The world increasingly turns its attention to the potential of Central Bank Digital Currencies (CBDCs), Sweden’s Riksbank is leading the charge by testing two prominent blockchain platforms, Algorand and Hedera, for its e-Krona project. This move marks a significant step in the journey toward a digital economy, aiming to enhance transaction efficiency while minimizing environmental impact.

The Drive Towards CBDCs

Globally, 130 countries, representing 98% of the global GDP, are exploring the implementation of CBDCs. Of these, 64 countries are in advanced stages, with 11 already having started  their digital currencies. Notably, China’s extensive pilot program has reached approximately 260 million people, highlighting the growing momentum behind CBDC initiatives.

Sweden, known for its progressive stance on technology, is now focusing on the e-Krona, a digital version of its national currency. The Riksbank’s research paper, titled “Potential Climate Impact of Retail CBDC Models,” delves into the potential environmental impacts of different CBDC designs, using Algorand and Hedera as test models.

Exploring Three e-Krona Models

The e-Krona project is being designed with three distinct models: a highly centralized design, a semi-centralized design, and a decentralized design. Each model has unique characteristics and implications for efficiency, security, and environmental impact.

Semi-Centralized Design with Hedera

Hedera, a private permissionless network, was chosen to represent the semi-centralized design. In this model, the network is limited to a small number of trusted actors, reducing the risk of external attacks. Hedera’s gatekeeping strategy ensures that only vetted participants can join the network, enhancing security and stability.

Hedera is known for its high transaction throughput, currently supporting 48 transactions per second (TPS) with a maximum potential of 10,000 TPS. This efficiency is paired with a remarkably low electricity consumption per transaction, estimated between 0.00002 and 0.00004 kWh, according to Platt et al. (2021).

Decentralized Design with Algorand

For the decentralized design, Riksbank turned to Algorand, a permissioned network where participating actors are licensed financial institutions. This model aims to enhance resilience through decentralization, with multiple nodes maintaining the system.

Algorand supports a high TPS rate as well, currently achieving 9.85 TPS with a maximum sustainable throughput of 1,000 TPS. The electricity consumption per transaction for Algorand ranges from 0.00017 to 0.00534 kWh, with an average of 0.0027 kWh per transaction as noted by Gallersdörfer et al. (2022). This range reflects the broader impact of decentralization on energy efficiency.

Environmental Considerations

The Riksbank’s research underscores the importance of minimizing the environmental footprint of the e-Krona. Both Hedera and Algorand have been highlighted for their relatively low energy consumption compared to other blockchain platforms, making them suitable candidates for the e-Krona project.

Energy efficiency is crucial for the sustainability of digital currencies, and the Riksbank’s findings suggest that both Hedera and Algorand offer viable paths forward. The decentralized and semi-centralized models each present unique advantages, balancing transaction speed, security, and environmental impact.

The Future of Digital Currency in Sweden

Sweden’s exploration of Algorand and Hedera for its e-Krona project is a significant milestone in the global movement toward digital currencies. By rigorously testing these platforms, the Riksbank is not only paving the way for a digital economy but also setting a benchmark for environmental responsibility in financial technology.

As of now, Algorand (ALGO) is trading at $0.134, reflecting a 1.4% increase in the last 24 hours, while Hedera (HBAR) is trading at $0.067, a slight decline of 0.20%. These figures indicate the market’s responsiveness to ongoing developments and the potential future impact of their integration into national digital currencies.

Conclusion

The Riksbank’s initiative to test Algorand and Hedera for the e-Krona project highlights Sweden’s commitment to innovation and sustainability in the financial sector. By exploring the environmental impacts and operational efficiencies of these blockchain platforms, Sweden is setting the stage for a robust and eco-friendly digital currency system. This move not only reflects the country’s forward-thinking approach but also serves as a model for other nations considering the adoption of CBDCs.

As the global landscape of digital currencies continues to evolve, Sweden’s proactive measures and thorough testing could significantly influence the future of money, making digital transactions faster, more secure, and environmentally sustainable.