Cryptocurrency is not a brand-new concept. It has already been close to 11 years since Bitcoin was first launched. That being said, many newer examples of cryptocurrency have emerged in the time since then, and it has consistently remained a matter of great interest to all kinds of people. Interest in cryptocurrency was piqued against recently thanks to several interesting news stories regarding cryptocurrency and the automotive sector.
What is Cryptocurrency?
Despite its status as a major buzzword in today’s society, people can be forgiven for remaining unclear on exactly what anyone is referring to when they talk about cryptocurrencies.
Put simply, a cryptocurrency is a tool of payment that can be used in exchange online for various goods and services. Some of them are very small and perhaps contained to a specific enterprise or purpose. This kind of cryptocurrency is more like those tokens you might get at a video arcade. You would exchange your real coins for these tokens and the tokens would be the only coins that would work in that arcade.
Other cryptocurrencies are much larger than that, however, such as Bitcoin, which has evolved to start rivaling even government issued “Fiat” currencies like the US dollar and others. According to fundera.com in December 2020, there are about 15,174 businesses worldwide that accept Bitcoin as a payment method, 2,300 of which are in the US.
Cryptocurrencies can be bought online using your regular fiat currency. You can then store your cryptocurrencies in a digital wallet, with many wallets allowing you store multiple cryptocurrency forms: Ethereum, Tether, Polkadot, XRP and more.
How Does Cryptocurrency Work?
How can a currency be truly digital? Can’t people just “copy” their bitcoin to make themselves artificially richer? Wouldn’t that then cause hyperinflation? Couldn’t a hacker just break into your wallet and take everything you own?
These are valid questions that many asked when Bitcoin was first envisioned. The answer to all of them is essentially the same, and that’s “Blockchain.” The core technology that makes the concept of cryptocurrency work is Blockchain. It’s an old idea made new, acting as a kind of ledger system that manages and records every cryptocurrency transaction. This helps to ensure that Bitcoins, for example, can’t be used in duplicate to pay for two different things. Better yet, the way it’s constructed makes it impervious to the traditional attacks of hackers and those who would seek to disrupt or change the record. The Blockchain record is shared across many computer systems to aid in security strength, and instantly recognizes any time someone tries to tamper with it or change it in some way. It’s simple but effective.
Why Are Many Established Companies Using Their Cash Reserves to Invest in Cryptocurrency?
While many were skeptical about cryptocurrencies like Bitcoin at first. Below we’ll use Bitcoin’s example, since it is the oldest and most established cryptocurrency. The rise in value of Bitcoin and others, however, has changed many minds. Those who invested their money in Bitcoin back in 2015 could do so for $327 per coin. The beauty of Bitcoin too is that you never had to buy a full coin in order to invest. Bitcoin breaks down almost infinitely into smaller units. Those smaller units are now very valuable because a single Bitcoin in February 2021 is worth $51,161 (value of as February 17, 2021 @ 14:00 UTC).
The price explosion has largely been driven by established companies investing huge sums of money in into the cryptocurrency. Electric car giant, Tesla, recently invested some $1.5 billion (more on that below), which is mostly what helped drive the price up above $40,000. The question, therefore, is why have companies been investing so much?
No Influence from Inflation
Bitcoin was created to have a fixed number of coins — 21 million. Currently there are about 18 million in circulation. Once the final 3 million coins have been digitally “mined,” there will be no more. Further to that, the government has no way to manipulate or artificially distort the value of Bitcoin, which leaves it safe from the effects of inflation. It can’t be oversupplied, nor can it be subject to government corruption.
Between 2015 and 2020, the value of Bitcoin was on a rocket ship upward trajectory. Businesses of all sizes could invest a fairly modest sum to get massive returns in a relatively short period of time. A small business that invested $3,000 to buy 10 Bitcoins in 2015 now has an asset worth more than half a million dollars. In these uncertain times, such an asset is an effective bulwark against financial disaster.
No Central Banks
Changes in government policy can send seismic tremors through the business world. Such a system means that countless business successes or failures depend greatly on governments and politicians. Many businesses prefer not to take on that kind of risk. Cryptocurrency can be exchanged peer to peer without any interference or interruption from any central bank, making it a convenient and expedient payment method.
No matter how much financial institutions invest in online security, they will always be more vulnerable to attack than the cryptocurrency Blockchain network. The decentralized model of Blockchain and its digital ledger make things transparent, safe and actually much simpler in many ways.
Case Study: Tesla and Bitcoin
How does all this tie in with the automotive industry? Elon Musk and his company Tesla have been making huge waves in the world of cryptocurrency in recent months. According to reports from Tesla in early February 2021, the company invested $1.5 billion in Bitcoin in January 2021. What’s the reason behind this?
