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Parma Bains
Technology plays an increasingly important role in financial services. With the pace of technological inno-vation moving ever faster, the role new technology plays in the provision of financial services is becoming increasingly fundamental. New technology can generate efficiencies for firms, lowering costs that can be passed on to end users. It can increase access to financial services and products for consumers, particularly the most vulnerable; however, new technology can also create new risks and unintended consequences that can harm financial stability, consumer protection, and market integrity. This primer is designed for financial supervisors at central banks, regulatory authorities, and government departments. It adds to existing literature by summarizing key aspects of popular consensus mechanisms at a high level, with a specific focus on how such mechanisms may impact the mandates of supervisors and policymakers when deployed in financial services markets. It could also help inform IMF staff on policy development and technical assistance related to crypto assets, stablecoins, and blockchains.
International Monetary Fund

TESLA CEO ELON MUSK reignited a long-simmering debate in June over Bitcoin’s energy consumption. Tesla will accept the cryptocurrency for car sales only “when there’s confirmation of reasonable (~50 percent) clean energy usage by miners with positive future trend,” Musk said in a tweet. Bitcoin mining—the process of creating new bitcoins and updating the digital ledger that tracks transactions—consumes vast amounts of computing power and electricity. To earn bitcoins, miners solve increasingly difficult puzzles. The faster and more efficiently they do so

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-of-Stake (PoS) Delegated-Proof-of-Stake (DPoS) B. Consensus Mechanisms in Private Blockchains Practical and Istanbul Byzantine Fault Tolerance (pBFT/iBFT) Federated Byzantine Fault Tolerance (fBFT) DiemBFT Proof-of-Elapsed-Time (PoET) V. CONCLUSION VI. REFERENCES Box 1. Definitions Box 2. How Consensus Fits into Distributed Systems Box 3. Selected Risks of Some Consensus Mechanisms FIGURE 1. Bitcoin Mining Pools November 2020 to November 2021 TABLE 1. Comparison of Different Consensus Mechanisms Glossary AML Anti

Mr. Dong He, Annamaria Kokenyne, Xavier Lavayssière, Ms. Inutu Lukonga, Nadine Schwarz, Nobuyasu Sugimoto, and Jeanne Verrier

VII. Appendixes Appendix 1. Drivers of Crypto Asset Adoption in Selected Countries This note highlights the drivers of crypto adoption by country and how they differ by level of development. ADVANCED ECONOMIES US Bitcoin mining, trading, and DeFi transactions in the US are among the highest in the world. Retail investors dominated the market, driven by speculative investment motives, but institutional investors searching for yield amid low interest rates contributed to recent price rallies. The launch of Bitcoin futures

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energy usage of Bitcoin mining is comparable to Poland at 140 Terrawatt-hour, and so runs counter to this aim. 15 Regulators using or supporting consensus mechanisms that rely on large-scale energy use should pay attention to this energy consumption; most of them will likely find such damaging impacts to the environment unacceptable. Although PoW guarantees eventual consistency in the blockchain, there may be some instances where there are competing forks, which can impact the network by making it slow, expensive, and inefficient. Forks can lead to slower settlement

International Monetary Fund. Western Hemisphere Dept.
The pandemic interrupted ten years of growth, but El Salvador is rebounding quickly. Robust external demand, resilient remittances, and a sound management of the pandemic—with the help of a disbursement under the Rapid Financing Instrument (RFI) (SDR287.2 million or US$389 million) approved in April 2020—are supporting a strong recovery. Persistent fiscal deficits and high debt service are leading to large and increasing gross fiscal financing needs.
Mr. Itai Agur, Jose Deodoro, Xavier Lavayssière, Soledad Martinez Peria, Mr. Damiano Sandri, Hervé Tourpe, and Mr. German Villegas Bauer

) per year according to the Cambridge Bitcoin Electricity Consumption Index . 10 This amounts to about 0.6 percent of total global electricity consumption . 11 A second environmental concern is e-waste, which refers to electronics that are discarded at the end of their useful life ( Box 2 ). The reason PoW consensus mechanisms lead to large e-waste is that validators need to constantly upgrade to the latest, fastest hardware to remain competitive. De Vries and Stoll (2021) estimate that the average life span of Bitcoin mining devices is 1.3 years and that as a

Mr. Itai Agur, Jose Deodoro, Xavier Lavayssière, Soledad Martinez Peria, Mr. Damiano Sandri, Hervé Tourpe, and Mr. German Villegas Bauer
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.
Mr. Dong He, Annamaria Kokenyne, Xavier Lavayssière, Ms. Inutu Lukonga, Nadine Schwarz, Nobuyasu Sugimoto, and Jeanne Verrier
Capital flow management measures (CFMs) can be part of the broader policy toolkit to help countries reap the benefits of capital flows while managing the associated risks. Their implementation typically requires that financial intermediaries verify the nature of transactions and the identities of transacting parties but is facing the rising challenge of crypto assets. Indeed, crypto assets have become a significant instrument for payments and speculative investments in some countries. They can be traded pseudonymously and held without identification of the residency of the asset holder. Many crypto service providers operate across borders, making supervision and enforcement by national authorities more difficult. The challenges posed by the attributes of crypto assets are compounded by gaps in the legal and regulatory frameworks. This paper aims to discuss how crypto assets could impact the effectiveness of CFMs from a structural and longer-term perspective. To preserve the effectiveness of CFMs against crypto-related challenges, policymakers need to consider a multifaceted strategy whose essential elements include clarifying the legal status of crypto assets and ensuring that CFM laws and regulations cover them; devising a comprehensive, consistent, and coordinated regulatory approach to crypto assets and applying it effectively to CFMs; establishing international collaborative arrangements for supervision of crypto assets; addressing data gaps and leveraging technology (regtech and suptech) to create anomaly-detection models and red-flag indicators that will allow for timely risk monitoring and CFM implementation.