In a sudden U-turn, Tesla CEO Elon Musk has recently denounced bitcoin, saying the cryptocurrency uses an “insane” amount of energy in production, prompting speculation about whether he had a plan to wean the crypto industry off the fossil fuels that power "mining," the energy-intensive process that creates coins.
Musk said Tesla would no longer accept the cryptocurrency as payment for its electric cars because it came at a great cost to the environment. Bitcoin sank 17% after Musk's comments, and as much as $365 billion were reportedly wiped off the crypto market after Tesla’s announcement.
The shocking rejection came after the company bought $1.5 billion worth of bitcoin last February, and said it will start accepting payments in bitcoin in exchange for its products. Particularly, Musk was credited for raising the prices of cryptocurrencies, including bitcoin, through a series of social media posts.
In an about-face from his stance, Musk recently tweeted that while Tesla would no longer accept payment in bitcoin, the company wouldn't sell its bitcoin holdings, instead intending to use them when mining became greener energy.
The Bitcoin Carbon Footprint
Generating new bitcoin, also called mining, requires large computing power as it involves solving complex mathematical equations. New sets of transactions are added to bitcoin's blockchain (the ledger that records the cryptocurrency's transactions) every 10 minutes by miners from around the world.
Studies suggest the cryptocurrency’s carbon footprint is as large as some of the world's biggest cities, and much of its mining is powered by coal, the most toxic of all fossil fuels.
According to University of Cambridge research, Bitcoin mining uses about the same amount of energy annually as Egypt did in 2019. In addition, Chinese miners accounted for about 70% of production.
Bitcoin, Tesla, and the Environment
Musk said in a Twitter post that Tesla was "concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel."
"Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at a great cost to the environment," he tweeted.
However, industry experts interviewed by Reuters thought it was unlikely that Musk had been blissfully unaware until now of the environmental concerns surrounding bitcoin production.
According to the report, the move may represent an attempt to bolster Tesla's environmental credentials amid growing competition in the electric vehicle sector, said Sasja Beslik, head of sustainable business development at Bank J. Safra Sarasin in Zurich.
"My indication of this is that it is a way to further strengthen the brand," he said. "It's up to them to hold any currency they want. But given the fact that it has a heavy CO2 footprint ... it is a challenging thing."
Tesla could itself take an active role in helping make bitcoin greener by investing in new projects aimed at boosting the use of renewable energy in mining, according to more than a dozen cryptocurrency specialists interviewed by Reuters.
Diana Biggs, CEO of crypto startup Valour said "Musk and Tesla certainly have the resources to support existing efforts to fully move bitcoin to renewable energy,” but such ventures could take years to get off the ground.
Yves Bennaim, the founder of Swiss crypto think-tank 2B4CH, said Tesla could invest in “greener mining options”.
“It could create by itself groups of bitcoin miners that use green energy, or connect customers to mining pools”, he added.
Are there greener alternatives?
Musk’s comments may have propagated a call to action for the crypto industry to focus on creating efficient operations, a CNBC report said, stating one recent tweet referred to the “joke” cryptocurrency dogecoin that Musk has promoted as having a future in which it “wins hands down.”
“I don’t understand why he said that because I would expect him to understand how mining works,” said Wences Casares, CEO of digital bank and bitcoin custodian Xapo, speaking at the CNBC CFO event, and noting that the world already wastes tons of energy in no useful activity and bitcoin mining uses a roughly minuscule percentage of world energy, and much of its operations already are renewable.
Currently, the bitcoin protocol where computers hooked up to its network compete against each other to solve complex math puzzle- also known as "proof of work"- is highly energy-intensive.
An alternative greener protocol can allow users to create new tokens by committing existing cryptocurrencies to digital contracts, potentially lessening reliance on energy-guzzling computers, Reuters said.
Ether, the second-biggest cryptocurrency, is moving to this system, known as "proof of stake". Still, many existing coins that use this system are still relatively hard to use at scale and are less widely known than bitcoin.
"The only real answer is 1. actively investing in renewable mining farms and making mining "greener" or 2. switching to a protocol that is based on proof of stake," said Larry Cermak, director of research at crypto site The Block.