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Tesla’s Bitcoin about-face is a warning for cryptocurrencies that ignore climate change

Tesla’s Bitcoin about-face is a warning for cryptocurrencies that ignore climate change

Over the weekend, Tesla chief executive Elon Musk suggested his company could sell off its Bitcoin holdings, sending the cryptocurrency plummeting.

It followed Musk’s announcement earlier 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.

Bitcoin is created via high-powered computers solving complex mathematical equations. These computers use a lot of electricity, which is often generated by fossil fuels. Tesla’s about-face is a blow to Bitcoin, the value of which jumped when Tesla got on board.

Tesla’s stance is a big winner for both the climate, and the company’s “green” reputation. The development has also shone the spotlight further onto the carbon footprint of cryptocurrency – an issue that will not go away soon.

Musk should be congratulated for the principled stance – particularly as the decision caused the Bitcoin price to fall, reducing its value on the Tesla balance sheet.

So how, exactly, is Bitcoin – and many other cryptocurrencies – bad for the environment?

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 “blockchain” ledger.

Unlike a traditional bank where transactions are centrally verified and recorded, Bitcoin’s 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 “mining”.

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