Musk’s Bitcoin U-Turn a Marketing Stunt, Say Industry Experts

The Quint spoke to Industry experts to understand the impact of Musk's call to stop payments in Bitcoins for Tesla.

Tesla CEO Elon Musk said on Wednesday, 24 March, that people in the US can now buy a Tesla with Bitcoins.

(Photo: Twitter)

Elon Musk on Thursday, 13 May, announced that Tesla won't accept Bitcoin as a payment option for the purchase of its electric cars citing environmental concerns.

Musk's latest decision has sparked a row in cryptocurrency market, with prices of Bitcoin taking a hit since the announcement. The cryptocurrency plummeted as much as 15 percent during the day to hit a low of $45,700.

However, Musk said that he did not make a U-turn on his views and investment in cryptocurrencies. Earlier, in February, Musk invested $1.5 billion in Bitcoin, turbo-charging the crypto market.

This move has raised several questions: Did Musk know the impact of Bitcoin mining on the environment before investing $1.5 billion ,or was this move just a marketing strategy for a new product?

The Quint spoke to industry experts to understand the impact of this decision.

How is Bitcoin Mining Affecting the Environment?

Even though Bitcoin is a virtual currency, its production incurs real cost. One has to ‘mine’ Bitcoins, and this process consumes electricity. Every miner has to solve a complicated cryptographic problem and the first one to crack it is rewarded with a block of Bitcoins.

The software that mines Bitcoin take about 10 minutes to solve the complex program and process a block. This whole process ends up using a massive chunk of electricity. The vast majority of Bitcoin’s energy consumption happens during the mining process.

Mining of Bitcoins relies on electricity generated with fossil fuels. As the price of Bitcoin rises, so does the energy consumption.

Bitcoin mining has earned a lot of flak for guzzling power to the tune of the total electricity consumption of some countries.

According to the University of Cambridge, Bitcoin mining consumes close to 120 Terawatt Hours (Twh) per year.

"This is more than the annual electricity consumption of countries like Malaysia, Sweden or Argentina. China, which accounts for more than 75 percent of Bitcoin operation, is heavily dependent on fossil fuels for electricity. Reliance on fossil fuels for cryptocurrency mining is not sustainable and the transition to green energy is imminent," Blockchain Expert, Sharat Chandra from IET Future Tech Panel, told The Quint.

'Naive to Think That Musk Was Clueless'

Chandra believes that given Musk’s intellectual prowess, it would be "naive to think" that he was clueless about the process of Bitcoin mining.

As a matter of fact, more than 75 percent of Bitcoin mining is powered by renewable energy sources. “On a lighter note, Musk has been more volatile than Bitcoin and ostensibly manipulative about Dogecoins, under the garb of ‘Hustle’ to power his upcoming lunar mission,” he said.

'Possibly A Marketing Stunt'

Ashish Mehta, Co-Founder, DigitX crypto exchange believes that it is 'possibly a marketing stunt', while Chandra said it’s a well calculated move by Musk to build a narrative about a renewable product, a mining rig possibly.

In April, Jack Dorsey tweeted that Bitcoin incentivises renewable energy and Musk replied “true”.

“Bitcoin mining has the potential to catalyse the process of transition towards renewable energy technologies and Musk is wise enough to capitalise on this. He is building momentum for his next product launch. Crypto mining powered by solar energy is being widely touted as the next big thing.”

Blockchain Expert, Sharat Chandra from IET Future Tech Panel

How Will This Move Affect Consumers/Retail Traders?

Bitcoin dropped to $45,700, the lowest since 1 March 2021. The world's largest cryptocurrency fell 17 percent on Wednesday following Musk's remarks that Tesla would stop accepting the digital token as payment for its electric cars for environmental reasons.

Retail traders, who are in the digital currency space for the long haul, will remain unfazed by the way celebrities endorse or change their stance on Bitcoin or any other digital currency, said Chandra.

"As an emerging store of value, Bitcoin would continue to attract investment both from retail as well institutional players . With the likes of Goldman Sachs, BNY Mellon jumping on the Bitcoin bandwagon, we can expect some semblance of market maturity in the coming months or years," he explained.