Energy storage plus digital currency concept

How do digital currencies affect energy consumption?

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.

Do design choices affect the energy consumption of digital currencies?

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.

Are digital currencies more energy efficient?

Our research shows how the technological design choices for digital currencies make a major difference for their energy consumption. Depending on the specific details of how they are configured, CBDCs and some kinds of crypto assets can be more energy efficient than much of the current payment landscape, including credit and debit cards.

Do digital currencies use more energy than credit cards?

Our study of digital currencies’ energy use relies on academic and industry estimates for different processing technologies. The research shows that proof-of-work crypto uses vastly more energy than credit cards. Replacing proof-of-work with other consensus mechanisms is a first green leap for crypto, and using permissioned systems is a second.

How do digital currencies affect the environment?

Payments come with an environmental footprint, and it is important to understand how digital currencies may affect this. Existing payment systems, such as cash and credit cards, are known to consume nonnegligible amounts of energy (Annex I). For digital currencies, a large variance in energy costs is associated with different technologies.

What are digital currencies?

Digital currencies include crypto assets and central bank digital currencies (CBDCs). 2 The long-run evolution of the demand and the regulatory environment for digital currencies remains uncertain, but the prospect that digital currencies can come to play a prominent role in the payment system is material. 3 Box 1.