Tesla Inc.

TSLA -4.42%

Chief Executive

Elon Musk

said the company has suspended accepting bitcoin as payment for its vehicles.

“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal,” Mr. Musk said Wednesday on Twitter.

Tesla earlier this year began to accept the cryptocurrency as payment for products sold in the U.S. The company also made a big financial bet on bitcoin when it bought $1.5 billion worth of the cryptocurrency in the first quarter. Tesla has since sold some of those holdings, a move that boosted first-quarter earnings.

Tesla Chief Financial Officer Zach Kirkhorn has said the company opted to invest in bitcoin when it was looking for a place to store cash it didn’t immediately need as a way to preserve liquidity while also earning a return.

Mr. Musk said the company wouldn’t sell any bitcoin and would resume using the cryptocurrency for transactions “as soon as mining transitions to more sustainable energy.” Tesla didn’t immediately respond to a request for comment.

Tesla’s earlier decision to accept bitcoin was a boost for the cryptocurrency, which wasn’t accepted widely in its early years. In 2014 and 2015, a number of companies, including

Dell Technologies Inc.,

Microsoft Corp.


Overstock.com Inc.


Expedia Group Inc.

experimented with bitcoin payments. Most quietly dropped it for lack of use. Last year

PayPal Holdings Inc.

opened its platform to bitcoin, allowing its millions of U.S. users to sell, buy and hold cryptocurrencies.

Questions around the environmental footprint of bitcoin are largely linked to how the cryptocurrency is created. Bitcoin operates across a network of linked but independent computers that process transactions in exchange for newly minted bitcoin. Those computers compete with each other to win those bitcoins by participating in an energy-intensive competition to solve a random math puzzle. The more computers on the network, the more difficult the puzzle, the more energy needed to beat the other computers.

The mechanism behind bitcoin allows it to operate without any centralized party in control, such as a central bank. But the process to create the digital currency has raised concerns that bitcoin’s rise could have a larger environmental impact than other such cryptocurrencies as more computers are deployed to find bitcoin, sucking in more electricity.

Bitcoin mining consumes about 148 terawatt-hours of energy annually, the Cambridge Centre for Alternative Finance estimates. That is more than Sweden uses in a year. However, the center also says that the energy bitcoin uses is equal to about 1½ years’ worth of wasted energy in the U.S. just from devices left plugged in to outlets.

Some bitcoin proponents dispute that bitcoin wastes as much energy as its critics say, and several, in the minutes after Mr. Musk’s tweet, took issue with his statement.

Mr. Musk has repeatedly expressed support for the cryptocurrency and, at one point, had a bitcoin reference in his Twitter biography.

He is also closely associated with the cryptocurrency dogecoin, created in 2013 as a joke. In a sketch on “Saturday Night Live” this past weekend, cast members pressed Mr. Musk to explain what dogecoin was. Mr. Musk, who was hosting the show, eventually said, “Yeah, it’s a hustle.” The price of the cryptocurrency has since fallen.

On Wednesday, Mr. Musk said in his tweet, “Cryptocurrency is a good idea on many levels, and we believe it has a promising future, but this cannot come at great cost of the environment.” The company was looking at other cryptocurrencies, he said, that consume less energy.

Write to Rebecca Elliott at rebecca.elliott@wsj.com and Paul Vigna at paul.vigna@wsj.com

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