Despite warning countries and governments about cryptocurrency, the International Monetary Fund recognizes that digital assets can be effective alternatives to traditional finance products. It noted that some cryptocurrencies and CBDCs can make more effective payment solutions than credit and debit cards on energy consumption.
The IMF revealed that some banks are considering having central bank digital currencies (CBDCs) available in physical cards. This should be a solution to cut energy consumption. Moreover, integrating cryptocurrencies and CBDCs with physical cards can aid mass adoption. Though the future of money is unknown, policymakers must look at the energy factor to consider the adoption of CBDCs and cryptocurrency.
Monetary authorities, according to the IMF, have a unique opportunity to improve efficiency as the way people pay is undergoing rapid changes across the world. However, cryptocurrencies in particular Bitcoin have been in a bad light for their heavy reliance on raw computing power and electricity. But IMF’s new research paper goes beyond this. It establishes the main components and technological options that determine the energy profile of digital currencies. The agency brings the discussion to an intersection of digital currencies while considering their environmental impact. The paper highlights how technological design choices for digital currencies.
The IMF’s paper noted that Bitcoin uses a proof-of-work (PoW) consensus mechanism that needs substantial calculation power and energy. And other cryptocurrencies use different approaches that don’t require much computing muscle. It also brings access to distributed-ledger systems to the fore. The IMF says some of the systems are permissionless – as such allows anyone to join and validate transactions, whereas, in a centralized firm, systems require permission. It offers greater control over key aspects of energy consumption.