How Bitcoin Uses Fossil Fuels As Elon Musk Says Tesla No Longer Accepting the Crypto

Tesla CEO Elon Musk has announced that the company will no longer allow customers to pay for cars with bitcoin because of concerns about the cryptocurrency's links with fossil fuels.

In a tweet on Wednesday, Musk, who is also the CEO of SpaceX, wrote that his electric car company had taken the decision in response to the "rapidly increasing use of fossil fuels for bitcoin mining and transactions." Mining is the term used to describe how new coins are brought into circulation.

Musk, who has in the past signalled support for cryptos such as bitcoin and Dogecoin, said: "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."

His comments came after Tesla bought $1.5 billion of bitcoin earlier this year, later selling 10 percent of its holding.

Musk added on Wednesday that Tesla would not be selling any more bitcoin as the company intends to use it for transactions when mining becomes more sustainable.

How does bitcoin use fossil fuels?

Unlike traditional currencies, bitcoin only exists digitally, but the mining process can be compared to digging up gold from the ground. The crypto's protocol states that a maximum of 21 million bitcoins will be created, and there are currently more than 18.7 million in circulation.

In order to bring new coins into circulation, miners use computing power to confirm transactions on an online ledger known as the blockchain, by solving mathematical problems. The reward is new bitcoins. This can happen every 10 minutes.

Peter Howson, a senior lecturer in international development at the U.K.'s Northumbria University, explained the process in an article for The Conversation: "A bitcoin is simply a digital representation of the computer power needed to make one, what's called its 'proof-of-work.'"

As more bitcoins are mined, the puzzles, or algorithms, that must be solved become more difficult. At the coin's inception, this work could be completed on regular computers, but far more power is now required.

The amount of energy consumed by bitcoin mining has been rising for years. In February, the energy used was equal to Argentina's yearly carbon footprint, The Guardian reported, citing Cambridge University's Bitcoin Electricity Consumption Index.

Benjamin Jones, an assistant professor of economics at ​the University of New Mexico who studies the environmental impact of bitcoin, told The Guardian in February: "We're talking about multiple terawatts, dozens of terawatts a year of electricity being used just for bitcoin… That's a lot of electricity."

As miners chase the cheapest ways to release new coins, they seek out the cheapest sources of energy, according to Howson.

He told Newsweek on Thursday: "If that mining is being carried out next to a hydroelectric dam, they must be using hydro and if it's occurring in Mongolia, for example, then coal is likely the only option for miners there."

Alex de Vries, an economist and creator of the website Digiconomist, which measures bitcoin's energy consumption, told Fortune last month that around 70 percent of bitcoin mines around the world were powered by fossil fuels, mostly coal.

He said: "We now know for sure that one-third of all production runs on pure coal from a tiny place in China."

Processing fossil fuels can damage natural habitats and burning them for energy emits carbon dioxide that contributes to climate change.

De Vries told Newsweek that Tesla's decision was "an important signal that will hopefully get people to think about what type of cryptocurrency they are using. There's already alternatives to bitcoin that don't have mining, and thus don't have the need for energy-hungry hardware. The second biggest crypto of the moment, Ethereum, is actively working on replacing their mining with such an alternative—called proof-of-stake—too.

"It would be great if the bitcoin community were to follow this example. In the end bitcoin is just software and it can be upgraded to replace the mining altogether."

According to Howson, the specialist machinery currently used to mine bitcoin— application specific integrated circuits—is updated every year.

"ASICs can't be easily repurposed for general computing," he said. "Redundant units create around 11,500 tonnes of hazardous electronic waste each year, much of which is dumped on cities in the global south."

Asked about the claims that bitcoin can be eco-friendly, Howson told Newsweek: "Bitcoin's advocates often use ridiculous excuses as for why a cryptocurrency that emits 53 million tonnes of carbon every year is no bad thing. They say it's getting more efficient. It isn't.

"Bitcoin makes the fossil fuel industry more profitable and slows transitions to renewables."

This article has been updated with comments from Pete Howson and Alex de Vries.

elon musk tesla bitcoin accepting, Getty
Elon Musk, CEO of Tesla, pictured in Berlin on December 1, 2020. He has announced that the electric car company will no longer accept bitcoin payments. HANNIBAL HANSCHKE/POOL/AFP via Getty Images

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