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How Does Bitcoin Work? What Is Bitcoin Mining? What Is Bitcoin Backed By?

So, as we know, Tesla has now invested $1.5 billion into bitcoin and there are a lot of different opinions about that. In fact it’s an entirely new discussion because never before has a company trying to transition the world to sustainable energy embraced an experimental technology whose side effects are so contrary to its mission.

In this article, we start out by quickly defining what cryptocurrency is and then we will dive deeply into various aspects of bitcoin, including comparisons of the power usage to different countries and comparisons of bitcoin to the world’s current financial system. 

We will be answering questions on matters like: how much electricity bitcoin uses and why its operation requires so much power. We will talk about cryptocurrency basics; blockchain; bitcoin development & hard forks; miners; the deflationary nature of crypto; its issue with volatility; the issue of government and taxation; altcoins like dogecoin; “Proof of Stake;” etherium 2.0; and then in the end, we will see if we can justify Tesla’s investment in bitcoin.

Full disclosure: The following is not investment advice by any means, and we do not offer investment advice here on CleanTechnica. Also, I do not currently own any ethereum, “bitcoin SV,” polkadot, cardano, or dogecoin, but I do have plans to make investments in those cryptocurrencies in the near future. I do own approximately 0.00088236 bitcoin (~$50) but have no plans to sell or buy BTC in the near future.

Introducing Bitcoin

Bitcoin is a digital encrypted currency that eliminates all middlemen in transactions and works in a way that makes it all completely anonymous, secure, and unhackable (theoretically, that is). It is often advertised that trust is built into the system, but marketing aside, it simply means that no one has to trust anyone and that feature comes at great cost.

The cryptocurrency was launched in January 2009 in the midst of the economic crisis, a time when the US dollar was significantly debased and by many considered to be close to collapse. It was created by Satoshi Nakamoto, or at least that is the pseudonym he/she used. Nobody knows who he/she is, something that is both good and bad. Some have even speculated that it might be Elon Musk, something he has denied that is also not very logical if you look through his history of comments on this matter. There are more fitting candidates, but really, no one knows who he/she is or if that person is still alive today.

The cryptocurrency is managed by, well, everyone and no one — whoever wants to. It’s complicated, and we’ll return to all of that later on. The promise of bitcoin is great, but its many side effects have thus far curtailed widespread adoption. Nonetheless, improvements to a different crypto might soon change the world.

How Bitcoin Works

As was mentioned previously, the way a cryptocurrency like bitcoin works is by keeping a ledger of all the transactions. But its not a piece of paper, or a database like the bank has, all that data is encrypted and then everyone gets a copy. Everyone who has a copy doesn’t know that Zach used cryptocurrency to pay for an Impossible Burger at a local restaurant — they just know that something happened. If one of the computers that has a copy of the public ledger starts to claim (in encrypted form) that Zach actually bought 6 Impossible Burgers (revealing more detail than is supposed to be revealed), then everyone else in the network will start yelling at that computer, perhaps telling it that Zach is not a monster of gluttony, and then kick the bad computer out of the network. The encrypted code simply wouldn’t match. How much is unreadable depends on the cryptocurrency. In many cases, like with bitcoin, the difficulty is often in matching a wallet to a physical person, rather than the encryption of the transaction. [Editor’s note: This is not a real-world example. I did not do this. Though, I may well be a monster of gluttony. —Zach]

When Zach made the original transaction, it became part of a metaphorical mountain of transactions that need to be mined. Mining is the process in which the data is processed, encrypted, and added to the ledger. This task isn’t easy and doesn’t happen on Zach’s smartphone. A very powerful computer needs to do it, and that miner gets paid for doing all that hard work. The first miner to stumble onto the correct answer gets both a reward in the form or new bitcoin (like newly mined gold) as well as a very small transaction fee. 

The ledger keeps becoming longer and longer, and harder to validate, meaning we need stronger computers. Also, a miner’s salary gets cut in half every four years. So, in 2010, a laptop could have mined a bitcoin. Now however, you basically need a small data center to mine even a single bitcoin. If we don’t scale the processing power of the miners and conversely the amount of electricity it takes, then the transaction times will keep going up. Right now a transaction already takes around 12 minutes. Basically, Zach would have to pay for his Impossible Burger upon ordering it and then wait for the kitchen to bring him what he hopes will be a good burger. That is on the verge of acceptable in a restaurant and maybe for next-day delivery orders, but what about any store selling a product directly? In fact, the 12 minute average is only the first round of confirmation, which in most cases is good enough to give the customer their purchase, but 5 more rounds of confirmation are needed for the transaction to be fully confirmed.

