Electric car company Tesla Inc. has suspended purchases of its cars using Bitcoin over energy usage concerns. “We are concerned about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” tweeted Tesla CEO Elon Musk yesterday.
The Palo Alto-based company announced in February that it had purchased $1.5 billion worth of Bitcoin. Simultaneously, it also planned to allow purchases of its cars using the cryptocurrency. While it doesn’t seem to have recorded car sales using Bitcoin, Tesla has inked a handsome profit off its investment in the cryptocurrency. During its most recent earnings call, it announced a profit of $101 million from Bitcoin trades.
An Energy Hog
Tesla’s announcement about Bitcoin comes during a time of heightened awareness about cryptocurrencies and climate change. Bitcoin price has skyrocketed during the pandemic shutdown even as climate change has sidelined profits to become a defining principle for investors and corporates.
The energy used to mine Bitcoin has been a controversial topic of discussion for the cryptocurrency’s advocates. The cryptocurrency is mined using a process known as Proof-of-Work that entails solving of complex problems by large batches of mining rigs, which consume enormous energy. The complexity of these problems varies. This means that the more difficult the problem, the greater the time it takes to solve them, and higher the amount of consumed electricity.
A 2019 estimate of Bitcoin’s energy usage pegged it at 66.7 terawatt hours, almost as much as that of the Czech Republic. The Cambridge Center for Alternative Finance estimates that the process to mine Bitcoin consumes more than 148 terawatts, equal to the power used by Sweden. While proponents of the cryptocurrency claim that Bitcoin’s energy use is overblown and that the vast majority of Bitcoin mining takes place renewable energy, analysts doubt those claims.
Another Crypto Investment?
Bitcoin’s price slid by 5% in response to Musk’s tweet. The Tesla CEO has previously said that he “supports” Bitcoin and joked about Dogecoin, another coin whose price has surged in recent times, being a hustle in a recent SNL appearance. Given Musk’s interest in cryptocurrencies, it is unlikely that this is the last we will hear from the car company about the asset class.
The company still holds a substantial stash of Bitcoin and has said that it will allow its use for transactions “as soon as mining transitions to more sustainable energy”. (Of course, the company may also contribute to those transactions by trading its Bitcoin). Tellingly, Musk said that Tesla is also “looking” at other cryptocurrencies that use less energy per transaction. This leaves the door open for other, prominent cryptocurrencies that use less energy. Among the top five cryptocurrencies by market capitalization, Bitcoin and Ethereum have both been criticized for their energy use. Tether and Binance Coin are stablecoins i.e., their value does not fluctuate beyond their $1 peg, making them unlikely profit-making vehicles. Cardano, the world’s fourth-most valuable cryptocurrency by market cap, seems a likely investment choice for Tesla. Musk has previously tweeted about the blockchain, meaning he is interested in its potential, and it has a clearly-defined use case.