Bitcoin has lost one of its biggest fans, Elon Musk. The Tesla CEO, whose announcement of accepting bitcoin for Tesla’s purchase earlier in March, fueled the lead-cryptocurrency’s rally that hit $64,000 in April, made a statement on Wednesday that wiped as much as $365 billion off cryptocurrency market.
In a blow-dealing U-turn, Musk said Wednesday that Tesla will no longer accept bitcoin, citing mining energy concerns:
“Tesla has suspended vehicle purchases using bitcoin,” a statement shared by Musk on behalf of the electric vehicle company said. “We are concern about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”
The decision comes at the heels of another Musk’s announcement, that SpaceX will henceforth accept Dogecoin for space trips in Doge-1 Mission. These two happening at the same time appears like Musk is ditching bitcoin for Dogecoin, the meme cryptocurrency he has been cheerleading.
There is a rising concern over what Musk’s decision to divorce bitcoin will mean for the leading cryptocurrency. Bitcoin plunged close to 15% at the news, trading less than $50,000 as of Thursday.
Environmentalists have been hinting on the impact of cryptocurrency mining on the environment. Tesla, which has become a darling vehicle to many, gaining support from pro-green advocates, including Joe Biden’s administration, was inadvertently caught in the mix of fossil fuel and clean energy through its bitcoin investment. Now the automaker is forced to choose where it stands in the moral question of saving the environment.
“Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment,” Musk said.
In addition to the environmental concerns, the sustainability of bitcoin’s energy consumption has increasingly become worrisome. Experts said it needs to be addressed fast to save the world from looming energy doom. In February, Treasury Secretary Janet Yellen warned that the digital coin is “extremely inefficient” for making transactions and uses a “staggering” amount of power.
The bitcoin network is responsible for 55 million metric tons of CO2 annually, which is as much as a nation like Singapore.
In March, China’s Inner Mongolia region said it would shut down cryptocurrency mining operations in the region due to concerns over energy consumption in an attempt to save the city from blackouts.
Last month, a coal mine in the Xinjiang region flooded and shut down. This took nearly a quarter of bitcoin’s hash rate — or computing power — offline, according to CoinDesk.
There have been suggestions to build more energy-efficient blockchains. Green Buzz published four practical ways to save bitcoin from its energy pitfall in 2019: Moving away from the proof-of-work validation method; Using blockchain to spur energy-efficient transportation methods; Building more energy-efficient blockchains, and Focusing on sustainable ways to mine bitcoin.
Musk said Tesla would only resume bitcoin transactions as soon as mining transitions move to more sustainable energy, but energy experts doubt it will ever happen. With the impact of Tesla’s withdrawal so loud, it would not be long before other organizations jump the bandwagon.
“Environmental matters are an incredibly sensitive subject right now, and Tesla’s move might serve as a wake-up call to businesses and consumers using Bitcoin, who hadn’t hitherto considered its carbon footprint,” Laith Khalaf, a financial analyst at investment firm AJ Bell, said in a note Thursday.
Energy transition has thus become an inevitable part of bitcoin’s proposed correction, although such transition will mean a short-term significant plunge for the cryptocurrency.
Musk says Tesla is “looking for cryptocurrencies that use <1% of Bitcoin’s energy/transaction,” but such cryptocurrencies are not popular even among altcoins. Dogecoin, which Musk has chosen for SpaceX’s Doge-1 Mission doesn’t fall in that category, it uses proof-of-work, leaving the chance to a newbie like Chia, which uses Proofs of Space and Time (PoST) instead of Proof-of-Work, to curtail its energy consumption.
It therefore suggests that Musk’s fallout with bitcoin is limited to Tesla only, he may accept the cryptocurrency in his other companies that have no green message in their business.
But Tesla’s decision has placed bitcoin investors in a difficult situation, given its potential to trigger an environmental movement that will constantly attack bitcoin.
“Tesla’s decision certainly puts pressure on other big companies who accept Bitcoin to review their practices, because boardrooms will now be wary about getting it in the ear from ESG investors on the shareholder register,” Khalaf added.