When bitcoin first exploded in 2018, the average transaction time jumped up to a whole day. At the worst time during this Klondike Gold Rush type of moment, a transaction sometimes took as long as a week to be confirmed. Now, a lot has been done to prevent that from happening again if the bitcoin network doubles in size, but that is not nearly enough.

There some other solutions, like the lightning network, which is not specifically part of the bitcoin blockchain and is considered more like a second layer where 2 or more parties agree to trust each other on an exchange and upon completion inform the blockchain — this is often known as an off-chain transaction. Some large providers, like coinbase, also allow for such functionality between its users. While such transactions solve the delay problem, are not as power intensive, and minimize transaction costs, they do have security vulnerabilities and in some ways defeat some of the purposes of a blockchain.

Comparison: Bitcoin vs. Fiat Money

The bar to meet the current financial system is a 3,400 time increase in transaction speed. The current way bitcoin operates just won’t cut it. Currently, about 146 million transactions are made every year through bitcoin. Our current financial system, which includes bank transfers, credit card transactions, paypal transfers, and much more, well, that amounts to a whopping 500 billion transactions a year. That is how we get the 3,400× increase figure. If bitcoin had to replace all 500 billion yearly transactions and its power requirement scaled as it has thus far, the whole world would need to generate 18 times as much electricity as it does today just to power this financial system. That there is crazy.

It is also important to not attempt to compare the energy use of bitcoin to the total amount of energy used by banks like energy spent on office lighting, employees travel costs, and other services a traditional bank provides like loans and mortgages. There are multiple new international banks like Revolut and N26 that work in most ways like traditional banks, but don’t have any offices you can visit, where everything is handled online including registration that just requires you to take an image of your ID/passport and then a selfie. Some like Revolut even let you buy stocks and cryptocurrency.

So, I imagine that by now any person adept in cryptocurrencies will already be pulling their hair out and yelling at their screens trying to tell me that it won’t scale linearly and a ton of developments are being made to reduce power requirements, like “proof of stake.” Technically, some improvements can be made, but that won’t be enough. As for proof of stake, that is not currently being applied to bitcoin, but more about that later. The point is that this is an experimental technology, which, as is, isn’t nearly ready for prime time usage by multinational companies around the world to sell products ranging from toilet paper to Teslas. Though, an argument could be made for expensive purchases, like cars, because large transactions get processed faster and there are not that many of them on a yearly basis.

Powering Bitcoin

Bitcoin has an enormous and ever-growing power requirement. Even though the size of the bitcoin network when compared to bank transactions and credit card transitions is just a minor niche, it already consumes more electricity than my country, the Netherlands. Now, that might not mean a lot to most people, so I will give various examples to put this into perspective. First of all, even Google, with all of its massive data centers worldwide, doesn’t use that much electricity. In fact, if you add all electricity used by Google, Amazon, Microsoft, and Facebook together, you still are at about 1/4th the amount of power that bitcoin uses today. 

Bitcoin’s power requirement has actually now reached 124 TWh per year. While completely up-to-date figures of electricity use from those 5 big companies aren’t available, we sure can compare that to other countries and US states. On the world map above, all the countries/US states marked purple individually use less electricity than bitcoin. Please keep in mind that I don’t mean those countries combined, I mean those countries individually. In the US, only 9 states use more electricity than bitcoin. Only California and Florida use twice as much electricity as bitcoin. Texas uses between 3–4 times as much. Further, bitcoin is pretty close to overtaking the remaining 6 states that use more electricity than bitcoin. Hopefully this world map puts into perspective just how much electricity the world generates and just how much bitcoin uses.

