Tesla CEO Elon Musk tweeted on Sunday that the all-electric carmarker will accept Bitcoin transactions when miners who verify transactions use more renewable energy. The billionaire acknowledged that he holds a strong belief that cryptocurrency has a promising future, but its success cannot come at great cost to the environment.
“When there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend, Tesla will resume allowing Bitcoin transactions,” he said.
The problem is that bitcoin’s proof-of-work blockchain validation architecture is a negative phenomenon for climate protection compared to alternatives.
Bitcoin rose 5.1% to $37,360.63 at 1810 GMT (2:10 p.m. ET) on Sunday, adding $1,817.87 to its previous close, after Musk’s tweet. Musk also said that Tesla sold about 10% of holdings to confirm bitcoin could be liquidated easily without moving market.
What Is Bitcoin?
Bitcoin is a currency that was released in 2009 by Satoshi Nakamoto (a pseudonym) and is today the best known of more than 5,000 cryptocurrencies in existence.
As a decentralized digital currency that a person can buy, sell, and exchange directly, Bitcoin uses no intermediaries such as banks. Yet every Bitcoin transaction has been noted on a public ledger which anyone can access. That transparency makes transactions difficult to reverse and to falsify, which is important because there is no government or other issuing institution supervising or guaranteeing Bitcoin’s value.
According to Bitcoin, there are 3 main ways to obtain the virtual currency:
- buying on an exchange
- accepting them for goods and services
- mining new ones
Bitcoin and other cryptocurrency miners are paid for their work as auditors who verify these legitimacy of transactions. All of the transactions that individuals are trying to verify are gathered into boxes with a virtual padlock on them called “blockchains.” Miners run software in the hopes of locating the key to open that padlock. Once it is found, the box opens, and the transaction is verified. The miner who finds that key receives a reward of newly generated Bitcoins.
Reportedly, it takes over 25 trillion attempts to find that rarest-of-rare key.
The decentralized network of specialized computers, called “rigs” or “mining rigs,” seeks to solve extremely complex mathematical equations. Once those equation are solved, verification is secure that the blockchain is accurate.
The process is quite energy intensive.
“Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment,” Tesla CEO Musk tweeted last month, conceding at that time that Tesla would not sell any Bitcoin. However, the company intent was “to use it for transactions as soon as mining transitions to more sustainable energy.”
Will Musk’s call-to-action influence bitcoin’s energy usage?
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP
— Elon Musk, the 2nd (@elonmusk) May 12, 2021
Tesla came under scrutiny from critics when it purchased $1.5 million in bitcoin in February and announced plans to start accepting payments with the cryptocurrency. Many in the bitcoin community embraced Tesla and Elon Musk and now feel betrayed.
Why Is It Criticized For Its Fossil Fuel Usage?
Decentralized, always on, and easily tradeable: Bitcoin has quite an allure. But it also relies on a network that is constantly using energy, and those amounts are seen as excessive for many of the cryptocurrency’s skeptics and critics. It requires enormous computing power, which in turn uses huge amounts of electricity.
Bitcoins are mined by special hardware called ASIC (Application-Specific Integrated Circuit chips), which are designated just for mining Bitcoins or other currencies based on the same algorithm. Bitcoin mining demands not only a lot of electric power but also a special place for a machine, as mining rigs are noisy and emit a lot of heat.
The Washington Post notes that a growing number of environmentalists see Bitcoin as a giant waste of resources and a driver of climate change. They find it hard to justify more coal plants in China powering giant server halls so wealthy people on the other side of the world can buy Bitcoin. For countries with unstable power systems, miners can also increase the risk of blackouts — some recent outages in Iran were blamed on increased mining activity.
The University of Cambridge Centre for Alternative Finance says Bitcoin mining uses an estimated 13.81 gigawatts of electricity annually, up from 2.25 gigawatts in 2015, when the university began tracking Bitcoin’s electricity consumption.
Some people say 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, employee travel costs, and other services a traditional bank provides like loans and mortgages. Others argue that Facebook, Amazon, Microsoft, and Google must — with all of their massive data centers worldwide — use a comparable amount of electricity to Bitcoin. Actually, they don’t. 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.
Go Green — & Mainstream
A new, improved, and greener bitcoin may be the price of admission to mainstream markets.
There are a growing number of potentially interested parties who want a different type of bitcoin, one that is more environmentally tuned and more ethical coin. Of course, gaining green equity for clients is important to financial analysts. Large companies are bound by sustainability and ESG committees. They have stakeholders and rules and processes to follow. And, these days, environmental impact is a material liability. They need to prove they’re clean.
Green bitcoin has been proposed as a way to counter the excessive energy consumption and CO2 emissions of cryptocurrencies. Initiatives to make Bitcoin greener bodes well for ESG narrative and institutional adoption, according to David Grider, strategist at Fundstrat Global Advisors LLC.
Proposals for offsetting the carbon it emits may be a good start, but reducing this carbon in the first place is definitely a challenge. While use of renewable sources for electricity is growing, Bitcoin miners will be competing for green power with other sectors looking to decarbonize, including transportation, heating and industrial processes.
Sustainable crossover ventures may become more prominent quickly in that quest for greener cryptocurrencies.
For example, a small-ish EV 2-seater called the Daymak Spiritus, due in 2023, will be able to mine cryptocurrencies. Aldo Baiocchi, CEO of Daymak said the company is “placing a RTX 3070 Geoforce GPU or multiple RTX 3070 Geoforc 3070 GPUs (optional) that are required for autonomous driving calculations. They will mine from 60MH to 500MH. We will set them to mine from the best mining pools automatically or allow the user to pick. The users can settle on a variety of cryptos of their liking.”