Tesla suspends bitcoin purchases over green concerns
14 May 2021
Tesla has suspended vehicle purchases via bitcoin due to environmental concerns, the company’s CEO Elon Musk confirmed on Twitter this week. The cryptocurrency’s value dropped by more than 17% after the announcement.
The move constitutes a dramatic U-turn for the battery-electric vehicle (BEV) maker, given that it invested $1.5 billion (€1.2 billion) in the cryptocurrency in February this year. However, if Tesla and its CEO wish to hold on to their respective environmental credentials, bitcoin will need to remain locked in the company’s vaults until the digital currency goes green.
Environmental concerns do appear to be at the heart of this latest decision. Musk explained in his tweet that bitcoin activities like mining and transactions involve a rapidly increasing amount of fossil fuels, with coal being a particularly bad offender. ′Cryptocurrency is a good idea on many levels and we believe it has a promising future, that this cannot come at great cost to the environment,’ he said.
Bitcoin currently accounts for 149.63 terawatt-hours (TWh) worth of electricity per year, according to the Cambridge Centre for Alternative Finance. To put this in perspective, this exceeds the annual consumption of countries like Malaysia (147.21 TWh) and Sweden (131.8 TWh). In fact, the cryptocurrencies yearly electricity consumption would satisfy the energy needs of the University of Cambridge for 850 years.
′The claim of inefficiency is indeed accurate. Bitcoin’s transactions are authenticated via its proof of work system, in which miners compete to solve complex algorithms to authenticate transactions on the ledger,’ said Ganesh Viswanath-Natraj, assistant professor of finance, and cryptocurrency researcher, at Warwick Buisness School. ′There’s no free lunch – the annual power consumption of authenticating Bitcoin’s blockchain is greater than that of a medium-sized country like Argentina.’
Looking to keep bitcoin at arm’s length for now, Tesla will not be selling the currency or accepting it as payment for its BEVs. It is, however, looking into alternative cryptocurrencies with a far smaller environmental impact. ′Tesla will not be selling any bitcoin, and we intend to use it for transactions as soon as mining transitions to more sustainable energy,’ Musk tweeted. ′We are also looking at other cryptocurrencies that use <1% of bitcoin’s energy/transaction.’
Viswanath-Natraj pointed out that this latest tweet is at odds with the CEO’s previous posts, which encouraged investment in bitcoin and its use as a payment system. ′It is difficult to rationalise this reversal in sentiment toward Bitcoin given the energy-inefficiency argument is not new: and scalability has been cited as the number one issue with Bitcoin payments for years,’ he said. ′The large effects of Musk’s tweets on Bitcoin is direct proof that Bitcoin’s price exceeds the fundamental value and is a bubble-driven asset.’
In February, the carmaker revealed it had invested $1.5 billion in bitcoin. In March, Musk took to Twitter to declare the digital asset could be used to purchase a Tesla. In Q1 this year, the company actually sold $272 million worth of the cryptocurrency, making $101 million in the process.
Bitcoin is created by miners with high-powered computers, capable of completing complex mathematical problems. This requires large amounts of electricity, often generated through the burning of fossil fuels like coal. This is particularly true in countries where there is a slower adoption of renewable-energy sources. For example, A recently-published study found that Chinese miners are responsible for some 75% of mining activities.