Why Bitcoin is So Power Intensive

Let’s explore why on earth bitcoin even needs that much power to begin with. The whole reason can be summarized in just one word: trust. Though, more accurately, the lack of it. In a hypothetical perfect world where there is no malice, no greed, no deception, and no hacking, the world’s entire financial system could likely be processed by a single desktop computer. In the real world, no one trusts one another, so by making contracts with large financial entities like banks and giving control of the currency over to the government, we have built multiple interconnected, centralized systems. While a transaction might go through multiple intermediaries at various costs which are not equal all over the world, most people can make a digital purchase online or in a store and have the transaction confirmed within a matter of seconds.

If you can’t trust anyone, you need to have a large number of independent parties verify all transactions. However, you can’t have one person pretend to be a large number of independent parties. So, to prevent that, you make the encryption problems so hard to solve that you need very powerful computer hardware. That way even a person who buys a large crypto mining farm for tens or even hundreds of thousands of dollars will still be a small independent party and won’t be able to take over the currency. Making the problems so hard that you need specialized expensive hardware also means that the electricity bill will be rather large — not unprofitably large, but large enough to be a large waste of electricity for the world as it is right now (and that will grow as the currency’s use grows).

Without such safeguards, malware in an app could make a large number of smartphones in the world successfully mine bitcoin. Without these safeguards and with such numbers, that hacker could completely take over or destroy the cryptocurrency. In the last couple of years, that specialized hardware has mostly become consumer graphics cards that cost $500 to $1500 each. This has caused a supply shortage. When combined with the 2020 pandemic, this shortage is at its worst it has ever been.

To mine bitcoin, however, consumer graphics cards will do you little good. Instead, specialized hardware is needed called an “Application-Specific Integrated Circuit,” usually referred to as an ASIC. Graphics cards are instead used to mine cryptocurrencies like ethereum, litecoin, monero, bitcoin gold, and many other smaller cryptocurrencies.

With this kind of hardware, which doesn’t run a common operating system like Windows or Android, a takeover by a hacker is a lot less likely to occur. These systems are also better protected than most consumer electronics.

Ironically, it is often stated that cryptocurrency is a system where trust is built in, but in reality, the point is that trust is not required. So, my question is, do we really need a system where absolutely no one trusts one another that deprives the world of valuable electricity and processing power (causing computer equipment shortages worldwide), or simply a system where you don’t have to trust everyone, just some entities?


By now you might be wondering, why on earth do we continue these efforts, then — they sound fruitless. Well, that is actually not entirely true. If the energy, processing power, oversight, and confusing deflation issues can be solved, then it would be an amazing system, and not just for finances (more about that later when I write about proof of stake). The basic technology that bitcoin is based on, called blockchain, has a lot more potential functions for systems that don’t have to scale nearly as much. The number of interactions won’t have to be anywhere near the number of transactions the world makes. 

Ideally, here is the dream of blockchain: A person enters a jewelry store and purchases a second-hand ring. By purchasing this ring, he also gets access to the blockchain ledger of this ring. In that blockchain ledger, he sees the previous owner(s), the store(s) the ring was previously sold in, for what price it was sold, and when. Furthermore, he can see the distributor where the store got the ring, the manufacturer that the distributor got the ring from, as well as where the components came from, like the gold and the diamond. Information like dates, transportation info, everything down to the diamond mine and potentially even the name of the person that mined that diamond and on which shift. Basically, everything would be in that ledger, all stored in the blockchain, and the latest part added to the chain now is the new owner who purchased that ring.

Now, obviously, that is theoretically all the information contained in the ledger. However, which part is encrypted and unreadable to the person who bought the ring all depends on the specific blockchain system. There is no universal system for this like bitcoin, not yet. More immediately, manufacturers can set up blockchain systems like these to help prevent things like child labor or blood diamonds from entering their supply chain. With the principle of a no-trust system where tons of individual impartial parties process and agree on information, there is no way to fake things so long as information is filled in truthfully at the source. Even if it isn’t, you can use the blockchain to track down the culprit. This can be extremely powerful for manufacturers that have a supplier that has 10 suppliers, each of which has 10 more suppliers and each of those has 10 more suppliers. The original manufacturer can now know what is coming from where, inspect sites, and deny specific incoming supply shipments. For the end consumer to be able to see where the different parts of the product they just bought originate is pretty cool. However, they would also be able to see how many parts or which parts specifically were marked by watchdog organizations as coming from ethically questionable sources, whether the manufacturer wants the customer to know this or not. Again, it depends on which information the owner can decrypt through the action of the purchase.

