rochester, new york (wroc) — tesla, the electric vehicle and clean energy company owned by the enigmatic elon musk, purchased $1.5 billion in bitcoin and plans to begin allowing the purchase of cryptocurrencies as well, according to a recent report by the securities exchange commission.
As a result, the price of bitcoin soared 15% to over $43,000 on Monday morning.
Internet users were also quick to point out that the announcement followed musk’s repeated tweets about “dogecoin,” a semi-imaginary cryptocurrency that is more or less an inside joke.
We talked to derek mohr, clinical associate professor at the university’s simon school of business, about bitcoin, the tesla movement and its implications, plus some answers about dogecoin.
on the blockchain
First, let’s address what cryptocurrency basically is. Mohr describes it as a type of currency that is traded online rather than in person. bitcoin and other cryptocurrencies are recorded in an online database through a technology called blockchain, a remarkably secure system that only allows information to be added.
Because it is “just add”, cryptocurrencies can only increase in value. The value increases not only because more people consider it more valuable, but entire teams of “Bitcoin miners” work to convert other cash assets, including fiat currency, which is paper money and coins, into Bitcoin. this works even if only one block is added to the chain every ten minutes.
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creates a self-sustaining system where people are incentivized to keep mining, because miners get paid for bitcoin mined.
Perhaps the most important aspect of bitcoin is that it is decentralized.
“no one is the owner, it is something of their own; free-floating accessed by people all over the world,” mohr said. “You buy and sell everything there. all other currencies are issued by one country.”
mohr says that cryptocurrencies are invented (more on that and dogecoin later) and no country issues them. however, the fact that its value is inherently “made up” does not mean that it has no value.
“If everyone agrees it’s worth something, then it’s worth something,” Mohr said.
with the announcement of the massive tesla buyout, which it says was done in 2020, but only announced now, raises a number of questions. Mainly, how does this affect the use of bitcoin around the world?
“The more big companies use it, the more useful it is to the people who own it,” he said. “other big players could get involved and start using cryptocurrencies.”
also raises some other questions, stemming from the rejection of tesla motion.
“Countries and the Federal Reserve don’t like to lose control of the money supply,” he said. “There are huge tax implications. authorities lose some of the ability to track people.”
according to mohr, this is compounded by the anonymity of bitcoin. it’s incredibly hard to track
another is public access. It’s one thing for a major company to buy it and allow sales with it, but it’s another thing for the common person to be able to use it.
mohr says this has gotten lost in the shuffle: while fees can make it difficult, anyone can buy a fraction of bitcoin, even a dollar at a time.
however, mohr does not see a complete switch from our currency and fiat currency to cryptocurrency.
All that said, mohr believes this move could trigger an “arms race” both to mine bitcoins, which has a limit given that only one block is added to the chain every ten minutes, and a speedup from china to create its own cryptocurrency. Unlike decentralized bitcoin, a state-run cryptocurrency could be traced very easily.
“They will know where a single block is on the chain,” he said.
“I have no idea what [musk] was doing with that,” Mohr said.
however, mohr added that it is 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.
for enough people to start agreeing that it’s valuable and start mining it… it could be raining cats and dogs.