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Tesla will no longer accept payments in Bitcoin because of its effects on the environment. On Wednesday the company’s CEO Elon Musk tweeted that Tesla has concerns about the “rapidly increasing use of fossil fuels for Bitcoin mining.” He emphasized that Tesla won’t sell its $2.5 billion worth of Bitcoin, and said that Tesla would begin accepting Bitcoin transactions once mining becomes more sustainable. The company is also looking into cryptocurrencies that use less than 1% of Bitcoin’s energy used per transaction. As we have reported before, studies show that Bitcoin’s business has a bigger carbon footprint than countries like, say, Argentina or New Zealand.
Why this Matters: Musk’s statement has proven controversial — it affected cryptocurrency markets, which have shed as much as $365.85 billion in value since his tweet. As cryptocurrencies have gotten more popular and lucrative, and other crypto technologies like NFTs have gained traction, examining their environmental impact is crucial. Other tech leaders, like Jack Dorsey of Twitter, have argued that “cryptocurrency will eventually be powered completely by clean power, eliminating its carbon footprint and driving adoption of renewables globally.” This added pressure from Musk may speed Bitcoin’s conversion to clean power – the tweet generated nearly 500,000 “likes” in the first 24 hours.
The use of Bitcoin requires a technology called the blockchain. In order for a person to buy a new Bitcoin, a Bitcoin “miner” must run specialized computers that solve complex math puzzles. These math puzzles ensure the validity of the currency and prevent it from being tampered with. Many servers then solve these math puzzles to try and get the same result, therefore make sure that the transaction is secure. This process generates “proof of work,” which shows that the computers expended effort to verify the security of the transaction.
This process uses a lot of energy, and as the math puzzles used to mine Bitcoin have gotten more complicated over the years, the energy required for the “proof of work” process has been increasing exponentially.
Some crypto advocates have suggested that as China begins to use more renewable energy, crypto’s environmental cost will decrease. But this doesn’t change the fact that the blockchain requires massive amounts of energy that could be used to power homes and other necessities.
That said, Laith Khalaf, a financial analyst at AJ Bell investment firm, told CNBC news that Tesla’s announcement could shake up the crypto market: “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.”
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