An International Monetary Fund (IMF) study on energy consumption has revealed the importance of design choices within the crypto ecosystem to create an environmentally friendly mainstream payment system.
In a study titled "Digital Currencies and Energy Consumption," the IMF conducted a study on the energy consumption of crypto-assets based on different design elements to assess the potential for developing a central bank digital currency (CBDC). ideal mechanism.
Estimated energy consumption (in kWh) per transaction at the core of different payment systems. Source: IMF
The IMF shared groundwork for policy discussions around the environmental impact of digital currencies, recommending abandoning proof-of-work (PoW)-based distributed ledger (DLT) applications, adding:
“Bitcoin in particular, the most famous application of the genre, is estimated to consume a significant amount of energy (approximately 144 TWh) per year. While scalability solutions reduce energy costs per transaction, they do not reduce overall energy spending."
However, the international group acknowledged that non-PoW, permissioned cryptoassets bring about greater energy efficiency compared to traditional financial systems:
“The potential for non-PoW, permissioned cryptoassets to reduce energy consumption relative to existing payment systems comes from energy savings in core processing architectures and user payment methods.”
The conclusion drawn from this research is that the IMF’s recommendation to central banks is to “design CBDCs with the explicit goal of being environmentally friendly”. This means choosing platforms, hardware and design solutions with a "lower carbon footprint than the central bank's traditional system" from the experimental stage.
In addition to environmental protection elements, the IMF also recommends that central banks include other functions in CBDCs, such as compliance, greater resilience and offline functions.
The IMF also noted that policymakers will consider the mainstreaming of cryptocurrencies or CBDCs by weighing the environmental impact of the technology’s underlying design. In the study, the IMF estimated that the global payments system consumes 47.3 terawatt hours of energy per year, roughly equivalent to the annual energy consumption of economies such as Portugal and Bangladesh.
To combat climate change, the Iota Foundation, a non-profit DLT ecosystem provider, has partnered with Dell Technologies to develop a real-time carbon footprint tracking system.
This initiative will enable near real-time tracking of carbon emissions from BioE's sustainable energy and composting facilities. Mathew Yarger, Head of Sustainability at the Iota Foundation, said:
"We are now able to track and validate data about climate change and how we are actively working to address it at unprecedented levels."
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