Reference : Addressing the sustainability of distributed ledger technology
E-prints/Working papers : Already available on another site
Engineering, computing & technology : Computer science
Business & economic sciences : Management information systems
Security, Reliability and Trust
Addressing the sustainability of distributed ledger technology
Gola, Carlo []
Sedlmeir, Johannes mailto [University of Luxembourg > Interdisciplinary Centre for Security, Reliability and Trust (SNT) > FINATRAX >]
Bank of Italy
Occasional Papers
[en] Blockchain ; carbon tax ; DLT ; energy consumption ; financial markets infrastructures ; green consensus protocols ; prudential requirements ; sustainability ; environmental transaction tax
[en] The work proposes policies to improve the environmental sustainability of distributed ledger technology (DLT). While the proof-of-work (PoW) consensus protocol requires large amounts of electricity, several DLT protocols consume much less, while still being sufficiently reliable and decentralized. To move from a PoW protocol to a greener system, such as proof-of-stake (PoS) or proof-of-authority (PoA), the consensus of the majority of miners (measured by their computing power) is required during the transition period to preserve the security requirements. Given that miners have an incentive to maintain the status quo, this paper illustrates various policies designed to bring about the transition. We aim to show that the current policy approach adopted by banking and financial regulators, based on the principle of technological neutrality, may need a reappraisal in order to consider the ‘sustainability’ criterion. Policymakers should not stifle financial innovation; nevertheless they should intervene if technology is a source of negative externalities.

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