FinTech Notes

Digital Currencies and Energy Consumption

Author/Editor:

Itai Agur ; Jose Deodoro ; Xavier Lavayssière ; Soledad Martinez Peria ; Damiano Sandri ; Hervé Tourpe ; German Villegas Bauer

Publication Date:

June 7, 2022

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

Whether in crypto assets or in CBDCs, design choices can make an important difference to the energy consumption of digital currencies. This paper establishes the main components and technological options that determine the energy profile of digital currencies. It draws on academic and industry estimates to compare digital currencies to each other and to existing payment systems and derives implications for the design of environmentally friendly CBDCs. For distributed ledger technologies, the key factors affecting energy consumption are the ability to control participation and the consensus algorithm. While crypto assets like Bitcoin are wasteful in terms of resources, other designs could be more energy efficient than existing payment systems.

Series:

FinTech Notes No 2022/006

Subject:

Blockchain and DLT Central Bank digital currencies Digital currencies Economic sectors Financial crises Financial markets Payment systems Technology Virtual currencies

Frequency:

occasional