ROCHESTER, N.Y. (WROC) — Tesla, the electric vehicle and clean energy company owned by the enigmatic Elon Musk, acquired $1.5 billion in Bitcoin, and plans to also start allowing purchases the cryptocurrency, according to a recent filing from the Securities Exchange Commission.
As a result, the price of Bitcoin soared 15% to above $43,000 Monday morning.
Users of the internet were also quick to point out that the announcement followed Musk’s repeated tweeting about “Dogecoin,” a semi-imaginary cryptocurrency that is more or less an inside joke.
We spoke to Derek Mohr, a Clinical Associate Professor of the Simon Business School at University about Bitcoin, Tesla’s move, and the implications of it — plus some answers on Dogecoin.
On the Blockchain
First, let’s address what cryptocurrency basically is. Mohr describes it as a kind of currency that is traded online instead of in person. Bitcoin and other cryptos are registered in an online database through technology called Blockchain — a remarkably safe system that only allows the addition of information.
Because it’s “add only,” cryptocurrencies can only increase in value. The value increases not only because more people find it to be more valuable — because entire teams of “Bitcoin miners” work to turn other cash assets, including fiat currency, which is paper and coin money — into Bitcoin. This works even though only one block in the chain is added every ten minutes.
It creates a self-maintaining system where people are incentivized to keep mining, because the miners are paid per Bitcoin mined.
Perhaps the most important aspect of Bitcoin is that it’s decentralized.
“Nobody owns it, it’s its own thing; free floating out there that is accessed by people around the world,” Mohr said. “You buy and sell everything there. All others currencies are issued by a country.”
Mohr says that cryptocurrency is just made up — more on that and Dogecoin later — and no country issues it. However, just because its value is inherently “made up” doesn’t mean it doesn’t have value.
“If everybody agrees that it’s worth something, than it is worth something,” Mohr said.
With the announcement of Tesla’s massive purchase — which says was made in 2020, but only was announced now — it raises a number of questions. Primarily, how does this affect Bitcoin’s use around the world?
“The more than big companies use it, the more useful it is to people who own it,” he said. “Other big players might get involved and start using cryptocurrency.”
It does also raise some other questions, stemming from the pushback of the move by Tesla.
“Countries, and the Federal Reserve, they don’t like losing control of the money supply,” he said. “There’s huge tax implications. Authorities lose some of the ability to track people.”
According to Mohr, this is compounded by Bitcoin’s anonymity. It is incredibly difficult to trace
Another is public access. It’s one thing for a major company to buy it and allow sales with it, but it’s another for the everyday person to be able to use it.
Mohr says that this has been lost in the shuffle: While the fees might make it difficult, anyone can purchase a fraction of a Bitcoin, even a dollar at a time.
However, Mohr doesn’t see a total switch over from our currency currency and fiat currency over to cryptocurrency.
All that said, Mohr thinks that this move might trigger an “arms race” to both mine Bitcoin — which has a limit given that only one block in the chain is added per ten minutes — and an acceleration from China to create their own cryptocurrency. Unlike the decentralized Bitcoin, a state-run cryptocurrency could be incredibly easily tracked.
“They will know where a single block in the chain is,” he said.
“I have no idea what he [Musk] was doing with that,” Mohr said.
However, Mohr did add that it’s working for Musk, given Tesla’s stock. He also says that while Dogecoin may be an inside joke among traders, it does technically have a blockchain.
So enough people start agreeing that it’s valuable and start mining it … It might be raining cat and Dogecoin.