- DLT networks may have a significant impact on the amount of energy used by assets.
- Energy-efficient contactless payments might be implemented for CBDCs.
An IMF research report on how DLT-based payment systems might have a lower energy and environmental impact than current methods was tweeted by Binance CEO Changpeng Zhao (CZ). The CEO has attached the research file link. The study outlines that in both crypto assets and CBDCs, design decisions may have a significant impact on how much energy is used. There are several factors that influence the energy profile of digital currencies, and the recent study paper revealed by IMF outlines the most important ones.
Interesting paper by the IMF which argues that DLT-based payment systems could have a lower energy / environmental impact than existing payment systems (and supports it with references to several studies.) https://t.co/iwl4QlY8x3
— CZ 🔶 Binance (@cz_binance) August 8, 2022
DLT Networks Can Play a Huge Role
There are implications for the design of ecologically friendly CBDCs that are derived from a comparison of digital currencies and conventional payment systems based on academic and industry estimations. The capacity to regulate participation and the consensus method are the two most important considerations when it comes to energy usage in distributed ledger technology. Some alternative payment methods may be more environmentally friendly than current ones, such as those based on crypto assets such as Bitcoin.
DLT networks may have a significant impact on the amount of energy used by crypto assets. To begin, the network’s current state is determined through a consensus procedure. For example, Bitcoin’s Proof of Work (PoW) algorithm requires a lot of energy, but non-PoW systems like Ethereum need orders of magnitude less.
The second consideration is the extent to which the underlying architecture may be manipulated. It’s possible to better regulate the factors that affect the energy consumption of the central processing infrastructure in permission-based networks than in permissionless ones, where anybody may join as a validator.
Energy-efficient contactless payments might be implemented for CBDCs as an additional benefit. CBDCs that depend on permission-based networks but do not use PoW might benefit from the increased efficiency that comes with using digital methods of payment.
Recommended For You: