Elon Musk announced on Wednesday that consumers would no longer be able to buy Tesla vehicles using bitcoin, citing concerns regarding the use of fossil fuels in bitcoin mining.
Bitcoin, the world's most popular digital currency, dropped nearly 17% after the tweet, to its lowest level since early March. It rose marginally in Asian trade on Thursday morning, but it was still down 12% at $50,933.
Tesla will not sell bitcoin, according to Musk, and plans to use it for purchases as soon as mining shifts to more environmentally friendly energy sources.
“We are also looking at other cryptocurrencies that use <1% of bitcoin’s energy/transaction,” Musk said.
Tesla consumers could purchase their electric cars with bitcoin, according to Musk, who announced this in March.
The digital currency is created when high-powered computers compete against other machines to solve complex mathematical puzzles, an energy-intensive process that currently relies heavily on electricity produced from fossil fuels, especially coal.
According to the most recent figures available from the University of Cambridge and the International Energy Agency, bitcoin "mining" consumes about the same amount of energy annually as the Netherlands did in 2019.
Tesla announced in February that it had purchased $1.5 billion in bitcoin before approving it as payment for cars in March, causing the world's most commonly owned cryptocurrency to rise by approximately 20%.
Musk said on Wednesday that Tesla will not sell bitcoin and that it plans to use it for transactions as soon as mining shifts to more environmentally friendly energy sources.
Musk was getting ahead of investors based on sustainability, according to Edward Moya, a senior market analyst at currency trading company OANDA.
“The environmental impact from mining bitcoins was one of the biggest risks for the entire crypto market,” Moya said. “Over the past couple of months, everyone disregarded news that bitcoin uses more electricity than Argentina and Norway.”
Musk's reaction, according to Chris Weston, head of research at broker Pepperstone in Melbourne, was a blow to bitcoin but an acknowledgment of the currency's carbon footprint.
“Tesla has got an image of being environmentally friendly and bitcoin clearly is the opposite of that,” Weston said.
Musk himself is a strong believer in digital currencies while also advocating for clean technology.
“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,” Musk said.
Because of Chinese bitcoin miners' supremacy and a lack of interest to switch from inexpensive fossil fuels to more costly renewables, there might be few quick fixes to the pollution issue.
According to data from the University of Cambridge's Centre for Alternative Finance, Chinese miners produce roughly 70% of bitcoin. During the rainy summer months, they choose to use green energies – mainly hydropower – but during the rest of the year, they choose fossil fuels – mostly coal.
According to blockchain analysis firms, it is theoretically feasible to trace bitcoin's origins, increasing the likelihood of a premium being paid for green bitcoin. Governments all around the world will be able to contribute by enacting stronger climate change policies.
Any bitcoin supporters point out that the current financial system, with its millions of employees and computers in air-conditioned buildings, consumes a lot of resources as well.
Musk has been a supporter of other cryptocurrencies, and his tweets this year have helped to popularize the once-obscure digital currency dogecoin. Musk announced on Sunday that his commercial rocket venture, SpaceX, would accept the meme-inspired cryptocurrency as payment for a lunar mission that will take place next year.