Tesla chief executive Elon Musk said on Thursday his electric vehicle company would no longer pursue plans to accept bitcoin as a form of payment. Bitcoin and other cryptocurrencies sunk on the news.
"We are concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially after coal, which has the worst emissions of any fuel,” Musk tweeted.
The move came just months after he announced plans for Tesla to accept bitcoin. Musk and Tesla had been publicly criticised at the time for the climate implications of this decision.
Bitcoin's environmental impact stems from bitcoin mining. Bitcoin mining is a process whereby new bitcoins are created and awarded to computers that solves a complex series of algorithms. The system incentivises computers to do the work of running the bitcoin network, without having any centralised bureaucracy.
The process is energy-intensive, due to the complex mathematical calculations that must be completed to create each and every new bitcoin.
The environmental impact comes from the carbon emissions associated with the energy used by mining computers. Bank of America (BAC) said in a March note that bitcoin carried an "enormous environmental costs" and estimated that its carbon footprint was equivalent to the annual emissions of 1.8m cars.
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“The network emits today about 60 million tons of CO2, the same as Greece,” it said in a note. "We believe ESG-minded [environmental, social, and governance] investors have to pay attention to the enormous environmental costs of Bitcoin."
Bitcoin mining accounts for 0.7% of the world's electricity consumption, according to the University of Cambridge. Its annual consumption is just less than Egypt and more than Malaysia and Sweden. it has soared in recent months.
Cambridge estimated the amount of electricity consumed by the bitcoin network in one year could power all tea kettles used to boil water for 33 years in the UK.
The source of bitcoin's energy — as well as the scale — is also a worry. China leads the way by a mile in terms of hashrate, a measure of the computational power used per second when mining. In April 2020, China’s hashrate was 65%. Second on the list was the US (7.2%) followed by Russia (6.9%) and Kazakhstan (6.2%).
China's dominance raises further questions about the environmental impact. Many Chinese power plants still rely on coal, one of the most polluting forms of energy generation. China accounted for just over half of all of the world's coal-generated power last year.
Bitcoin's energy intensity is somewhat unique. While all cryptos use energy, bitcoin's unique code requires far more than others.
"Environmental matters are an incredibly sensitive subject right now, and Tesla’s move might serve as a wake-up call to businesses and consumers using bitcoin, who hadn’t hitherto considered its carbon footprint," said Laith Khalaf, a financial analyst at AJ Bell.
"Tesla’s decision certainly puts pressure on other big companies who accept bitcoin to review their practices, because boardrooms will now be wary about getting it in the ear from ESG investors on the shareholder register."
Tesla invested invested $1.5bn (£1bn) in bitcoin earlier this year. In his latest tweet, Musk said the company would not be selling any bitcoin as it intends to use it for transactions "as soon as mining transitions to more sustainable energy."
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