The driving force here seems to be that Musk and Tesla are planning on allowing Bitcoin as payment for its products. The company’s Securities and Exchange Commission (SEC) filing in earl February made clear that the investment was “to provide us (Tesla) with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.”
They added, “Moreover, we expect to being accepting Bitcoin as a form of payment for our products in the near future…” The question, then, is what does ‘near future’ indicate? In any event, the most would further strengthen the company’s credentials as an automotive pioneer, because currently there are precisely no car companies that are willing to accept payments in Bitcoin. The $1.5 billion is the liquidity they need to offer this.
Implications for the Future: Buying Cars with Bitcoin
Does this move by Musk and Tesla signify the beginning of a growing trend? Before the purchase was announced, Musk did spend some time on Twitter seemingly promoting Bitcoin, firstly by adding the hashtag #bitcoin to his profile page. That simple act alone pushed Bitcoin’s price up as much as 20 percent. A couple of days later on the social media platform Clubhouse, he said that “Bitcoin is a good thing, and I am a supporter of Bitcoin.”
This raises questions about the real motives? Is the company just speculating to improve its own financial position, or is this part of a more long-term and coordinated move to get more automotive companies investing and providing channels through which customers can purchase using Bitcoin.
Let’s assume that others do start to follow Tesla’s lead and accept Bitcoin or other cryptocurrencies as payment for their vehicles or other services. What implications would that have?
1. Further Increase in Bitcoin Value
Tesla’s single $1.5 billion investment has done much to boost the price of Bitcoin in recent weeks. Other companies doing the same in Bitcoin and other cryptocurrencies could easily extend that effect. Imagine other giants like Ford, General Motors, Toyota, Renault and others throwing billions at the currency. When these established “blue chip” companies make moves like this, it has a marked effect on people’s perceptions, too.
2. Car “Investing” Rather than Purchasing
Bitcoin or other cryptocurrency becoming a viable payment method in the automotive world would be a huge game changer for the way people buy their new cars. A young graduate and entry-level white-collar employee could invest in a cryptocurrency in their first year of work, at which point they may only be able to afford a Toyota Corolla. After six months and a raise in value, that Bitcoin could be worth enough to buy a BMW 4-Series. The concept of automotive investing could become a new phenomenon.
On the flip side, however, Bitcoin’s price has been infamously volatile. If Tesla has invested so much money into Bitcoin, and then the price suddenly nosedives, then it would mean huge losses. There are some who are saying that the move was irresponsible because Bitcoin’s relative volatility makes it a risky move for a company looking to invest so much money.
3. Simplifying Car Purchases
Car buyers would be able to complete transactions for their new cars without involving a bank or a finance company. Instead of arranging complex paperwork, calculating interest rates, working out monthly repayments, buyers could complete their transactions with a simple push of a few buttons to transfer cryptocurrency directly from their digital wallet to new car dealerships.
4. Big Boost to Cryptocurrency Credibility
Wedbush Securities Managing Director Dan Ives on CNBC commented that one of the ripple effects of Tesla’s huge investment is that Bitcoin (and by extension, other cryptocurrencies) will gain a huge boost in confidence and credibility in a world that has continually doubted its viability despite its overall rise since 2009. If we can use Bitcoin to buy new cars from Tesla, then barriers are removed from the idea being used in more areas of life. Cryptocurrency just got a big foot in the door.
Conclusion: It’s a Game Changer
In whichever way you look at this, positively or negatively, Tesla has once again made history in the automotive world. Not content with being the wild child of the EV world, Musk is now widening his rebellious tone by going against the established grain and investing in a controversial and volatile thing like Bitcoin. On one side, establishing it as a method to buy Teslas, and other cars in the future, could be exactly the boost cryptocurrency needs to become a more viable alternative to fiat currency.
On the other hand, Musk is also taking a huge risk, betting that Bitcoin won’t just go down the drain one day suddenly. It all seems to hang on how many other companies will eventually follow Tesla’s lead, helping to establish cryptocurrency as a more mainstream financial option in the automotive world.
Once buying new cars from local car dealerships using bitcoin and other kinds of cryptocurrency is possible, people should continue to use tools like carbevy.com. South Californian car buyers must have access to an excellent car buying experience like what CarBevy offers. CarBevy aims to provide a haggle-free experience for car buyers. CarBevy receives the buyer’s offer and then contacts its network of local car dealerships in San Diego California to take care of everything else. Visit the CarBevy homepage or blog page to learn more.