Natasha Drake, May 26th, 2021
Elon Musk and Bitcoin: Why the reversal?
Tesla’s mogul is making a mistake with the world’s biggest cryptocurrency
Part 2 < Back to part 1
Is Bitcoin really that environmentally wasteful?
There are reasons to be skeptical of Musk's claims.
The profit margin for most Bitcoin miners is fundamentally tied to the cost of electricity, which can range from 38% to almost 50% of their total costs, depending on region. Because of this, miners are naturally incentivized to pursue the cheapest energy source. Less capital spent on utilities translates directly to increased profit margin.
Enter renewable energy sources. Hydroelectric and solar power are the cheapest forms of energy currently available. Bitcoin mining operations are flocking to the rural locations where renewable energy is produced — energy that can be used and that would otherwise be wasted due to the limitations of current battery technology.
The Sichuan region of China exemplifies this phenomenon. China is home to most of the world’s mining operations, and during the rainy season the Sichuan region hosts 50% of global mining activity due to cheap hydroelectric energy. Almost all of the Bitcoin mined there during this time (95%) is extracted via this plentiful clean power. As Sichuan shows us, cryptocurrency has the potential to prod energy companies to invest more aggressively in renewable energy technologies and infrastructure.
Greener than traditional currency?
Additionally, if we compare Bitcoin against other forms of banking and currency, the environmental stakes of remaining in the traditional financial system become clear. Gold mining is far more destructive environmentally, with effects including toxic waste dumping, acid mine drainage, mercury poisoning of local communities where the mines are located, and rainforest destruction.
And that is just gold. According to the cryptocurrency firm Galaxy Digital, the combined electricity consumption of the world banking system as it stands today plus gold mining uses 200% more energy than Bitcoin extraction. (Though it is true that transactions using traditional currency far outnumber Bitcoin transactions, for the moment, let’s put that aside.)
What will happen when all the Bitcoin is mined
But there’s even one more item to consider: Bitcoin cannot be mined indefinitely. By 2140 every single Bitcoin will be mined. Once the Bitcoins are mined, the transactions are not wasting any energy, so the energy spent at the beginning will be split between an infinite number of transactions, actually reducing the cost of transactions.
Elon Musk’s endgame
Considering all these reasons why the environmental issues are not as troubling as they might seem, Musk’s remarks are puzzling. No company purchases $1.5 billion worth of anything without due diligence, and the energetic cost of Bitcoin mining and cryptocurrency transactions were hardly an unknown topic in the space. For Musk to be citing it as the reason for Tesla’s reversal is disingenuous at best.
But a more serious charge of hypocrisy can be made here. Anything powered by electricity can be either eco-friendly or dangerous for the planet, electric cars and crypto mining operations alike. If a device consumes electricity, its carbon footprint is in large part a function of how that electricity is generated. Tesla vehicles can be criticized using Musk’s logic just as easily as Bitcoin can.
That being said, Musk did correctly point out that there are more energy-light cryptocurrency alternatives available. Bitcoin’s energy consumption is based on the competition of blunt computing power to solve a cryptographic puzzle — it’s the essential structure undergirding how Bitcoin transactions are verified and how new Bitcoin (and Dogecoin, for that matter, and many other altcoins) is mined. This structure is termed Proof of Work.
By contrast, there’s also an intriguing alternative, already well known and developed: Proof of Stake.
Proof of Stake, a new structure for crypto
Proof of Stake is much less energy intensive, as there’s no race. Instead, a computer is randomly awarded the cryptocurrency mining reward, with the chances of winning proportional to the amount of equity (i.e., stake) that the given miner has in the given cryptocurrency. We’ll explore the world of Proof of Stake-based altcoins like Cardano and ultra-light crypto mining in a future article — stay tuned.
Beyond financial transactions
Looking beyond today’s turmoil with Tesla and Bitcoin, there’s much to still be optimistic about regarding the future of cryptocurrency. Blockchain in particular has applications far beyond crypto. As a practically unhackable database with the highest level of personal information security, blockchain could be the basis for exciting future applications: reliable and deterministic smart contracts, for instance, or secure online voting in democratic elections.
Many of these future applications will be built on altcoins, not Bitcoin. Ethereum is the most popular cryptocurrency for smart contracts, though other altcoins including Binance Coin, Solana, Polygon, Polkadot also can be used, ensuring fast transactions and low fees. But again, more on that later.
Einova and an energy efficient future
Musk’s concern for our warming planet isn’t wrong. Though Proof of Work cryptocurrency like Bitcoin isn’t as environmentally disastrous as some claim it to be, it still can be optimized. This is precisely why Proof of Stake altcoins are so exciting, and have such potential.
And here, talking about energy, is where Einova innovation comes into play. It doesn’t matter whether electricity comes from dirty coal or from renewable sources like Sichuan’s hydroelectric power plants — it still must be converted into DC power, the kind of power that is actually usable by an electronic device. One way that mining farms could easily and immediately increase their energy efficiency and reduce their carbon footprint is by substituting current AC/DC and DC/DC converters with Einova converters. Thanks to the patented EcoVoltas technology inside, power adapters like the Sirius 65W Universal Laptop Charger have a 95% energy efficiency rate.
As the world’s leading expert in energy efficient power supply, Einova is committed to helping you (and the world of cryptocurrency) reduce your carbon footprint, one charge at a time.