Why Tesla dumping bitcoin was inevitable

In February of this year, Tesla announced that it had purchased a large amount of Bitcoins (on the order of $1.5bn) and would now allow new Teslas to be bought with the Cryptocurrency¹. This came at a time when confidence in Crypto has been continually increasing but it seemed like this was the boost it needed to really take off. Along with Bitcoin itself, this move appeared to grant legitimacy to many Cryptocurrencies that had started to gain ground in potential mainstream circles, but a big move by Tesla has yet to have been made by any other company to support this. However 4 months after the initial announcement, Tesla revealed a reversal of the original decision due to the environmental impact of bitcoin mining, storing, and transacting in that they would no longer be accepting the currency as payment. While Tesla still retains considerable holdings of the currency, at least it is believed they still do, this about face has caused considerable declines in the value of bitcoin and of other Cryptocurrencies as well, with bitcoin falling 7% on the news of the decision².

Why Tesla has stopped allowing purchases via bitcoin

The main reason why Tesla has stopped allowing the purchase of bitcoin is due to the environmental impact of current mining operations as stated by Elon Musk in a tweet last Wednesday:

This is because, even in February when Bitcoin was less than $40,000, some articles suggested that the CO2 generated as a result of mining the currency, retaining the currency, and transacting the currency involved in purchasing a Tesla was greater than the savings of actually purchasing Tesla as opposed to a regular fossil fuel burning car³. Thus, one of the main purposes of buying a Tesla, namely the environmental aspects of owning an electric car as opposed to a petrol or diesel car, were suggested to be be negated if you purchased one using Bitcoin.

Why this was inevitable

When Tesla first announced the acceptance of Cryptocurrency as payment for new vehicles, several articles quickly cropped up regarding the environmental impact of the currency and how that contrasts with the environmental purpose of Tesla. Of course, Tesla has always held environmental consideration as the key motivator for developing electric cars in the first place, and advancing the human race in one form/saving the planet appears to be one of Musk‘s key tenets in developing and leading new and existing companies and has indeed made him a very rich man. Thus, while I’m sure Tesla and Musk were aware of the environmental impacts of using Cryptocurrency when they made the decision to invest in and utilise bitcoin as a payment option, the continued environmental costs were something that would have brought an end to the relationship at some point, even if it wasnt expected to be this soon. Going against one's mission statement in any business decision is unlikely to last in the longer run.

Future directions

This move seriously puts a dent into the future of Cryptocurrencies around the world as now attention is focused on the amount of electricity that is used in mining the coins or even keeping records of the transactions (similar to the attention on the environmental impact of NFTs⁴). This is a serious concern for their future and as Musk alluded to his tweets until a more environmentally friendly way is found for mining, keeping and transacting these Cryptocurrencies there will always be question marks over their use. This is especially so as any company looking to utilise these payment methods, as Tesla did, is likely to be a forward facing one that is concerned with the future, including the influence of currency and the effects on the environment. Thus, unless these currencies can find a way to utilise green sources of energy or reduce their current energy requirements (as some Cryptocurrencies are doing in aiming to be mined, held and transacted more efficiently), any company that allows payments through their use is likely to get similar criticism as Tesla did in regards to their horrendous environmental impact and hence face backlash. Until this is resolved, or a Cryptocurrency is developed that doesnt have these drawbacks, any company looking to help legitimise these currencies like any other than a speculative investment is likely to have questions asked over their motive and their branding.

References:

1 - https://www.cnbc.com/2021/02/08/tesla-buys-1point5-billion-in-bitcoin.html

2 -https://news.sky.com/story/tesla-stops-payment-by-bitcoin-because-of-the-impact-on-the-environment-12304963

3 - https://medium.com/crypto-lucid/buying-a-tesla-in-bitcoins-cancels-4-times-the-co2-savings-for-its-whole-lifetime-c28b042e3b9a

4 -https://www.wired.com/story/nfts-hot-effect-earth-climate/