Tesla just gave bitcoin a big boost that is likely to result in more greenhouse gas emissions from the energy-consuming cryptocurrency. After Tesla bought $ 1.5 billion in bitcoin and announced that it will accept bitcoin as payment in the future, the price of bitcoin has reached its highest point.
“It’s hard to imagine, frankly, an endorsement more reliable than one coming from people like Elon [Musk] who are inventing the future, ”says Garrick Hileman, head of research at crypto asset company blockchain.com and visiting researcher at the London School of Economics.
When prices are high, bitcoin “mining” – creating new currencies by checking transactions – increases. But even if this mining takes place virtually, it results in greenhouse gas emissions that fuel a climate crisis in the real world. This is at odds with Tesla’s mission to “accelerate the world’s transition to sustainable energy”. With the adoption of bitcoin, the emergence of a cryptocurrency that swallows energy is quite unsustainable, or at least inefficient, by design.
Bitcoin was created to eliminate the need for a third party, such as a bank, to oversee financial transactions. But without a bank’s security systems, bitcoin records are kept safe and accurate, requiring miners to solve ultra-complex numerical problems. Miners need machines that consume a lot of energy to solve these problems, which drives bitcoin-associated climate pollution. It is a system called “proof of work” that is deliberately difficult to dissuade people from trying to take over or corrupt the records. It is also expensive to mine bitcoin because of the cost of the machines and all the energy they consume.
“It should be more profitable to follow the rules than to cheat, that’s really the idea behind it all,” says Michel Rauchs, a research affiliate at the Cambridge Center for Alternative Finance. “And the only way to do this online with confidence is to burn electricity through these computing puzzles.”
If bitcoin were a country, its annual electricity consumption would be 30th in the world. It would use slightly less than the amount of energy Norway consumes and slightly more than Argentina, according to the Cambridge Center for Alternative Finance, which maintains an updated estimate of bitcoin’s energy consumption. Bitcoin’s energy consumption has steadily increased since October, as the price of bitcoin has skyrocketed. That bubble may burst, but Tesla’s offer for bitcoin has given the price of bitcoin – and its carbon dioxide emissions – an additional rise.
“I think it’s worrying to consider that there doesn’t seem to be an instrument for reducing impact, other than price,” says Susanne Köhler, a PhD fellow from Denmark’s Aalborg University who published a 2019 article on the environmental impact of bitcoin. Machines that extract bitcoin have become more efficient over time, but that hasn’t solved bitcoin’s energy problem. Since bitcoin was built on inefficiency, its puzzles are getting more difficult as devices get better at solving them.
“This is something that, as long as the ‘proof of work’ mechanism is not changed, the situation will not change in the future,” says Rauchs. “The higher the price of bitcoin, the more profitable it will be for mining. Therefore, the more miners who wish to participate in this competition and the more electricity, in total, will be burned – no matter how efficient the underlying equipment is. “
Other cryptocurrencies have begun to stop using “proof of work” as a kind of security system, Köhler points out. Emerging alternatives do not drain as much energy. A model called “proof of bet”, for example, does not require so many complex puzzles to validate transactions. Climate-conscious consumers may want to keep these kinds of differences in mind, whether they are interested in cryptocurrencies or electric vehicles.
Consumers concerned about climate change may want to consider other vehicles’ electric vehicles, says John Quiggin, a professor of economics at the University of Queensland who called Tesla’s decision “environmental vandalism” by email. “If you’re concerned about the energy transition, maybe you should go to General Motors, which may be late for the party, but at least you can’t imagine that they are going to go into bitcoin,” said Quiggin in an interview.
Tesla’s $ 1.5 billion bitcoin purchase would technically inflate Tesla’s carbon footprint as a company. If considered an investment, it would be part of the company’s “indirect” emissions. Indirect emissions also include pollution along the supply chain and the use of its products. These indirect emissions already make up most of Tesla’s carbon footprint, as with many companies, according to its 2018 sustainability report. It did not release figures on its indirect emissions as a company, however, in its 2019 report.
Discovering the entire carbon footprint of bitcoin is even more complicated. Miners are always on the move, looking for cheap electricity wherever they can. The source of this electricity can be difficult to trace. Most bitcoin is mined from China, where it can be powered by dirty coal or renewable hydropower, which is abundant during the country’s rainy season.
Bitcoin’s future carbon footprint is equally difficult to analyze. New rules and policies – like setting deadlines to increase clean energy or imposing a carbon tax on bitcoin mining – may eventually minimize bitcoin’s impact on the climate. But without a coordinated global effort to tackle climate change, miners could move to circumvent regulations on bitcoin and its energy use.
Fortunately, the most dire predictions of a bitcoin-powered energy apocalypse have not come true. A 2017 study predicted that bitcoin mining would consume all the energy in the world by 2020. Although 2020 had many problems, this was not one of them.