There are definitely good arguments to have a global system like this. Or a system that protects privacy where blockchain data can’t be read unless approved parties are doing an investigation — whether that be law enforcement, governments, the United Nations, or pre-approved watchdog organizations, the possibilities are up to whoever builds the system. Yet, conversely, a much more energy-efficient, limited system used by a single manufacturer to check their incoming shipments might also be sufficient. Once again, it comes down to trust. Do you trust Apple to do the right thing? What about the Chinese Foxconn factory producing Apple devices? What if you straighten out both of them, but not the raw materials supplier? I wish I could trust them, but we shouldn’t have to dedicate a large portion of all our energy generation capability to not have to trust anyone ever whatsoever. Hopefully we won’t have to.

Can You Trust the Miners & Developers?

What I am about to tell you now is considered to be a plus, but I still have my doubts. It’s about how bitcoin is developed and improved. At Tesla, they hire a team of top-notch engineers to build a product. The way bitcoin development works is that anyone can come up with new code to improve bitcoin — you put that out there as a software update. If a majority of the miners thinks it’s a good update, they will install it and improve their profitability. However, when there is a big change, that is called a hard fork split, meaning that all those who don’t update before a deadline are no longer welcome in the network. Suddenly, you have two bitcoin currencies and this action of separation cannot be reversed. Minor changes are called soft forks. In such cases, networks are still compatible and this action is reversible.

Thus far, there have been about a dozen notable bitcoin hard forks, one currently still popular and well known one being Bitcoin Cash. Those are known as altcoins (alternative coins). These alternative cryptocurrencies mostly disagree on things like how big a data block size should be. Satoshi Nakamoto made it 1mb for bitcoin. While that is problematic and some altcoins even use sizes as large as 100mb, people keep clinging to the original bitcoin because of the size of the network and relative stability. Other common disagreements include things like the maximum number of coins, miner compensation, and encryption algorithms used. Thus far, not one has surpassed bitcoin’s size. Though, I must stress the words thus far — more about that later on.

Personally, I don’t like that no one is in charge. What if in an update one of the 77,000 lines of code compromises the network in a way no one noticed? What if the miners decide they want to get richer and increase the maximum number of coins they can mine from 21 million to something else, or decide to increase transaction fees. When something goes wrong, whose door are we going to break down? The potentially anonymous party that came up with the “evil” update? The creator of bitcoin, Satoshi Nacamoto, whoever that is? He owns a million bitcoins, but we don’t know who he is. He might have even died a decade ago, since we haven’t heard from him since then. According to the “Good Satoshi” theory, he might have even deleted his million bitcoin wallet, which then becomes irretrievable. Also, in case it wasn’t clear yet, the system (unless updated through a hard fork) is limited to 21 million coins. All those who lost their passwords have made a lot of coins irretrievable for the network. More is explained about this under the section regarding deflation.

So, when something goes wrong, will we knock down the doors of all the various crypto mining data centers? Good luck with that — there are a ton of them and 65% of those servers are in China. Which brings up another concerning issue. If one entity has 51% of the mining servers, that person/entity can completely take over the currency and the rules that govern it. While I sincerely doubt that China will try to coerce all the bitcoin servers in its country to stage a bitcoin coup, there are other potential issues. What if their government gets fed up with the huge waste of electricity and tries to ban bitcoin? Or what if it forces its people to switch to its new digital yuan crypto and sees bitcoin as an obstacle so bans it for those reasons? Either way, that would be detrimental to the network. 

Altcoins and Dogecoin

There are thousands of other altcoin cryptocurrencies that are based on bitcoin, but which didn’t split off from the original through a hard fork. In fact there are instructional videos on YouTube that show you how to use an altcoin generator and make your own altcoin in a mere 15 minutes. Because of this, there are now over 8,000 different altcoins with market caps ranging between millions of dollars and just $300. There are many that believe that the currency they make could rise to the top. Those are obviously ones that are custom made and don’t come from a generator. Many believe that the right technical requirements and conditions will make them stand out and rise to the top.

