In what can be called as a sudden ‘U-turn’, Elon Musk on Wednesday reversed course to use Bitcoin as an acceptable form of payment for purchase of Tesla vehicles. In a tweet, Tesla’s Chief Operating Officer (CEO) said that the company has suspended the use of bitcoin to purchase its vehicles because of climate concerns.
‘’We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.’’
The world’s largest cryptocurrency plunged as much as 17%, dropping to its lowest since March after Musk’s tweet. Other cryptocurrencies, including Ethereum, also declined over the past 24 hours.
In February, Musk had announced that Tesla would invest $1.5 billion in bitcoin and made plans to accept bitcoin as payment for its cars. However, many critics had raised questions on the decision citing the impact of the vast amounts of energy used to mine bitcoin. Environmentalists have also warned that carbon emissions from power-intensive bitcoin mining could harm sustainability efforts.
How Bitcoin mining works?
Bitcoin mining is a process of creating a new coin that involves using computers to solve complex mathematical algorithms or puzzles. The cryptocurrencies are based on a decentralized network that need to be mined. The software that mines bitcoin is designed to take on average about 10 minutes for those on the network to solve the complex program and process a block.
The process ends up using a massive chunk of electricity as giant and powerful systems are used by miners to mine blocks and verify transactions. The vast majority of Bitcoin’s energy consumption happens during the mining process. As a reward for their services, miners receive newly created bitcoins along with transaction processing fees.
Mining for the cryptocurrency often relies on electricity generated with fossil fuels. As bitcoin price rises, so does the energy consumption. The rising price offers even more incentive to miners to mine coins, and attract more people to join the bitcoin network.
China has more bitcoin facilities located in the country which are more reliant on coal-based power. A study stated that as of April 2020, China accounted for more than 75% of Bitcoin blockchain operation around the world. Some rural areas in China have been considered as the ideal destination for Bitcoin mining mainly due to the cheaper electricity price and large undeveloped land for pool construction.
Bitcoin’s energy consumption
An estimate by the University of Cambridge suggests that Bitcoin mining consumes more than 120 Terawatt Hours (Twh) per year, with using more electricity annually than the countries like Malaysia, Sweden or Argentina. The report also stated that bitcoin could rank in the top 30 energy consumers if it were a country.
An index complied by Digiconomist that publishes estimates of bitcoin’s climate impact showed also that it consumes an estimate of around 115 Twh per year. A study by the research platform stated that the Bitcoin network could consume as much energy as all data centers globally, with an associated carbon footprint matching London’s footprint size.
Studies also claim that should it follow the rate of adoption of other broadly adopted technologies, Bitcoin could alone produce enough carbon dioxide emissions to push global warming above 2 °C within less than three decades.
Even though Musk has suspended to accept the world’s largest cryptocurrency for his company, he still remains a strong believer of cryptocurrencies. He said that Tesla will not be selling any Bitcoin and intends to use it for transactions as soon as mining transitions to more sustainable energy. They will also look at other cryptocurrencies that use less than 1% of Bitcoin’s energy/transaction.
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