Which 'green' cryptocurrency might Tesla add for payments?

On May 13, Elon Musk revealed that Tesla would no longer accept any Bitcoin payments until Bitcoin mining becomes more environmentally friendly, which sent shockwaves through the entire cryptocurrency market.

Musk noted that while Tesla waits for Bitcoin to switch to renewable energy, the company will focus on "other cryptocurrencies" that use less than 1% of the energy that Bitcoin uses per transaction.

Tesla and Bitcoin

— Elon Musk (@elonmusk) May 12, 2021

The tweet sent many in the cryptocurrency community into a frenzy of speculation about what other cryptocurrencies Tesla might explore.

Social influencer “The Cryptic Poet” told his 45,000 Twitter followers that he predicted Tesla would “use ETH or XRP,” however user “Massimo” pointed out that if Tesla used ETH in its current state (which uses a proof-of-work mechanism like Bitcoin), it might as well “stick with BTC.”

My prediction: Tesla will choose to use ETH or XRP.

— The Cryptic Poet (@1CrypticPoet) May 12, 2021

According to analysis by TRG Data Center, Bitcoin is estimated to use an average of about 700 kWh of electricity per transaction. While Bitcoin's annual electricity consumption is comparable to that of the Netherlands, its annual carbon footprint is closer to that of Singapore, according to Digiconomist, presumably because Bitcoin uses cheap renewable energy for a large portion of its mining. (Note: estimates of electricity consumption per transaction are controversial, so this is only used here as a very rough comparison tool).

Ethereum and PoS

Ethereum consumes an estimated 62.56 kWh per transaction. The Ethereum network currently uses the same energy-inefficient consensus mechanism as Bitcoin, Proof-of-Work (PoW). According to Digiconomist estimates, the Ethereum network's annual carbon footprint is comparable to that of Sudan.

However, these issues will be resolved with the network’s upcoming transition to ETH 2.0, which will introduce Proof of Stake (PoS). According to Nimbus, PoS consensus is estimated to be 99% more energy efficient than PoW.

Rocket Pool contributor Joe Clapis demonstrated this earlier this month by running 10 Eth2 validators for 10 hours on his front lawn using a power bank and a hard drive connected to a Raspberry Pi.

But all proof-of-stake chains are arguably 99% more efficient than Bitcoin, so Tesla could choose almost any one, from Solana to Cardano and everything in between.

Ripple

XRP may be an option for Tesla in the near term (depending on the SEC lawsuit) because all XRP tokens are pre-mined and XRP transactions consume very little electricity, only 0.0079 kWh according to TRG Data Center. Ripple regularly publishes blog posts and announcements touting how energy efficient it is compared to proof-of-work blockchains.

Stellar

XLM also follows the XRP model in that all its tokens are minted at the genesis. The Stellar network also uses the Stellar Consensus Protocol (SCP) for transaction authentication, which is said to require less energy than PoW and PoS.

Algorand

Algorand could be a contender. Not only does it run on a pure proof-of-stake protocol, but the team announced on April 22 that its blockchain has become completely carbon neutral. Algorand has also partnered with Spanish fintech firm ClimateTrade, which is building a CO2 marketplace that will allow businesses to track their emissions in pursuit of a wide range of sustainable goals. Together, the two companies will complete a sustainable commitment to make the network carbon negative.

Dogecoin

Could Elon Musk's long-time favorite, Dogecoin, be the dark horse in this race? In fact, this memecoin is mined on the Litecoin network, which uses the proof-of-work mechanism. However, while Bitcoin mining uses the ultra-complex SHA-256 algorithm, Dogecoin and Litecoin mining use Scrypt, which is both energy-efficient and fast (although significantly less secure). Interestingly, TRG Data Center estimates that LTC consumes 18.522 kWh per transaction, while Dogecoin consumes only 0.12 kWh per transaction.

Musk may have been thinking about these estimates when he launched a poll on Twitter this week asking whether Tesla should start accepting Dogecoin payments.

Do you want Tesla to accept Dogecoin?

— Elon Musk (@elonmusk) May 11, 2021

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Do you want Tesla to accept Doge?

— Elon Musk (@elonmusk) May 11, 2021