“Tesla has suspended vehicle purchases using Bitcoin” And just like that, crypto currencies saw a massive slide with Bitcoin plunging as much as 17 percent, all with one single tweet. The tweet was so significant because it was seen as a massive U-Turn by Tesla after it had announced a $1.5 billion investment in Bitcoin in February and had made plans to accept the cryptocurrency as a mode of payment.What caused this sudden pull-out? Bitcoin’s impact on the environment.
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP
— Elon Musk (@elonmusk) May 12, 2021
So, mining digital currency is bad for the environment?
To understand its impact on the environment, we must look at Bitcoin is ‘mined’ in the first place. The process of creating a new coin involves the analysis and computation of complex mathematical equations. These are done on computers. The faster the computer, the faster the rate at which a coin can be mined. The software used to mine these currencies takes about 10 minutes on average to complete a single block.
This obviously takes up electricity and much of the energy consumption being talked about happens during the mining process. As per a recent study, the annual energy consumption of Bitcoin mining in China is expected to hit 296.59 Twh in 2024. Similarly, an estimate by the University of Cambridge says that Bitcoin mining consumes more than 120 Twh per year which means it uses more electricity than some countries like Argentina or Sweden.
While electricity can be generated using cleaner methods like air or water, the fact is most of the electricity we use still comes from fossil fuels. As Bitcoin sees an upswing in popularity, so does the mining that is required to create it. There are several reports that also point to the fact that Bitcoin alone could produce enough carbon dioxide emissions to push global warming above 2 degrees Celsius in less than three decades.
The main problem here is that the public ledger which records, and logs Bitcoins is decentralised. This means it is not controlled by a single authority and uses a network of computers strewn around the globe to operate. These machines are usually purpose-built computers that have been tuned to solve the mathematical equations they are presented with.
On the flip side of the coin, there are memos that have been out by prominent figureheads like Jack Dorsey and Catherine Wood that argue bitcoin will actually drive renewable energy innovations. They argue that Bitcoin miners are unique and completely location agnostic, requiring only an internet connection to start mining. These incentives drive them to seek out cheaper forms of renewable energy to produce the coins as it gets cheaper to acquire. For example – In China, the Sichuan province is known to attract a lot of miners because of the cheap electricity and vast hydropower resources.
The flip side of the coin
There are also some vocal critics that look at Musk’s recent flip-flops on cryptocurrency as a deliberate way to manipulate the market in his favour. Vocal critics like POMP argue that despite Musk’s narrative that “bitcoin is bad for the environment” Tesla has still decided to hold all its Bitcoin and not sell it.
Next, he argues that bitcoin miners are persistent users of power which means they waste extraordinarily little power generated and are a preferred method of monetization for power grids if they have surplus power.
He also argues since China is looked as the major contributor of Bitcoin mining, people assume that most of their power is derived from fossil fuels, which is not true. He says that Xinjiang - which is the last remaining mining-heavy province in China - operates on approximately 40%-50% renewables. Sichuan and Yunnan which account for nearly 50% of the hash rates for Bitcoin are powered by almost 100% hydro-powered miners.
Perspective pic.twitter.com/ZwU45ppgU9— Michael Arrington
He also argues that the US Banking system has an extremely high rate of energy expenditure compared to Bitcoin mining and billionaires like Mark Cuban argue that disruption of gold and physical coins will be the biggest environment friendly development in the world.
We at https://t.co/VUydpLFzGh will continue to accept BTC/Eth/Doge because we know that replacing Gold as a store of value will help the environment https://t.co/bs7NvnJY8A and https://t.co/ELhbuLOBRV shrinking big bank and coin usage will benefit society and the environment https://t.co/zu08F0STEQ— Mark Cuban (@mcuban) May 12, 2021