Digital Currencies, Energy Security, and Environmental Challenges: A G7 Perspective

Abstract

This article presents a comprehensive analysis of the impact of cryptocurrencies on the economic and environmental security of the G7 countries, exploring both the potential risks and prospects. The study focuses on the United States, Canada, the United Kingdom, France, Germany, Italy, and Japan, offering a detailed exploration of the increasing adoption of cryptocurrencies in these nations. Despite the benefits such as enhanced financial inclusion and cross-border transaction efficiency, cryptocurrencies pose significant challenges, including their use in illicit activities like money laundering and terrorism financing. The research critically examines the substantial energy consumption associated with certain cryptocurrency mining processes, particularly Proof-of-Work mechanisms, and their consequent environmental impacts, including carbon emissions, electronic waste, and air pollution. It investigates the corresponding energy policies and regulatory responses emerging within the G7 to address these concerns, alongside the development of more energy-efficient alternatives like Proof-of-Stake and the push for renewable energy in mining. The article critically examines these dual aspects, highlighting the measures implemented by regulators and policymakers to mitigate risks. It also delves into the evolving landscape of Central Bank Digital Currencies (CBDCs) and their potential role in enhancing financial system efficiency and security, including considerations for their energy footprint. The study employs a robust methodological framework, combining statistical analysis of market trends, case studies, and policy analysis to provide a balanced view of the current state and future trajectory of cryptocurrencies in the G7 countries. By offering a nuanced understanding of both the opportunities and threats posed by digital currencies, including their energy and environmental dimensions, this article contributes to the ongoing discourse on their integration into global financial systems and their implications for sustainable economic security.