The new 'old'
Bitcoin has been on a bit of a wild ride. After Tesla's bold USD one billion buy-ins, several other major corporations also expressed interest in making use of the new cryptocurrency in the coming years. As a result, Bitcoin value reached historic highs as it crossed over USD 50,000. But for all the positive reviews and hopeful prospects, Bitcoin has had its fair share of detractors. US Secretary of the Treasury, Janet Yellen recently referred to Bitcoin as an extremely inefficient method of conducting transactions. She warned that Bitcoin is a risky and unstable investment, a view mirrored by Microsoft founder Bill Gates. Gates, who hasn't invested in Bitcoin yet says that anyone who isn't as rich as Elon Musk should be a bit wary of going all-in on Bitcoin. The problem, as financial experts put it, is that there is no way to know yet if the recent price rise is a bubble that is set to burst sometime in the future.
But even beyond its wild fluctuations and obvious potential for being used in unscrupulous ways, Bitcoin has detractors who object to just how bad the cryptocurrency potentially is for the environment. Some have even called it the modern equivalent of oil. The environmental impact comes from the fact that Bitcoin mining using hi-powered computer rigs takes a massive amount of electricity. The whole process is a bit too complex and vast to get into here but suffice to say that validation of newly minted Bitcoins requires computers to chug through tons of encrypted 'number puzzles'. The estimates for how much electricity it uses are truly wild. One expert says that each Bitcoin transaction uses enough energy to power an average Canadian home for a month. Cambridge University researchers put the whole thing further in perspective — if Bitcoin was a country, it would be in the top 30 energy users of the world, higher than the country of Argentina. Moreover, Bitcoin mining in large part is based in China where a majority of the energy that is produced is done through burning coal.
And the thing is, Bitcoin's energy efficiency and expenditure aren't actually going to go down in the future but rather shoot up without any conceivable end as and when it sees wider acceptance in the market. The whole culture around 'mining Bitcoins' makes it an easel scaleable practice with whole factories of computers dedicated to mining this precious cryptocurrency. It is hard to imagine just how much that could scale up when an organisation like Mastercard and BlackRock are getting into the business. What about when countries get into it? There are, of course, other material considerations as well. Let's take a small example. Graphics card maker Nvidia actually had to announce that its latest card will only mine Bitcoins with 50 per cent efficiency because of the severe shortage of gaming-grade graphic cards that was created by Bitcoin miners buying the graphic cards in masse. This is just one small example of what could happen in the future as Bitcoin becomes more mainstream.
In regards to Elon Musk, in particular, this leaves him in a bit of an awkward position. Musk is known to be an environmentally cautious CEO whose company Tesla has been a leading proponent in the corporate move of cutting down industrial carbon footprints. Indeed, Tesla received environmental subsidies worth USD 1.5 billion in 2020 for its work in promoting clean energy transition. Now there are questions as to whether this subsidy needs to reconsidered given the sizeable investment Musk and his company made in cryptocurrency.
To conclude, it is important to note that these limitations apply to Bitcoin in its current iteration. There are other cryptocurrencies and it is certainly expected that a more environmentally friendly version of cryptocurrency will eventually show up as the market requires. Whether this is enough to spark official confidence in this highly speculative currency remains to be seen.