In answering this question we first need to understand what exactly is Bitcoin and why it is a controversy. So what is Bitcoin, what is its purpose and how did it even come into existence? Bitcoin was created to eliminate the need for a third party, like a bank, to oversee financial transactions. But without a bank’s security systems, bitcoin records are kept safe and accurate by requiring miners to solve ultra-complex numeric problems. Bitcoin’s underlying technology, called “blockchain,” is a cryptographically secured distributed ledger where these transactions are continuously (and publicly) being recorded. The addition of new (blocks of) transactions happens in a process called “mining,” where machines are engaging in a competitive process that involves scanning for a value that is hasshed, after that a node collects new transactions in a block, a nonce in the block is incremented until a value is found that satisfies the required number of zero bits. The finished block is broadcasted to the rest of the network, where other nodes express their acceptance by building the next block on top of it. The creator of a block is rewarded with new coins, as an incentive to support the network. So where comes environmental harm into play? Well Miners need energy (a lot of it) from machines to solve those problems, which is what drives the climate pollution controversy associated with bitcoin. It’s a system called “proof of work” that’s deliberately difficult in order to dissuade people from trying to take over or corrupt the records.
However it also gets expensive to mine bitcoin because of the cost of the machines and all of the energy they need and thus soak up. “It should be more profitable to play by the rules than to cheat, that’s really the entire idea behind all of this,” says Michel Rauchs, a research affiliate at the Cambridge Centre for Alternative Finance. “And the only way you can do that in a trustful way online is by burning electricity through those computing puzzles.” All of these types of machines used by Miners require the expense of electricity for the task of generating hashes. We cannot estimate exactly how much electricity is used for Bitcoin mining, as it is not possible to establish how many (or which) mining machines are active in the network. It is, however, possible to create an estimate based off the total computational power in the network, or the total mining reward available to miners. To be more concrete according to ( https://cbeci.org/cbeci/comparisons ) the Cambridge Bitcoin Electricity Consumption Index if Bitcoin was representing a country its electricity consumption would rank 30 th in the world more than a country like Argentina consumes and just slightly less than Ukraine consumes.
However, Bitcoin is of course not a country, and a better perspective of Bitcoin’s energy requirement can therefore be obtained by comparing it to that of the traditional financial institutions. It is estimated that the entire banking sector could be consuming as much as 650 TWh of energy per year. Critically, this number includes not just the data centers that process transactions but also branches and ATMs. At the same time, we are only considering the energy use by Bitcoin mining while the digital currency (contrary to the original purpose of Bitcoin) has spurred the development of Bitcoin ATMs and a new range of trusted third parties (exchanges, wallets, and payment solution providers). More than 80% of transactions occurring on the network now have a counter-party that is a third-party service and there lies more unsustainable criteria.
The serious environmental concerns lays thus in multiple areas of Bitcoin, as the idea within the Bitcoin network is that all of the participating mining machines are competing with each other for the reward of generating a new block for Bitcoin’s underlying blockchain. The interest is thus to generate new blocks non-stop and every 10 min on average. The network self-adjusts the difficulty of generating a block after every 2,016 blocks, ensuring a steady production which increases the race to higher revenue and clearly increases the effort to stall the environmental waste issues and whom should take responsibility for it. So why does an announcement by Tesla to buy a record of $1.5 billion Bitcoins make such a hot topic? Tesla aims and claims at being the most sustainable automotive organization in the world, their mission statement reads “to accelerate the world’s transition to sustainable energy” so why move assests into Bitcoin? Publicity stunt? In little over a decade, bitcoin has risen from a fringe technology popular with rebelious cryptographers such as a person or persons known as Satoshi Nakamoto; to the world's ninth most valuable asset by market cap. Fact is that the cryptocurrency's dramatic ascent has created millionaires, re-imagined money, and launched a multi-billion dollar industry inspired by its revolutionary decentralized technology. The move by Tesla to invest in bitcoins was seen as further confirmation of the legitimacy of the nascent asset.
While it’s not clear, at this point, why Tesla has opted to expose the company to the possible risk of owning bitcoin, as well as declaring an interest in gold which is known for its environmental harm, here are a few reasons put forward:
DiversificationTesla made it clear in its statement filed with its regulator the Securities and Exchange Commission that it sees bitcoin as a chance to diversify its cash and cash-equivalent holdings. Tesla wrote, “we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.”
DisruptionBitcoin is associated with a group of iconoclastic founders who were attempting to break the mold on payments and fiat money, that was the original idea behind cryptos which would fit with Tesla’s brand management. Those notions align somewhat with Elon Musk’s (Tesla) own agenda of disruption. Tesla is making electric-powered vehicles in a world that has thus far been dominated by fossil-fuel driven cars and Tesla’s direct-to-customer sales model also is viewed as trendsetting, since many companies sell their cars through unaffiliated dealerships.
ImageBitcoin’s image as a decentralized asset, not controlled by anyone, also fits with Tesla’s image and that of its leader Elon Musk. Tesla’s $1.5 billion investment in Bitcoin could also be a simple protection against the hegemony of the U.S. dollar as the world’s reserve currency since World War Two. Regardless, Bitcoin is still seen as a volatile asset that is prone to sharp price volatility.
