The cryptocurrency market is reeling from the shock of Tesla’s announcement that it would be suspending vehicle purchases using bitcoin until the industry addresses the impact of mining the crypto on the environment.
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The decision has sent the price of the most valued cryptocurrency downward. It was trading at $50,336 on Thursday morning representing an 11.39 percent drop in the last 24 hours.
Before now, Elon Musk, CEO of Tesla was a major supporter of bitcoin and its potential to disrupt financial services. Tesla’s announcement that it was going to be accepting bitcoin as payment for the purchase of its electric vehicles was mainly responsible for pushing up the price of the crypto to a new all-time high.
Read Also: Tesla’s $1.5bn bet on Bitcoin drives price to record high
The reversal is a major setback for the industry which in recent times has welcomed many big institutional investors including Goldman Sachs, Visa, and Mastercard.
But it also puts bitcoin mining activities and their potential to impact the environment in the spotlight.
It also comes at a time when most of the world is trying to shift to energy-efficient technological solutions. Visa recently said it is exploring environmentally sustainable payment cards and is partnering with advocates to ensure it achieves zero carbon emissions. Visa is one of the institutions that have embraced bitcoin.
Bitcoin’s electricity consumption has become one of the most hotly debated topics in the industry.
A report by the BBC in February found that the Bitcoin network consumes 121.4 TWh of power per year, which means that it would be the 29th highest energy-consuming country in the world, above Argentina and below Norway.
Mining is the primary way of generating bitcoin.
Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. It is performed using very sophisticated computers that solve extremely complex computational math problems. Miners count electricity as the biggest cost of generating bitcoin.
According to the University of Cambridge’s bitcoin electricity consumption index, bitcoin miners are expected to consume roughly 130 Terawatt-hours of energy (TWh), which is roughly 0.6 percent of global electricity consumption.
Recent price surges have also led to growth in mining activities.
According to Chainalysis, Bitcoin reached a peak hashrate of 172M THs in mid-April of 2021, which is 233x greater than it was in January 2016. As mining competition has increased, many have drawn attention to the corresponding rise in energy consumption.
Hashrate refers to the total combined computational power that is being used to mine and process transactions on a Proof-of-Work blockchain, such as Bitcoin and Ethereum.
To understand how to calculate the electrical energy used to power the bitcoin network first, you calculate how many sums are conducted per second to solve the puzzles. Then find out how much electricity it takes to do each sum. These sums are called “hashes.”
No matter how many miners, it still takes 10 minutes to mine one bitcoin. At 600 seconds (10 minutes), all else being equal, it will take 72,000 GW (or 72 Terawatts) of power to mine a bitcoin using the average power usage provided by ASIC miners.
Nevertheless, bitcoin operators suggest Tesla may be singling out bitcoin unfairly.
“Elon probably did not research how much energy is required to run other (non-crypto) currencies that Tesla accepts,” said Changpeng Zhao, founder, and CEO of Binance, the largest crypto exchange in the world.
Zhao’s sentiment is shared by Anthony Pompliano, founder and partner at Morgan Creek Digital, a hedge fund that specialises in blockchain technology and digital assets.
“Can’t wait for Tesla to stop accepting US dollars because it has such a negative impact on the environment,” Pompliano tweeted on Wednesday.
Money is not always purely digital and needs to be printed, which means that it has a life cycle: some bills and coins wear out and need to be reproduced. A $10 bill has an estimated life span of 5.3 years and a $5 bill is estimated to last for 4.7 years.
Printing fiat currencies like the dollar and naira involves cutting down trees in preparation for making paper, a critical raw material for printing non-crypto currencies.
Other potentially environmental hazard activities involved in printing fiat currencies include cotton trees, plastics, inks (oils), and the electricity required to complete the process.
A report by the Ledger suggests that the banking system consumes more energy than the bitcoin network with banking costs calculated around 100 Terawatts per year.
“This is almost double that of Bitcoin. Indeed, banks need to run a lot of servers, branches, and ATMs to keep their system accessible to the public,” the report noted.
Even though the view that Tesla suspending bitcoin payment may be unfair, the company’s hands are tied since its main product, electric vehicles are rooted in the need to reduce carbon emissions from fossil fuel.
However, Chainalysis notes that companies like Tesla would do well to acknowledge strides being made in making bitcoin mining sustainable.
Square had noted in White Paper recently that by incorporating cryptocurrency mining, solar and wind facilities can become more profitable, making them more attractive to investors so that more such facilities are built.
A recent CoinDesk research report shows that 39 percent of Bitcoin mining energy came from renewable sources in 2019, up from 28 percent in 2018, suggesting this process may be underway.
Tesla says it would be willing to accept bitcoin payments once more energy comes from renewable sources, when that will be, no one knows.
