Behind the Tesla Reversal: Bitcoin’s Environmental Toll

Number of the Day: The most relevant or interesting figure in personal finance

1.18 Million

That’s how many Visa transactions it takes to create the carbon footprint of a single Bitcoin transaction—an environmental cost that prompted electric carmaker Tesla to stop accepting the cryptocurrency as payment for its vehicles.

Tesla and its billionaire CEO Elon Musk made headlines earlier this year for announcing the California-based automaker would accept Bitcoin for car purchases. But late Wednesday Musk tweeted that the company would suspend Bitcoin car purchases and look at alternative cryptocurrencies that have a far lighter environmental footprint per transaction. It takes a vast amount of electricity to power Bitcoin transactions—and that power comes mostly from fossil fuels, according to Digiconomist, a website founded by an Amsterdam-based researcher which operates the “Bitcoin Energy Consumption Index.”

“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 posted on Twitter Wednesday.

The environmental cost is skyrocketing: The Bitcoin network’s annual electrical energy use—as measured in the consumption index—has increased more than 12-fold since 2017 as the cryptocurrency has become a popular investment, Digicomonist estimates. A single transaction uses the same amount of power as an average U.S. household uses over 38 days, leading to the same carbon emissions as the 1.18 million Visa transactions.

One factor contributing to Bitcoin’s reputation: About three-quarters of Bitcoin is mined in China, and half of the network is located in a single province where the power largely comes from coal, according to estimates in a March report from BofA Global Research. “Bitcoin today is mostly a derivative of coal,” the BofA analysts wrote.