Conversely, there are also examples of altcoins that aren’t remotely special technologically, yet have become some of the most popular ones, like Dogecoin. It’s a meme, it’s a joke, it’s funny. I mean, who doesn’t want meme-based currency? I would love to see that become the biggest worldwide currency, and especially would like to see what future generations hundreds of years from now will think of our sense of humor. In reality, though, the first crypto to beat bitcoin will likely be one that stops relying on mining and doesn’t waste so much valuable electricity. More about that is under “Proof of stake.”

Big Brother Won’t be Happy

This brings us to the next problem, taxation. Because society didn’t want anarchy, we made a government to do the things that individuals and businesses either can’t do or can’t be trusted to do on their own. Taxation in the entire world is often considered broken, very controversial, but in essence, needed. How does a government tax people and/or companies if it can’t find out anything about their finances? Use draconian methods to get the bitcoin wallet passwords? Even right now a lot of black market sales happen using bitcoin. It’s a completely untraceable and undecipherable currency.

At the same time, blockchain is also a great opportunity. If it’s one universal system that you use for all transactions, a system co-developed with the government(s), whatever transactions you make are your business, but the system knows what the transaction is and what it classifies as under your local/national law. It also doesn’t require the government to trust your accounting skills or intentions. A final sum could be calculated automatically with the government only knowing the final sum and not have to trust that it’s correct. The problem to solve here is that taxation will need to be baked into the cryptocurrency. Can this be done without giving the government control of the system? What if a government or law enforcement agency needs to do an investigation, a legitimate need to find out what is hiding behind that encrypted transaction? Creating a backdoor to the system could at the same time be extremely dangerous.

These are all uncertainties that probably should be worked out before anything goes mainstream. There is a good chance that a cryptocurrency is the currency of the future, but also very likely that it won’t be bitcoin. As was mentioned briefly before, China has already launched its own cryptocurrency, the digital yuan. Technically, it is not based on the bankless, ledger-based blockchain system that all other cryptocurrencies are. However, a system that does work that way, but still gives the government the insight it needs, is not unthinkable.

Deflationary Currency & Volatility

Bitcoin is a deflationary currency, unlike gold or US dollars that are limited by the amount of gold we can mine or amount of debt we can owe ourselves. Bitcoin is limited to 21 million bitcoins. After those are mined, and even now already, the value will not rise. Instead, the value of all goods will just infinitely deflate. A year ago, I bought 3 euros worth of bitcoin. Today, that is roughly 40 euros. The amount of bitcoin I bought is the same, 0.00088236 of 1 bitcoin, but it’s worth a lot more. Theoretically, once all 21 million coins are mined, as the amount of value of all stuff in the world keeps increasing, the bitcoin price of each product keeps decreasing. With all the 0s and that tiny number, from a day to day basis, I would have a hard time understanding how much a banana costs in the supermarket.

One bitcoin is also known as 1 million satoshi, a value actually assigned by the creator of bitcoin. This would mean that I own 882.36 satoshi. There is also another bitcoin value called millibitcoins (mBTC), where 1 bitcoin equals 1,000 millibitcoins. While this unit of measurement didn’t come from the creator of bitcoin himself, it was voted upon on the bitcoin forum and is still widely used — though, less commonly than satoshi. This also makes sense because it would mean I own 0.88236 millibitcoins, which could have still been acceptable back when I could buy a banana for that price, but less so now that I can pay dinner for two in some restaurants with that amount. It all gets even more confusing if you want to use more than one cryptocurrency since there is no standard for this. The second most popular cryptocurrency, ethereum, splits up into milliether (finney); microether (szabo); gwei (shannon), where a trillion gwei = 1 ETH and is more often used; mwei (lovelace); kwei (babbage); and finally the unit of wei, where 10(to the power of 18) = 1 ETH. Then don’t even get me started on ethereum gas, a value needed to perform transactions which constantly changes based on how busy the network is. In other words, it can get complicated and confusing very fast.

All of that, however, is just part 1 of the problem. The other side of the coin (if you will pardon the pun) is volatility. Currency is generally considered to be stable. Its value changes a bit when the US government decides to print more, or with gold-backed currencies when more gold is mined. In the case of bitcoin, that value depends on the collective actions of people buying or selling the currency. If you invest in stocks, you already know that the value of your investment can change significantly overnight — is that something that is acceptable to us for our main currency? One day, your crypto wallet can buy you a house; the next day, only a car. That is very problematic, but I am sure someone will come up with some sort of solution for this, a solution again controlled by no one that doesn’t require trust. Because as we have all seen, a government cannot be trusted to do this.

