After Tesla announced that it would no longer accept Bitcoin for its cars, the crypto community showed anger and frustration on social media. Elon Musk’s take on Bitcoin has shifted several times throughout history, and his Tweets have always been unpredictable, so this really shouldn’t be that surprising.

First Thoughts

The PayPal co-founder’s first prominent comments on Bitcoin came during a podcast in 2019 with Cathie Wood, the CEO and CIO of Ark Invest.

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When asked how he felt about crypto during the podcast, he said that “Bitcoin and ethereum scammers were so rampant on Twitter that I said I’d just join in.

Tesla is using only internal & open source software & operates Bitcoin nodes directly. Bitcoin paid to Tesla will be retained as Bitcoin, not converted to fiat currency,” Musk said in a tweet after the initial announcement.

All of the actions taken by both Musk and Tesla seemed to support the notion that they were completely on board and would help to further the crypto industry, but soon enough confusion and doubt would surround Tesla and its stance on Bitcoin.

Energy Debate

The debate about Bitcoin’s energy consumption from mining has long been a hot topic.

It has also been known and understood that Bitcoin requires immense energy levels to provide consensus via proof-of-work.

While the system does use these significant levels of energy, proponents of Bitcoin argue that this is a built-in feature to secure the network from bad actors.

To complement this work, ARK Invest has contributed an open source model that demonstrates how bitcoin mining could augment these renewable + storage systems to supply a larger percentage of a grid’s base-load energy demand for comparable or lower cost unit economics.

“Bitcoin miners are unique energy buyers in that they offer highly flexible and easily interruptible load, provide payout in a globally liquid cryptocurrency, and are completely location agnostic, requiring only an internet connection,” the paper read.

Bitcoin miners are an ideal complementary technology for renewables and storage.

“Combining generation with both storage and miners presents a better overall value proposition then building generation and storage alone,” the research paper noted.

The Centre for Alternative Finance at the University of Cambridge in the UK estimates that mining bitcoin uses more electricity than the Netherlands does in a year.

To further incentivise renewables, crypto miners could sign long-term agreements to buy green electricity. That’s what major companies like Amazon do to help cut their carbon footprint.

It has helped fuel a boom in renewable power assets in the US.

In their research, Ark and Square proposed that a renewable power project could be built without a grid connection just to power a bitcoin operation.

That would speed up development, but would also make the project riskier in the eyes of a lender as the grid connection might never materialise, making a development completely dependent on mining.

But part of the rapid decline in the price of renewables has also been thanks to cheap financing.

Iceland’s biggest utility said that no one would build more power capacity just to feed bitcoin mining.

Pollution from mining bitcoin in China is expected to peak in 2024, releasing as much carbon dioxide as all of Italy, according to a study published this month in open access journal Nature Communications. And by using coal to generate most of its power, harmful carbon emissions keep going up.

There may also be better uses for renewable power than making bitcoin, including decarbonising existing energy demand that relies on burning fossil fuels.

As Teslas and other electric vehicles replace petrol and diesel cars, they will need a lot more electricity.

Other major polluting industries such as steelmaking, chemical production and aviation could also potentially use the cheap green power to make hydrogen.

The researchers explained that the divergence between renewable energy production and electricity demand could be mitigated by creating an ecosystem “where solar/wind, batteries, and Bitcoin mining co-exist to form a green grid that runs almost exclusively on renewable energy.”

Not only is this doable, it is doable without jeopardising the sector’s profitability.

Following this line of reasoning, the authors go on to describe the bitcoin mining sector as “an energy buyer of last resort” that can be situated anywhere on the planet.

The paper asserts the geographical limitations of renewable power plans, which typically results in energy supply being “either abundant or non-existent”.

The end result is significantly more power than society typically needs for a few hours per day and not nearly enough when demand spikes.

I don’t know how you’d assess the risk profile of a bitcoin mining operation. You want your offtaker to be around for 20 years, or at least 10.”

For now, lots of bitcoin are being produced by the most polluting source of electricity.

Research from the Centre for Alternative Finance shows that bitcoin mining is dominated by China, a country currently driving the boom in new coal power plants.

In the second quarter of last year (the latest data available), the world’s biggest polluter mined as much as 65% of the currency.

READ:How social media networks are used to lure people into investment fraud

By comparison, Iceland and other Nordic nations, once seen as a green haven for bitcoin, were producing less than 1% of the currency each.

Their traditional surplus of geothermal, hydro and wind power is rapidly shrinking.

I do at this point think Bitcoin is a good thing. I am a supporter of Bitcoin. I was a little slow on the uptake. I think Bitcoin is on the verge of getting broad acceptance by conventional finance people.”

He also noted that he did not have a “strong opinion” on other cryptocurrencies.

In the clubhouse chat, he said that “Occasionally I make jokes about dogecoin, but they are really just meant to be jokes.

Dogecoin was made as a joke to make fun of cryptocurrencies.”

Musk doubled down on his support for Bitcoin, though. He jokingly called Bitcoin (BTC) an anagram for The Boring Coming (TBC), and later that December, it was announced that Tesla had purchased $1.5 billion worth of the cryptocurrency.

Then, in March, he announced that Tesla would begin to accept Bitcoin for its cars.

Musk took another step in the argument and said, “Hey cryptocurrency “experts”, ever heard of PayPal? It’s possible … maybe … that I know than you realize about how money works.”

But this confused people even further as Bitcoin’s purpose was to do away with centralized payments systems such as PayPal that have the authority to freeze accounts.

“PayPal, LMAO. You mean the company which froze Wikileaks account? The company which routinely censors payments?,” asked Peter McCormack in rebuttal.

Musk did eventually clear the air as speculation that Tesla would now sell its Bitcoin started to ramp up.

“To clarify speculation, Tesla has not sold any Bitcoin,” said Musk in a tweet.

Was There an Ulterior Motive?

Many began to speculate on the true motive behind the reversal in Tesla’s Bitcoin acceptance.

Why would Musk be so supportive of Bitcoin, including his agreement with Dorsey that Bitcoin can incentivize renewable energy use, if only to make this decision a short while later?

Is it possible that Musk and Tesla truly didn’t understand how Bitcoin mining worked before purchasing $1.5 billion worth of the currency? Many couldn’t believe such a reality and instead thought there had to be another motive.

One Twitter user, Elisabeth Steyn, made note of Tesla’s reliance on the renewable energy credit (REC) market for its business as a possible hidden motive.

“Tesla makes most of its $ from RECs, not cars. Last year, it made $1.58bn from sales of RECs to gas-powered auto companies (which must buy to offset their CO2 emissions).
Tesla has never been profitable without REC sales to bolster its auto margins.

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