank digital currencies (CBDCs).
Estimates of energy consumption (in kWh) per transaction for core processing of various payment systems. Source: IMF
Sharing the rationale for policy discussions about the environmental impact of digital currencies, the IMF recommends moving away from proof-of-work-based distributed ledger technology applications, adding:
“Bitcoin in particular, the most well-known application of this type, is estimated to consume a large amount of energy (about 144 TWh [terawatt hours]) per year. Although scalability solutions reduce energy costs per transaction, they do not reduce overall energy costs.”
However, the international organization recognized the high energy efficiency achieved by non-PoW-permitted crypto assets compared to the traditional financial system:
“The potential of non-PoW-enabled crypto assets to reduce energy consumption compared to the existing payment system comes from energy savings in both the core processing architectures and user means of payment.”
The IMF recommends that central banks “design CBDCs with the explicit aim of being environmentally friendly”. That means choosing platforms, hardware and design options with “a lower carbon footprint than the central bank’s legacy systems” early in the experimentation phase.
In addition to green components, the central banks recommended by the IMF include other features in CBDCs, such as B. Compliance, higher resilience and offline capabilities.
The IMF also notes that policymakers will consider mainstreaming crypto or CBDCs by weighing the environmental impact of the technology’s underlying design. It estimates that the annual energy consumption of the global payment system is 47.3 TWh – about the same as the annual consumption of economies like Portugal and Bangladesh.
The Iota Foundation, a non-profit DLT ecosystem provider, has joined the cause to fight climate change and partnered with Dell Technologies to develop a real-time carbon footprint tracking system.
The initiative enables near real-time tracking of carbon emissions from the BioE sustainable energy and composting facility. Mathew Yarger, Head of Sustainability at the Iota Foundation explained:
“We are now able to track and verify data on climate change and how we are actively trying to address it at levels never seen before.”