Proof of Stake

Originally, when I started writing this article, I was of the opinion that bitcoin will never become mainstream and that the same is true for all the cryptocurrencies out there. The bitcoin part likely remains true, but one currency, to my surprise, might soon get the chance to change the world. (Sorry to bury the lede.) Right now, all cryptocurrencies out there work on a basis of “proof of work.” It works by raising the entry bar needed to become a miner, requiring a significant hardware investment, and making all those servers work hard so no one can become too big and take over the network, and so no one has to trust anyone else. That is the culprit that takes up so much energy and one of the contributors to the reason why a transaction takes so long. For a while now, an alternative has been under development called “proof of stake.” In this system, you don’t necessarily need to trust anyone — you just need to trust that everyone has their own best interest in mind, because when they don’t, they face very big risks.

The basics are simple: if you want to process transactions and add those to the ledger, you need to first put down a significantly large deposit like in a hotel or when renting an apartment — that is your stake. If you try to cheat, you lose your stake. If you try to use a lot of computers to take over the network, you stand to lose all of those stakes, something that would be financially detrimental to the malicious party. In the old proof-of-work system, all you risked was getting kicked out of the network, but your processing hardware was all still there — it doesn’t explode — and with some work, the malicious party could always try to rejoin the network or sell the hardware.

The proof-of-stake system has multiple other failsafes, like assigning the same tasks to various non-related parties to check the work, making older stakes more trustworthy, giving stakes a cool-down time if needed, making unused stakes older than × time have their timer reset, and other methods to prevent fraud. Though, in practice, this has not yet been tested under real-world digital conditions. Yes, that may be an oxymoron.

I have been aware of the proof-of-stake idea for quite some time, but only recently have I become aware of just how effective a proof-of-stake approach is in cutting down power requirements, and when combined with another improvement called sharding, how many more transactions per second suddenly becomes possible. I am talking about Ethereum 2.0.

Etherium 2.0

There was one thing about ethereum that I always liked. That is the existence of the Ethereum Foundation, an organization that actively develops its cryptocurrency, hires full-time staff and part-time staff, and also accepts volunteer work. At the same time, the code is public and people have the ability to make their own altcoin based on their code. Ethereum is the only significant cryptocurrency that actually has blockchain functionality beyond currency, like smart contracts. In fact, there are now 3 times as many ETH developers than bitcoin developers and they have a coherent working structure. 

The people behind ethereum have been working for over 5 years now to implement proof-of-stake, so it has been a long time coming. However, now we are actually getting close and the founder, Vitalik Buterin, has shared a key metric that almost sounds too good to be true, but will be revolutionary even if it’s only half true.

Unlike bitcoin, which is stuck with 10 minute blocks, ethereum has a block every 10–20 seconds. In general, there are a lot of aspects of the code that make ETH a lot faster than bitcoin. For bitcoin, that is about 3 to 7 transactions per second. In the case of ETH, that is closer to 30 transactions per second today. So, while ETH market cap is 22% that of bitcoin, it can process a lot more transactions. Theoretically, almost a billion transactions per year. Practically, because of overcapacity, ETH gets around 483 million transactions per year. Bitcoin, in comparison, can theoretically only muster 221 million transactions per year, but in reality gets only 146 million transactions per year. This is obviously not even close to the world financial system, which gets 500 billion transactions per year, which is close to 16 thousand transactions per second.

Ethereum 2.0 also moved into sharding, where the system is divided into nodes that can split the load. Sharding is sometimes visualized as a hairbrush, where each bristle or row of bristles is its own blockchain and the handle is the backbone that interconnects and combines them all. In practice, according to the founder, this will increase the number of transactions per second from 30 to 100,000. Our current financial system would have to multiply 6 times to fill all that capacity. This could start to realize the true blockchain dream. While the deflationary nature of cryptocurrency and its volatility are still a problem, those are rather minor compared to the progress made. The fact that smart contracts are already part of the system could even address the issue of taxes. Though, from what I understand, the 100,000 figure might not include functionality outside basic transactions — but even that is already enough for now.

