Higher bitcoin prices lead to more carbon emissions, analysts from the Bank of America's research team have warned.
There has been a “relatively linear relationship between bitcoin prices and bitcoin energy use”, the bank claimed in a new report, largely because higher prices attract more miners around the world, seeking bigger rewards.
“The rising complexity of the system creates ultimately a vicious environmental cycle of rising prices, rising hashpower, rising energy consumption and, ultimately, rising CO2 emissions," the research team concluded, as as reported by Yahoo! Finance.
The bank calculated that a $1bn investment in bitcoin would produce the same carbon emissions as the annual output of 1.2m cars due to energy usage associated with bitcoin.
This means Tesla’s $1.5bn(£1bn) investment in bitcoin is equivalent to the carbon footprint of the annual emissions of 1.8m cars.
Last month, Tesla announced it was going to invest $1.5bn into bitcoin, with some critics pointing out this undermines the electric car manufacturer's green credentials.
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Bank of America also argued that because bitcoin is not tied to inflation and remains “exceptionally volatile”, this makes it impractical as a mechanism for storing wealth, or as a system of payments.
“As such, the main portfolio argument for holding bitcoin is not diversification, stable returns, or inflation protection, but rather sheer price appreciation, a factor that depends on Bitcoin demand outpacing supply,” stated the bank.
Its research found that the bitcoin network’s energy usage is already comparable to countries like Greece and the Netherlands, and that the cryptocurrency’s estimated energy consumption has grown over 200% in the past two years.
Moreover, it found that 75% of the network’s computer power is based in China, where over half of all electricity comes from high polluting coal-fired plants. The bank also wrote that a single bitcoin purchase at a price of $50,000 has a carbon footprint of 270 tons, the equivalent of 60 ICE[petrol/diesel] cars.
In the past, financial institutions have taken a hardline stance against emerging cryptocurrencies. The Bank of America has remained sceptical of technologies like blockchain, even though it held the most patents for it. In March 2019, it held 82 blockchain-related patents, more than any other financial firm.
This attitude towards blockchain and cryptocurrencies has changed in recent years, with banks like JP Morgan even revealing its own cryptocurrency. Dubbed 'JPM coin', this currency was limited to internal transactions and settlements.
Mastercard hinted in February that it will soon support cryptocurrencies however, a host of restrictions, such as only supporting currencies that encourage spending, rather than investment, make it unlikely that bitcoin will make its way to the platform.
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Zach Marzouk is a former ITPro, CloudPro, and ChannelPro staff writer, covering topics like security, privacy, worker rights, and startups, primarily in the Asia Pacific and the US regions. Zach joined ITPro in 2017 where he was introduced to the world of B2B technology as a junior staff writer, before he returned to Argentina in 2018, working in communications and as a copywriter. In 2021, he made his way back to ITPro as a staff writer during the pandemic, before joining the world of freelance in 2022.