An International Monetary Fund (IMF) study on energy consumption revealed the importance of design choices within the crypto ecosystem to build an environmentally friendly mainstream payment system.

In the study entitled “Digital Currencies and Energy Consumption,” the IMF examined the energy consumption of crypto assets based on their distinct design elements to evaluate the ideal mechanism for developing central bank digital currencies (CBDCs).

Estimates of energy use (in kWh) per transaction for the core processing of different payment systems. Source: IMF

Sharing the groundwork for policy discussions around the environmental impacts of digital currencies, the IMF recommended moving away from proof-of-work (PoW)-based distributed ledger (DLT) applications, adding:

“In particular, Bitcoin (BTC), the best-known application of this type, is estimated to consume much energy (about 144 terawatt-hours (TWh)) per year. Although scalability solutions reduce the energy cost per transaction, they do not reduce the overall energy spending.”

However, the international organization acknowledged the high energy efficiency brought about by non-PoW, permissioned crypto assets when compared to the traditional financial system:

“The potential of non-PoW permissioned crypto assets to reduce energy consumption relative to the existing payment system comes about from energy savings on both core processing architectures and user payment means.”

Drawing a conclusion from the study, the IMF’s recommendation to the central banks is to “design CBDCs with the explicit goal to…

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