“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” he said in a statement posted to Twitter Tueday evening.
Musk said “cryptocurrency is a good idea on many levels,” and said the company believes it has a “promising future.”
“But this cannot come at great cost to the environment.”
Musk said Tesla will not be selling any Bitcoin, “and we intend to use it for transactions as soon as mining transitions to more sustainable energy.”
He said the company is looking at other cryptocurrencies that use less than one per cent of the energy Bitcoin does.
In February, the company announced it had purchased US$1.5 billion of bitcoin.
A month later, Musk said the company would accept Bitcoin as payment for its vehicles.
According to CoinMarketCap, Bitcoin remains the highest ranked cryptocurrency by market value.
There are currently more than 18.7 million Bitcoin in circulation and each are valued at US$51,149.98.
Bitcoin, a blockchain cryptocurrency is created or ‘mined’ using high-powered, specialized computers. Miners use these computers to solve complex mathematical puzzles to create the Bitcoin.
The practice of Bitcoin mining has exploded in recent year.
Bitcoins and other blockchain-based cryptocurrencies are “extremely bad for the environment,” Werner Antweiler, an associate professor at the University of British Columbia’s Sauder School of Business told Global News in an email.
He said this is because of the electricity needed for computations, “where the electricity comes predominantly from fossil fuel sources, as is the case in China and much of the United States.”
In fact, according to the U.K.’s University of Cambridge, Bitcoin mining uses more energy annually than Malaysia or Sweden.
The University’s Bitcoin Electricity Consumption Index, which measures the energy required to create the currency found that Bitcoin uses 147.79 terrawatts/hour (TWh) a year, while Malaysia and Sweden use 147.21 TWh and 131.80 TWh, respectively.
Antweiler said Tesla’s move to buy Bitcoin, which he said fed the craze about bitcoins, was a “serious error of judgment.”
“And I’m glad that they’ve now decided to step away from bitcoins, which is usually the payment method of choice of fraudster and money launderers,” he wrote.
Antweiler said there are “greener alternatives.”
“Digital currencies that we could all use would be issued by central banks and would be fully convertible, 1-to-1, to our fiat currencies such as the Canadian Dollar,” he wrote. “Because digital currencies do not necessarily have to rely on blockchains, they would be computationally much simpler and environmentally friendly.”
Chris Weston, head of research at broker Pepperstone in Melbourne, told Reuters that Musk’s reaction was a blow to Bitcoin but an acknowledgement of the currency’s carbon footprint.
“Tesla has got an image of being environmentally friendly and bitcoin clearly is the opposite of that,” Weston told the outlet.
However, Moshe Lander an economist with Concordia University, said he thinks Musk realized Bitcoin “is not ready to be money.”
“I think he realized that it doesn’t satisfy the requirements of what money needs to be,” he said. “And he realizes that exposed a risk to his business model and so he reversed course.”
Lander said this is because the value of Bitcoin fluctuates.
Lander said because Tesla can’t just adjust the price of its vehicles every time Bitcoin changes, the company could find itself making “fantastic profits one year, and being on the brink of bankruptcy the next.”
“I think in order for Tesla to mature as a company, it needs to start looking more like a traditional auto company than some internet upstart,” Lander said.
While Lander agreed there are some greener cryptocurrency options, he said they are “inevitably going to be plagued by similar problems” as Bitcoin.
What’s more, those lesser-known cryptocurrencies will be “even more unpredictable,” Lander said.
“I think (Musk is) kind of in between a rock and a hard place, that he got a little bit too trigger happy again and said something that maybe he shouldn’t have in the first place,” he said.
“And now he’s having to walk it back, and I think he’s merely just kind of covering his tracks by saying, ‘We’ll look at other alternatives’ for those that view Bitcoin as being a very forward thinking move.”
-With files from Reuters