Elon Musk and: Why has the price of Bitcoin dropped? What did Elon Musk announce?

Elon Musk’s latest announcement corresponds to a massive fall in the price of cryptocurrency Bitcoin.

Bitcoin plummeted by more than 10 per cent on Thursday evening after one of the world’s richest men and Tesla founder, Elon Musk announced the electric car maker would stop accepting vehicle purchases using the world’s most popular cryptocurrency.

Why has the price of Bitcoin fallen?

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Bitcoin, the world's largest digital currency, saw its value drop about 5 per cent to $51,847 (£36,883) after chief executive officer Musk tweeted the news.

Tesla said in February that it had invested around $1.5 billion (£1.07 billion) in Bitcoin and it planned to begin accepting the digital currency as payment "soon".

But Mr Musk tweeted on Wednesday: "We are concerned about rapid increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel."

He said cryptocurrency is a "good idea on many levels" but its promise cannot come at a "great cost to the environment".

Tesla, he added, will not be selling any of the Bitcoin it owns, with the fair market value of its holdings as of March 31 was 2.48 billion dollars (£1.76 billion), according to securities filings.

Tesla and SpaceX Chief Executive Officer Elon Musk (AP Photo/Susan Walsh, File)

How does Bitcoin work?

Bitcoin relies on computers, which rely on electricity, to exist.

The number of computers and the energy needed to power them is rising - the growing value of bitcoin is directly tied to the amount of energy it uses.

Estimates on how much energy Bitcoin uses vary.

A 2019 study by researchers at the Technical University of Munich and the Massachusetts Institute of Technology concluded that, in late 2018, the entire bitcoin network was responsible for up to 22.9 million tons of CO2 per year - similar to a large Western city or an entire developing country like Sri Lanka.

Total global emissions of the greenhouse gas from the burning of fossil fuels were about 37 billion tons last year.

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What is Bitcoin mining?

Bitcoin mining is a way for new digital tokens of the cryptocurrency to be entered into circulation.

Users can mine new Bitcoins - essentially minting currency - by monitoring and auditing the cryptocurrency’s network and ensuring transactions made are clean and legal.

Mining is needed to maintain the Bitcoin ecosystem as there are no authorities such as central banks or governments to regulate, meaning it is a decentralized exchange.

In return, miners can earn Bitcoin tokens for completing blocks of verified transactions, which are then added to the register called a blockchain, without having to put their own money in.

Yet users have to complete a complex puzzle before reaping the rewards of their hard work auditing transactions - and there is a cap to how much Bitcoin mining can be done.

Bitcoin tokens are capped at 21 million, as per the cryptocurrency’s own protocol, with current data estimating that around 18.5 million Bitcoins are in circulation.

Projections see the last Bitcoin token being entered into circulation around the year of 2140.

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