Tesla argues that its entrance and that of big corporations into the crypto market could boost incentives to produce “green bitcoin” using renewable energy. They add that companies could buy carbon credits to compensate too. Truth is that Tesla’s disclosure of its bitcoin investment, made in a securities filing, could indirectly serve to exacerbate the environmental costs of mining, as other companies are likely to follow its lead by buying into the currency. Logically greater demand, and higher prices, lead to more miners competing to solve puzzles in the fastest time to win coin, using increasingly powerful computers that need more energy.
So while eco-friendly initiatives such as (Pow.re) coming from Canada which owns 4% share of the world miners baseline or Iceland and Norway are put into place where nearly 100 per cent of all energy production is renewable and where cryptocurrency miners are taking advantage of cheap hydro-electric and geothermal energy to power their machines and with low temperatures in the countries also helping reduce costs by cooling the computer servers naturally; There is no such thing is a “green bitcoin”. Bitcoin's environmental impact is exacerbated by the fact that a majority of miners are based in China, where over two thirds of power is from coal, this information is gathered using the geographic distribution of Bitcoin miners that is used in the attributional baseline model, China accounts for a 53.5% share in the world. The power demand of Bitcoin mining machines, which is consistent all year long whereas in China the production of hydropower is subject to seasonality. In an extensive report, China Water Risk (CWR) explains that “hydroelectricity cannot be generated year-round” because of “variations in water availability through rain/floods/droughts.” Hence, the production of hydropower is high in the wet season during the summer months and low in the dry season during the winter months. As a result, seasonal variability in hydropower is already higher than 30% and expected to increase further because of climate change. Miners are constantly on the look out for cheap priced electricity which can be coming from all types of sources and is not monitored on its sustainability but on its price.
Furthermore, the impact of these eco-friendly initiatives are offset by redundant coal mines that are reopened to power mining in Australia. Indeed cheap coal in Australia has found new buyers through bitcoin. Another example is the report by the Tax commitee of the European Parliament against fraud and money laundring through cryptocurrencies and the discovery of Virunga National Park in the Democratic Republic of Congo, bitcoin miners are getting special access to cheap, clean energy produced by an EU-funded hydroelectric plant. The plant was designed to help locals find livelihoods beyond poaching and stop them resorting to scouring parkland for wood fuel. Bitcoin miners employ armies of computer servers, not the ex-combatants the plant could help. Which clearly shows the Environmental damages provoked.
“I think it is concerning considering that there doesn’t seem to be an instrument to reduce the impact, other than the price,” says Susanne Köhler, a PhD fellow at Denmark’s Aalborg University who published a 2019 paper on bitcoin’s environmental impact. The machines that mine bitcoin have become more efficient over time, but that hasn’t solved bitcoin’s energy problem. Because bitcoin was built on the premise of inefficiency, its puzzles are getting harder as devices get better at solving them. This is something that as long as that ‘proof of work’ mechanism isn’t changed, that situation won’t also change in the future. The higher the bitcoin price becomes, the more profitable it is to mine. So, the more miners will want to participate in that competition and the more electricity, as total, will be burned — no matter how energy efficient the underlying equipment is.
Hence,“Factors shows that production of renewables is extremely volatile, it’s not ideal as a consistent form of power,” said Alex De Vries, the founder of research platform Digiconomist; “the problem is that the miners that will last the longest will be the ones using cheap fossil fuels, simply because it is the cheapest and more stable source.” That is the main reason why other cryptocurrencies have begun to move away from using “proof of work” as a sort of security system. Emerging alternatives don’t drain as much energy. A model called “proof of stake,” for example, doesn’t require so many complex puzzles to validate transactions. Climate-conscious consumers might want to keep those kinds of differences in mind, whether they’re interested in cryptocurrencies or electric vehicles. Thus, in the short term Bitcoin’s future carbon footprint is hard to parse but new rules and policies — like setting deadlines to ramp up clean energy or placing a carbon tax on bitcoin mining — could eventually minimize bitcoin’s toll on the climate.
Like all companies within the automotive industry, Tesla does track its carbon emissions related to its operations as well as its vehicles. Tesla released its first sustainability report in 2019, although it did not do so in 2020. Fast forward to 2021 and fact is submitting a transparent and ethical sustainability impact report in the future will mean Tesla will have to include bitcoins’ mining in order for its shareholders and its Tesla owners to know the true carbon footprint of their product or at the very least, the financing behind them.
Bitcoin mining happens virtually yet still results in greenhouse gas emissions that fuel a climate crisis in the real world. That’s at odds with Tesla’s mission to “accelerate the world’s transition to sustainable energy.” by embracing bitcoin so explicitly Tesla helps accelerating the rise of a cryptocurrency which in turns amplifies the unsustainable rise of gas emissions, or at least doesn't come with a sustainable and circular solution for its production and waste impact as it's unclear what or if any plans are made by Tesla to offset the carbon emissions from its bitcoin purchase or use its $100million bet for new inventions funding to come with or support a sustainable alternative.