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Staunch supporters of bitcoin on Wednesday night were questioning Elon Musk’s crypto bona fides after the CEO of Tesla Inc. said that the company would halt its experiment of selling its electric vehicles using bitcoin due to “rapidly increasing use of fossil fuels” mining the digital asset.
Musk’s announcement rippled through the crypto markets, sending bitcoin
BTCUSD,
prices down severely a little after 6 p.m. Eastern, when Musk issued the statement via Twitter.
Energy consumption related to digital mining of bitcoin has become a hot-button topic in digital-asset circles because of the environmental concerns it raises. Recent research has made the case that digitally extracting bitcoin consumes as much energy as small countries.
The energy consumption, however, isn’t at the crux of the argument, but rather the implied carbon footprint that bitcoin mining leaves behind. A 2019 white paper from crypto asset-management firm CoinShares said that the “the real issue is not whether bitcoin uses a lot of energy, it’s where this energy comes from.”
Bitcoin is mined by solving complex computational problems, and uses a proof-of-work protocol. It is a system that requires tremendous amounts of energy to be expended to verify and support the bitcoin network, in which miners are rewarded by receiving the virtual asset.
Miners are verifiers of transactions, and the reward system incentivizes them to support the blockchain by confirming each transaction on the chain and creating a new immutable block, hence the term blockchain. Mining is arguably the backbone of bitcoin, allowing it to be secure and decentralized.
The energy expenditure tends to increase when the price of bitcoin rises. The rewards for mining will diminish until 2140, when the 21 millionth and final bitcoin is mined.
All that said, the issue of bitcoin and its level of environmental friendliness is a complicated one, but one that its supporters are willing to defend.
Morgan Creek Digital founder Anthony Pompliano tweeted that 75% of bitcoin mining is done using renewable energy:
Pompliano may be referring to a 2020 Global Cryptoasset Benchmarking Study by the University of Cambridge, which made the case that 76% of cryptocurrency miners use electricity from renewable energy sources as part of their energy mix. The report said that almost 62% of miners are reported to be using hydroelectricity.
Critics of bitcoin’s environmental impact often point out that 60% to 70% of bitcoin is currently mined in China, where two-thirds of the electricity is derived from environmentally unfriendly coal.
However, a 2019 report from the Paris-based International Energy Agency noted that bitcoin mining facilities tend to be “concentrated in remote areas of China with rich hydro or wind resources (cheap electricity).”
That same report also compares the worries about bitcoin’s energy consumption to the advent of the internet, citing a Forbes article from 1999 that made the case that “somewhere in America, a lump of coal is burned every time a book is ordered on-line,” referring to the growth of Amazon.com
AMZN,
Last month, Musk agreed with a tweet from Twitter
TWTR,
and Square
SQ,
CEO Jack Dorsey arguing that bitcoin “incentivizes renewable energy.”
Michael Saylor, CEO of business-analytics pioneer MicroStrategy Inc., which has become one of the biggest corporate owners of bitcoin, suggested in a tweet that those worried about bitcoin’s energy consumption are looking at it the wrong way.
Saylor argued that “no incremental energy is used” transacting in bitcoin, outside of mining it.
There’s perhaps another irony to Musk’s stance, since Tesla’s
TSLA,
lithium battery-powered vehicles are also starting to draw criticism for their environmental impact. A New York Times article last week made the case that the environmental toll of lithium mining is often overlooked in pursuit of an EV future in the U.S. and elsewhere in the world. Appetite for lithium is likely to increase ten-fold in the coming years.
“Our new clean-energy demands could be creating greater harm, even though its intention is to do good,” the Times quoted Aimee Boulanger, executive director for the Initiative for Responsible Mining Assurance, as saying.
A 2019 article on Medium also makes the case that gold mining and banking consume more energy than bitcoin mining.