Other Cryptocurrencies that Could Scale

The only proof-of-work cryptocurrency that barely even approaches 10% of this is bitcoin SV at a peak rate of 9,000 transactions per second. A system that still uses proof-of-work could potentially be able to process 284 billion transactions per year. That is a bit more than half of the current traditional financial system. If bitcoin is the biggest crypto and ethereum the second biggest, bitcoin SV comes in at the 21st place, with a market cap of only $4 billion, compared to $230 billion for ETH and $1 trillion for BTC.

Some new proof-of-stake cryptocurrencies have also now come to market, like polkadot and cardano. While it’s possible that they will stay near the top (they are currently in 4th and 6th place), the number of people developing them is much lower than that of ethereum and they still have a lot to prove. While it may be a minor nitpick, those names, compared to the likes of bitcoin, ethereum, or dogecoin just aren’t all that sexy. One is a pattern usually associated with women’s clothes “And then the cashier said, ‘that will be 5 polkadots and 99 dots please.’” The other sounds like Microsoft’s voice assistant Cortana. I tried pronouncing the name in front of my Windows computer and Cortana actually activated and responded to me. This is something that could hurt these two cryptocurrencies in the long term.

(Also, to clarify, in reality dot=polkadot and would actually then be dots, milidots, microdots, and plancks, but especially if the currency blows up in size. Those are still units of measurement that just don’t roll off the tongue like dollars, euros, cents, etc.)

Tesla Invests in Bitcoin

So, let’s return back to Tesla. Why would Tesla invest in bitcoin now? By endorsing bitcoin, the market for it has already jumped significantly and potentially worsened the amount of power needed by the system. Which is not all that good since we are not at a 100% cleantech-powered energy grid — far from it.

There are a few good justifications. By buying 1.5 billion worth of bitcoin now, if bitcoin is the future of currency, then Tesla got rich fairly early on. Not extremely early on, which would have been around 2010, but still fairly early on.

First of all, Tesla now sells approximately 500,000 vehicles per year. The number of transactions Tesla makes, then, is not that enormous. Also, large transactions are easier to process. So, other than the currency’s rise in popularity, Tesla is not directly contributing all that much to CO2 emissions via transactions, something it could pretty easily offset with a solar installation if it wanted to. In fact, while the figure is unconfirmed as of yet, some debatable portion of cryptocurrency miners are powered by renewable energy, so the CO2 emissions they cause specifically might be not as bad as many assume. However, them using renewable energy means that there is less of it for others, which can raise costs and also just means that more renewable energy projects need to be developed to retire fossil fuel power plants.

The thing is, however, that it is as big a gamble, as investing a big sum into Tesla was in 2008 — not a lot of people would do that.

So, is it smart for Tesla to buy bitcoin now? Well, if an updated bitcoin is the future, yes. If another crypto becomes the dominant one, nothing says that Tesla can’t just sell its bitcoins and move on (if it does that on time, that is). Is it good to be promoting an unfinished, unscalable system that goes against Tesla’s mission? Well, that might be the real issue here.

Because how has Tesla accelerated the transition to sustainable energy? Does it sell a significant percentage of all vehicles and thus transition the world? Not really, even though Tesla’s growth has been incredible over the past decade. What Tesla has done is turn the EV from a golf cart to an affordable, clean Ferrari — and scared all the other automakers in line. In other words, Tesla’s influence is its most powerful weapon against global climate catastrophe. So, Tesla should be careful where it puts its influence. Bitcoin, and crypto in general, should probably not have been one of those places.

In the end, if eliminating bitcoin means that 20 developed countries can get 5% more electricity each, that is not insignificant either.

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Written By

Chanan grew up in a multicultural, multi-lingual environment that often gives him a unique perspective on a variety of topics. He is always in thought about big picture topics like AI, quantum physics, philosophy, Universal Basic Income, climate change, sci-fi concepts like the singularity, misinformation, and the list goes on. Currently, he is studying creative media & technology but already has diplomas in environmental sciences as well as business & management. His goal is to discourage linear thinking, bias, and confirmation bias whilst encouraging out-of-the-box thinking and helping people understand exponential progress. Chanan is very worried about his future and the future of humanity. That is why he has a tremendous admiration for Elon Musk and his companies, foremost because of their missions, philosophy, and intent to help humanity and its future.


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