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Over the weekend, Tesla chief executive Elon Musk\u00a0suggested<\/a>\u00a0his company could sell off its Bitcoin holdings, sending the cryptocurrency plummeting.<\/p>\n It followed Musk\u2019s\u00a0announcement<\/a>\u00a0earlier this month that his company would no longer accept Bitcoin in payment for its electric cars, due to the fossil fuels needed to create the digital currency.<\/p>\n Bitcoin is created via high-powered computers solving complex mathematical equations. These computers use\u00a0a lot of electricity<\/a>, which is often generated by fossil fuels. Tesla\u2019s about-face is a blow to Bitcoin, the value of which\u00a0jumped<\/a>\u00a0when Tesla got on board.<\/p>\n Tesla\u2019s stance is a big winner for both the climate, and the company\u2019s \u201cgreen\u201d reputation. The development has also shone the spotlight further onto the carbon footprint of cryptocurrency \u2013 an issue that will not go away soon.<\/p>\n In announcing Tesla\u2019s U-turn on Bitcoin, Musk said:<\/p>\n 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.<\/em><\/p><\/blockquote>\n Musk should be congratulated for the principled stance \u2013 particularly as the decision caused the Bitcoin price to\u00a0fall<\/a>, reducing its value on the Tesla balance sheet.<\/p>\n So how, exactly, is Bitcoin \u2013 and many other\u00a0cryptocurrencies<\/a>\u00a0\u2013 bad for the environment?<\/p>\n It all comes down to the energy used to create it. Before a Bitcoin transaction takes place, the person spending the coin must be verified as the valid owner. And once the transaction is complete it must be digitally recorded in a database known as a \u201cblockchain\u201d ledger.<\/p>\n Unlike a traditional bank where transactions are centrally verified and recorded, Bitcoin\u2019s ledger comprises a distributed database of users. They verify transactions by running complex mathematical problems through high-powered computers. The first user to solve the calculation and add it to the blockchain is rewarded with Bitcoin. The process is termed \u201cmining\u201d.<\/p>\n Over time, the Bitcoin system\u00a0increases the complexity<\/a>\u00a0of the problems as more computing power is applied to them. In the early days mining could be done by geeks in their bedrooms using home computers. Now it mostly done using vast rooms full of very expensive specialised equipment, which only companies can afford.<\/p>\n The process uses a lot of energy. The University of Cambridge recently\u00a0estimated<\/a>\u00a0Bitcoin used more electricity each year than the entire economies of Argentina or Sweden.<\/p>\n Some of this electricity comes from renewables. But analyses suggest most Bitcoin mining occurs in China, and the main power source is coal. A recent study in\u00a0Nature<\/a>\u00a0concluded Bitcoin operations in China are on track to produce 130 million tonnes of greenhouse gas emissions in 2024 \u2013 more than the entire economy of the Czech Republic.<\/p>\n If Bitcoin became more popular, its carbon footprint would only increase. But even before Musk\u2019s announcement, Bitcoin was\u00a0struggling<\/a>\u00a0to become a widely used\u00a0online payment system<\/a>.<\/p>\n This is partly\u00a0because<\/a>\u00a0the scale of cryptocurrencies cannot keep up with global transaction demand and their value fluctuates widely. The new focus on Bitcoin\u2019s environmental costs make it even more likely the currency will remain an outlier.<\/p>\n Tesla\u2019s move puts pressure on other companies to stop (or not start) accepting Bitcoin or risk damage to their brand.\u00a0Research shows<\/a>\u00a0most consumers are less willing to buy from a company that doesn\u2019t take its environmental responsibilities seriously.<\/p>\n A company accepting Bitcoin may also risk being shunned by investors.\u00a0Questions<\/a>\u00a0have been raised about whether Bitcoin exposure is compatible with ethical investment.<\/p>\n Already\u00a0some central banks<\/a>\u00a0and\u00a0private funds managers<\/a>\u00a0are including climate change risks when making investment decisions. And banks are increasingly reluctant to lend to companies not acting on climate change.<\/p>\n The attention on Bitcoin\u2019s carbon footprint will benefit \u201cgreener\u201d cryptocurrencies. For example, Chia uses less processing power than Bitcoin and so produces fewer greenhouse gas emissions.<\/p>\n In the longer term, there\u2019s a bigger challenge to Bitcoin\u2019s aspirations. Some central banks such as the People\u2019s Bank of China are developing their own\u00a0digital currencies<\/a>. These will offer a cheap and efficient payment system without the volatile price and large carbon footprint of Bitcoin.<\/p>\n So where to now for energy-intensive digital currencies such as Bitcoin?<\/p>\n Some environmental concerns could potentially be addressed by moving to greener electricity sources for computer processing. According to\u00a0one suggestion<\/a>, this could involve creating a registry to track provenance, so climate-aware investors could choose to buy Bitcoin made from, say, Icelandic hydroelectric power rather than coal.<\/p>\n But such a measure would probably have to be voluntary. Regulating Bitcoin would be difficult due to its decentralised nature; there\u2019s no company to \u201cfine\u201d for breaking the rules.<\/p>\n Any attempt to clean up Bitcoin by changing its coding would be problematic. Past attempts to change the code to improve efficiency just resulted in \u201cforks<\/a>\u201d \u2013 the emergence of new cryptocurrenices such as Bitcoin Gold and Bitcoin Cash.<\/p>\n\n\n\n\u2018Great cost to the environment\u2019<\/h4>\n
Bumps in the Bitcoin road<\/strong><\/h4>\n
Cleaning up cryptocurrency<\/h4>\n