LONDON, May 13 (Reuters) - Elon Musk says Tesla (TSLA.O) won't use or accept bitcoin until he can be sure it's produced sustainably. He may be waiting some time.
Musk announced his new position in a major U-turn on Wednesday, prompting speculation among some experts about whether he had a plan to wean the crypto industry off the fossil fuels that power "mining," the energy-intensive process that creates coins.
Tesla could itself take an active role in helping make bitcoin greener by investing in new projects aimed at boosting the use of renewable energy in mining, according to more than a dozen cryptocurrency specialists interviewed by Reuters.
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"Musk and Tesla certainly have the resources to support existing efforts to fully move bitcoin to renewable energy," said Diana Biggs, CEO of crypto startup Valour.
But such ventures could take years to get off the ground.
Another potential route is for Tesla to shift from bitcoin to more eco-friendly digital currencies that don't rely on mega-computers spawning new tokens, according to the experts.
Yet this too presents major headaches, they say, not least gaining broad crypto industry agreement for software changes and resolving regulatory concerns over smaller coins.
Musk tweeted that while Tesla would no longer accept payment in bitcoin - two months after announcing that it would - the company wouldn't sell its bitcoin holdings, instead intending to use them when mining became greener energy. read more
Tesla is also looking at other cryptocurrencies that use less than 1% of the energy burned by bitcoin, he added.
The industry experts interviewed by Reuters said they thought it was unlikely that Musk had been blissfully unaware until now of the environmental concerns surrounding bitcoin production.
The move may represent an attempt to bolster Tesla's environmental credentials amid growing competition in the electric vehicle sector, said Sasja Beslik, head of sustainable business development at Bank J. Safra Sarasin in Zurich.
"My indication of this is that it is a way to further strengthen the brand," he said. "It's up to them to hold any currency they want. But given the fact that it has a heavy CO2 footprint ... it is a challenging thing."
Tesla did not immediately respond to a request for comment.
After his original tweet, Musk followed the next day with a chart showing bitcoin's power consumption. "Energy usage trend over past few months is insane," he wrote.
Yet environmentalists have criticised bitcoin's energy consumption and its reliance on fossil fuels for years, not months.
"As it stands, the use of bitcoin doesn't align with Tesla's own mission statement," said Alex De Vries, founder of research platform Digiconomist.
"That's not something that suddenly happened during the past two months in which Tesla first decided to accept bitcoin. The network was already running on fossil fuels like Chinese coal - nothing has really changed in such a short timeframe."
Bitcoin mining uses about the same amount of energy annually as Egypt did in 2019, data from the University of Cambridge shows. read more
Much of it is powered by coal, the dirtiest of all fossil fuels. Chinese miners accounted for about 70% of production, data from the university shows. Many use fossil fuels, switching to renewables like hydropower during the rainy summer months.
Tesla could invest in greener mining options, said Yves Bennaim, the founder of Swiss crypto think-tank 2B4CH. It could create by itself groups of bitcoin miners that use green energy, or connect customers to mining pools, he added.
Projects globally are looking for ways to shift bitcoin mining towards cleaner energy, or at least to reduce its carbon footprint, from repurposing heat generated by mining using flare gas - a by-product from oil extraction - for crypto mining.
In theory, blockchain experts have said, it would be possible to track which bitcoins have been produced sustainably, also giving Tesla an option to only accept greener bitcoins.
"He can probably invest in some green energy miners and mandate that Tesla will only get paid by greenly mined bitcoin," said Maya Zehavi, a cryptocurrency and blockchain consultant.
"There's also been a lot of talk of watermarked bitcoin, splitting bitcoin mined by Western countries and those mined in China and North Korea."
Tesla could also switch its focus on cryptocurrencies towards tokens that run on a less power-hungry system for producing new digital coins are created.
Through bitcoin's protocol, or underlying code, computers hooked up to its network competed against each other to solve complex maths puzzle. The system, known in crypto lingo as "proof of work", is highly energy intensive.
An alternative protocol lets users create new tokens by committing existing cryptocurrencies to digital contracts - potentially lessening reliance on energy-guzzling computers.
Ether , the second-biggest cryptocurrency, is moving to this system, known as "proof of stake". Still, many existing coins that use this system are still relatively hard to use at scale, and are less widely known than bitcoin.
"The only real answer is 1. actively investing in renewable mining farms and making mining "greener" or 2. switching to a protocol that is based on proof of stake," said Larry Cermak, director of research at crypto site The Block.
Cryptocurrencies that consume less energy, such as seventh-largest coin XRP , may present other concerns, experts said.
Investors have worried about XRP since U.S. regulators charged blockchain firm Ripple, a major backer of the cryptocurrency, with an $1.3 billion unregistered securities offering last year. Ripple has denied the charges.
Some have also suggested changing bitcoin's protocol itself, to lower its power consumption. Yet getting all users in bitcoin's decentralised network of miners, run by no oversight body, to agree would be challenging, experts warned.
"The whole bitcoin mining ecosystem has invested billions of dollars in hardware," said Jack Liao, CEO of Chinese mining firm LightningAsic. "How can they change the protocol? Change means a loss of billions."
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