On Feb. 8, Tesla announced its future plans to begin accepting bitcoin as a form of currency along with purchasing $1.5 billion worth of Bitcoin.

What is Bitcoin?

Bitcoin is a form of cryptocurrency that started in 2009. It is a global system of payment independent from the government and operates through its users. Its ability to run this way is due to the nature of its system. There are many components to this system that allows it to run. One of these components is that its system reliant on the computation for massive computer systems that are transparent to ensure that no one can cheat the system, but at the same time lower transaction fees.

The vocabulary behind cryptocurrency can be quite intimidating, so here’s a basic outline of a transaction world typically works. First,  a transaction is entered into the system. However, this transaction is incomplete as it is now transmitted to a global network of computer systems known as a peer-to-peer system where computers from companies all over the world who help process the transaction are incentivized by the rewards of the transaction fee. The network of computers works to solve the “equation” behind the transaction to affirm its validity. Once this transaction is considered valid, it then becomes a “block” which is a storage structure for the information of the transaction, and will soon be added to “block chain.” This is basically a database that is structured into groups or chunks that would be soon linked together. This system is designed to make a timeline of data as each block in the chain has a timestamp, and once the transaction is part of the blockchain, it’s considered complete.

Now there are both pros and cons to this system. One of the popular pros is independence from centralized banking systems that give Bitcoin the advantage of lower transaction fees. Other pros consist of anonymity and privacy compared to traditional currency as well as its increasing acceptance around mainstream media.

The cons to Bitcoin are what makes Tesla’s decision to accept Bitcoin controversial.

What’s the issue?

Once Tesla had made this announcement, Bitcoin had risen in price by around 25%. This demonstrates the volatile nature of the currency as its value is determined by the users. This extremely volatile nature makes it hard for merchants to be able to determine its worth as it can rise or fall drastically within hours. 

Tesla has acknowledged this issue and has released a statement that addresses it, stating, “we may or may not liquidate upon receipt” (Tesla). Liquidation is the process of converting assets into cash or other forms of immediate currency.

While this is a logical decision for Tesla to make, it raises the question of how Tesla intends to treat this currency as this is insinuating that they do not plan to accumulate the Bitcoin, and if they don’t, then what does that mean. If Tesla doesn’t intend to accumulate Bitcoin, and any move indicating their intentions to disassociate with Bitcoin from this point on, it would lead to a drop of value in it.

What does this decision do for Tesla? 

This decision has led to a multitude of speculations about Tesla’s reputation. Some think this demonstrates the gross overvaluation of Tesla, and others think this is a step towards propelling a movement for a form of universal currency. But there’s a darker side to this new investment.

First is the contradicting ecological stances Crypto has versus Tesla’s. Tesla is known to embrace a clean stance on the environment with its marketing involving advances in sustainable energy. However, the Crypto industry itself requires a massive amount of energy to run its tremendous computer systems, resulting in 23 megatons of carbon emissions in 2018, comparable to that of 4 million gas-powered cars. This conflict of ideals is questionable, at least in regards to the mission of Tesla.

Another controversy was Elon Musk’s past tweets about his thoughts on Bitcoin, as he tweeted, “Bitcoin is almost as bs as fiat money” on Dec. 20, 2020.  This has led to speculation that his newfound support for Bitcoin was due to monetary incentives as it’s been reported that Tesla has made a 1 billion dollar profit off of its Bitcoin investment, which is estimated to be more than its profit of selling electric vehicles in 2020.

It’s important to note that Elon Musk’s opinions of Bitcoin don’t necessarily have to align with Tesla’s financial view on it in order for these decisions to be made. But this decision does put the spotlight on Tesla as being a major player in incorporating a form of cryptocurrency into the mainstream market.

What does this imply for the future?

Since this announcement, other prominent companies have expressed their interests in Bitcoin, those being JPMorgan and BYN Mellon (America’s oldest bank).  This may suggest a future for Bitcoin becoming more integrated into financial sectors. However, in the process of integration, questions against Bitcoin will begin to come to like things such as its volatile nature or perhaps even its environmental impacts.