This is a document meant for supervisors that shows the IMF’s outlook on the different blockchain consensus mechanisms.
It compares pros and cons of PoW, PoS, DPoS, fBFT (XRP + XLM)
*Warning: This is regulated content can be dry in some parts. This video was made for deep thinkers following the blockchain revolution*
📕 —–Table of Contents—–📕
00:00 Intro
01:11 What is the IMF?
04:12 Executive Summary from the IMF
04:30 Examples and use cases of DLT – Supply chain, Financial Inclusion
05:30 Real-time control and supervision of financial markets example I have seen with FNA
06:20 Consensus mechanisms are the underlying trust factor behind blockchain networks
07:40 PoW Consensus is secure but suffers from significant drawbacks with the energy consumption and unscalability
08:45 Authorities should consider the pros and cons of different consensus mechanisms! (Cough* we should send this to the SEC Gov) 09:45 Authorities should consider a technology-neutral approach & should up-skill supervisions to understand new technologies. (Deeper Public-Private Collaboration can help mitigate risk)
12:20 Why consensus matters & layers to a blockchain network
15:10 **! Consensus mechanisms should NOT interfere with the GLOBAL aim to Transition to a LOW CARBON ECONOMY. Blockchain should not harm the environment !**
15:30 WARNING to all bitcoin supporters the narrative is changing – Supervisor Attack on PoW is coming..
17:24 Review of Swedish article on Banning energy-intensive mining from Swedish regulators
18:00 120 Million tonnes of CO2 from BTC & ETH, which is equal to 100 million round trips from Sweden to Thailand or equal to 200,000 Swedish Households
19:00 Sweden + Europe possible carbon tax to BTC miners or removing businesses carbon neutral status if they own PoW energy-wasting blockchain networks.
21:00 This shows proof that carbon-neutral networks are the future.
22:00 Public & Private Blockchains Regulatory Implications
22:45 IMF Says public blockchains are less susceptible to cyberattacks (Decentralization of Information)
25:30 Global Stable coin Arrangement & CBDC’s
26:20 IMF bashes PoW again for significant power usage. Financial Sector has an important role to play in the fight against CLIMATE CHANGE
*Regulators should pay attention to this energy consumption, Most will likely find such damaging impacts to the environment unacceptable*
28:30 BTC can process a large 7 TPS – Inconsistencies can lead to risks to settlement finality
29:20 PoW is potentially centralizing
30:00 DLT based on PoW Consensus mechanisms that might not fit within existing regulatory frameworks focused on settlement finality.
31:30 IMF Reviews PoS Model – says it enriches the big bag holders
32:30 My comparison of the current legacy system to the PoS model
(Cough SEC GOV favourites ETH because they are large holders of ETH)
34:10 PoS can create a community where richer individuals or entities are more likely to be selected. Allowing the rich to get richer
35:40 Even in larger PoS Networks – the potential for validator cartels to form can lead to concerns around centralization
37:50 DPoS Review: (I example XDC network as that is my niche)
41:17 fBFT consensus mechanism that aims to solve issues of centralization with greater scalability mentions (XRP + XLM!) Membership is open and control can be decentralized.
42:30 These fBFT algorithms generate large efficiencies for retail payments, wholesale settlement and other back-office functions.
43:45 IMF says fBFT (XRP + XLM) consensus mechanisms can balance a decentralized and DLT network with efficiencies such as high TPS and settlement finality. This generates positive outcomes for markets!**
45:20 IMF Conclusion statement:
PoW is too energy-intensive to be considered a viable consensus mechanism involving many regulated financial services activities.
46:58 A comparison chart between DLT networks
47:17 Mentions Global stable coins again – I reference World Bank document on GSC’s
48:00 Interoperability with other financial system standards. I reference ISO20022 & ISO TC 307.
50:00 Regulatory Authorities should consider implications of consensus mechanisms and consider a technology-agnostic approach
*TO NOT PICK FAVOURITES LIKE THE SEC*
52:00 International organizations like the IMF have a role to play in providing technical assistance and sharing best practices. Standard-Setting bodies can help by DEVELOPING GLOBAL recommendations that can provide minimum requirements for consensus mechanisms when utilized in regulated financial entities.
54:00 Quick overview of the World bank XRP & XLM Global stable coin document
54:25 Japan XRP is a digital asset not a security.
55:00 My theory why the WorldBank calls XRP & XLM a stable coin.
56:00 Closing thoughts
📋 — INFO LINKS— 📋
https://www.imf.org/en/Publications/fintech-notes/Issues/2022/01/25/Blockchain-Consensus-Mechanisms-511769
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