So, as we know, Tesla has now invested $1.5 billion into bitcoin and there are a lot of different opinions about that. In fact it’s an entirely new discussion because never before has a company trying to transition the world to sustainable energy embraced an experimental technology whose side effects are so contrary to its mission.
In this article, we start out by quickly defining what cryptocurrency is and then we will dive deeply into various aspects of bitcoin, including comparisons of the power usage to different countries and comparisons of bitcoin to the world’s current financial system.
We will be answering questions on matters like: how much electricity bitcoin uses and why its operation requires so much power. We will talk about cryptocurrency basics; blockchain; bitcoin development & hard forks; miners; the deflationary nature of crypto; its issue with volatility; the issue of government and taxation; altcoins like dogecoin; “Proof of Stake;” etherium 2.0; and then in the end, we will see if we can justify Tesla’s investment in bitcoin.
Full disclosure: The following is not investment advice by any means, and we do not offer investment advice here on CleanTechnica. Also, I do not currently own any ethereum, “bitcoin SV,” or dogecoin, but I do have plans to make investments in those cryptocurrencies in the near future. I do own approximately 0.00088236 bitcoin (~$50) but have no plans to sell or buy BTC in the near future.
Introducing Bitcoin
Bitcoin is a digital encrypted currency that eliminates all middlemen in transactions and works in a way that makes it all completely anonymous, secure, and unhackable (theoretically, that is). It is often advertised that trust is built into the system, but marketing aside, it simply means that no one has to trust anyone and that feature comes at great cost.
The cryptocurrency was created in January 2009 by Satoshi Nakamoto. Or at least that is the pseudonym he/she used. Nobody knows who he/she is, something that is both good and bad. Some have even speculated that it might be Elon Musk, something he has denied that is also not very logical if you look through his history of comments on this matter. There are more fitting candidates, but really, no one knows who he/she is or if that person is still alive today.
The cryptocurrency is managed by, well, everyone and no one — whoever wants to. It’s complicated, and we’ll return to all of that later on. The promise of bitcoin is great, but its many side effects have thus far curtailed widespread adoption. Nonetheless, improvements to a different crypto might soon change the world.
How Bitcoin Works
As was mentioned previously, the way a cryptocurrency like bitcoin works is by keeping a ledger of all the transactions. But its not a piece of paper, or a database like the bank has, all that data is encrypted and then everyone gets a copy. Everyone who has a copy doesn’t know that Zach used bitcoin to pay for an Impossible Burger at a local restaurant — they just know that something happened. If one of the computers that has a copy of the public ledger starts to claim (in encrypted form) that Zach actually bought 6 Impossible Burgers (revealing more detail than is supposed to be revealed), then everyone else in the network will start yelling at that computer, perhaps telling it that Zach is not a monster of gluttony, and then kick the bad computer out of the network. The encrypted code simply wouldn’t match. [Editor’s note: This is not a real-world example. I did not do this. Though, I may well be a monster of gluttony. —Zach]
When Zach made the original transaction, it became part of a metaphorical mountain of transactions that need to be mined. Mining is the process in which the data is processed, encrypted, and added to the ledger. This task isn’t easy and doesn’t happen on Zach’s smartphone. A very powerful computer needs to do it, and that miner gets paid for doing all that hard work. The first miner to stumble onto the correct answer gets both a reward in the form or new bitcoin (like newly mined gold) as well as a very small transaction fee.
The ledger keeps becoming longer and longer, and harder to validate, meaning we need stronger computers. Also, a miner’s salary gets cut in half every four years. So, in 2010, a laptop could have mined a bitcoin. Now however, you basically need a small data center to mine even a single bitcoin. If we don’t scale the processing power of…
Read More: Everything About Bitcoin
