Tesla has one other big reason for halting Bitcoin payments
Tesla will no longer accept bitcoin as a form of payment, and it could reduce the pressure on a key constraint for the company.
Tesla will no longer accept bitcoin as payment for its electric vehicles, CEO Elon Musk declared on Twitter Wednesday.
Musk, who only 50 days earlier had announced customers could buy a Tesla with the cryptocurrency, wrote on May 12:
“Tesla has suspended vehicle purchases using Bitcoin. We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”
Alex de Vries, a data scientist who tracks bitcoin’s energy usage on the Digiconomist website, tells Inverse that Musk’s conversion is “better late than never”. But it may not be just about energy consumption. Bitcoin may also be applying pressure to the global semiconductor shortage — and that’s bad news for Tesla.
Want to know more about Tesla’s bitcoin use and where it can go from here? Read the second part of our interview with de Vries this Friday, exclusively in MUSK READS+.
Why does bitcoin use so much energy? — Bitcoin uses a lot of energy due to how the mining process works. Miners set their computers to validate transactions on the network, creating a new block on the chain. They get rewarded in bitcoin for producing a valid block.
The network adjusts the difficulty of creating a new block based on the computing power of the network. This is to discourage miners from adding fraudulent transactions, as it would be a waste of the miner’s resources. The network ensures that a valid block is produced every 10 minutes, and the winner is chosen at random.
This “proof of work” system enables bitcoin to work as a cryptocurrency without a centralized server or authority — but also causes energy usage to soar as miners race to add more computing power. De Vries’ website claims that bitcoin currently uses around 116 Terawatt-hours of energy per year, comparable to the Netherlands.
What does Musk think? — Musk’s statement continued:
“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.
Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use <1% of Bitcoin's energy/transaction.”
Musk's post on energy consumption.
Beyond the bitcoin potentially accumulated through car purchases, Tesla also purchased $1.5 billion of the cryptocurrency in February. The firm confirmed in its first-quarter 2021 earnings call that it subsequently sold around 10 percent of its bitcoin.
Bitcoin’s questionable environmental credentials were highlighted prior to Musk’s statement. The firm’s website claims its mission is “to accelerate the world’s transition to sustainable energy.”
How else is bitcoin impacting the world? — Beyond the environmental impact, bitcoin may also be creating electronic waste.
Miners purchase application-specific integrated circuits, or ASICs, designed to mine bitcoin even faster with less electricity. As the network adjusts difficulty depending on the total computing power, this creates a race to add more power to the network. Older ASICs become obsolete.
De Vries’ website claims that bitcoin is subsequently producing 11.5 kilotons of electronic waste per year, comparable to that produced in a year by Luxembourg. De Vries tells Inverse he has a paper coming soon that will explore the issue in further detail. This drive to replace electronics, he explains, could be an issue for firms like Tesla.
“Demand for machines is actively adding to disruption to the global semiconductor supply chain,” he says.
Bitcoin mining could have a detrimental effect on efforts to reduce electronic waste.
The ongoing shortage in part resulted from the pandemic, which drove up demand for electronics. President Joe Biden announced in March 2021 a pledge to spend $37 billion to tackle the ongoing issue.
Tesla cars depend on semiconductors, but it’s hard to say for sure how badly Tesla itself is affected by the shortage. De Vries explains that it’s possible chip makers are prioritizing Tesla as a client. But the firm’s latest earnings report revealed that it had switched to new microcontrollers to avoid the worst effects of the shortage, suggesting it is affected.
Somewhat ironically, Tesla chief financial officer Zach Kirkhorn mentioned in the most recent earnings call that the firm had invested in bitcoin in part due to the semiconductor shortage:
“Elon and I were looking for a place to store cash that wasn't being immediately used, try to get some level of return on this but also preserve liquidity. You know, particularly as we look forward to the launch of Austin and Berlin, and uncertainty that's happening with semiconductors and port capacity, being able to access our cash very quickly is super important to us right now.”
What about Dogecoin? — Musk has regularly mentioned the sixth-largest cryptocurrency on his Twitter page. He’s even planning a SpaceX mission themed around the cryptocurrency, but details are scarce. The cryptocurrency is famed for its use of a Shiba Inu as its logo, themed around a popular internet meme.
On last week’s Saturday Night Live appearance, Musk described Dogecoin as a “hustle”. The value of Dogecoin dropped that same day.
On May 11, Musk asked his followers on Twitter if Tesla should accept Dogecoin:
Musk's post on Dogecoin.
But Dogecoin also uses a similar “proof of work” system to bitcoin. The reason it uses less energy, de Vries argues, is because it’s not as big as bitcoin.
“If Dogecoin was as big as bitcoin, you'd have the same issues as bitcoin,” de Vries says.
It should be noted that Dogecoin does not use exactly the same algorithm as bitcoin, as Leafscore explains. It uses “auxiliary proof of work,” which means miners can mine other coins at the same time using the same mining power. That makes it harder to work out exactly how much energy is being used solely to mine Dogecoin.
For now, Tesla has withdrawn from bitcoin due to environmental concerns. As Musk’s statement indicates, however, Tesla’s venture into cryptocurrency may not be over just yet.
The author of this story has a stake in Ethereum.
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