Early in 2021, Tesla purchased $1.5 billion in Bitcoin and announced plans to allow its electric vehicles to be bought using the currency. Just three months later, the company’s CEO Elon Musk made a u-turn on the decision, citing environmental concerns.
With Tesla set to sell off its Bitcoin holdings and no longer accept the digital currency, as well as China’s war on the cryptocurrency, Bitcoin fell by 10% immediately after Musk’s announcement. So what’s the environmental impact of mining for digital currency, and will Musk’s public u-turn have a lasting effect on Bitcoin?
Mining is more than a metaphor
When something is virtual, it’s easy to forget that it can have an environmental impact, but the vast computer farms set up to mine the cryptocurrency are run on coal and fossil fuels. These non-renewable energy sources are known to create pollution and aren’t practices companies like Tesla want to be associated with.
The figures associated with Bitcoin mining are mind boggling. It’s estimated that the Bitcoin network is capable of making 176,000,000,000,000,000,000 (176 quintillion) computations a second. It’s these calculations that add to the blockchain and create the currency, but at a huge cost environmentally.
Estimating the annual electricity consumption of the bitcoin network, the University of Cambridge's Centre for Alternative Finance came to the figure of 149.6 terawatt hours. That equates to more electricity than Sweden consumes in an entire year.
The impact of Tesla’s decision on Bitcoin
While questions about Bitcoin’s environmental impact have been raised by a number of central banks and private fund managers in the past, none of them have the platform that Musk has. His comments, which were released in a tweet, have brought the issue to the attention of a wider audience.
Having the electric car company on board was a major coup for Bitcoin and its high-profile removal of support is a blow. It highlights to companies and investors the importance of considering the environmental impact of all aspects of their operations.
Bitcoin is arguably the most well-known cryptocurrency and there are others that produce fewer greenhouse gases, such as Chia. The People’s Bank of China is also thought to be developing its own cryptocurrency, which is expected to have a smaller carbon footprint and be less volatile than Bitcoin.
China’s Bitcoin ban
China has banned Bitcoin mining, stating a myriad of reasons including its high energy use, role in money laundering and risks of opening individuals up to scams. The development of a digital yuan, however, looks set to offer an alternative cryptocurrency for Chinese citizens. Some critics suggest that it could have surveillance and censorship features built in, as the Chinese government uses it to exert more control over the population.
No matter which cryptocurrencies emerge and are favored by various groups, there’s no getting away from the fact that its creation requires vast amounts of energy and that this could impact its growth and popularity in the long run.