How CFO’s role is important in the Bitcoin centric world of today?
admin July 13, 2021 Accounting, Investments, Shares
Story Behind the Recent Bitcoin Impact
During the early part of 2021, Elon Musk-owned Tesla bought $1.5 billion worth of Bitcoin and announced that the company will accept Bitcoin as a payment. Immediately, the price of Bitcoin went northwards. In a filing with the Securities and Exchange Commission, Tesla said, they bought the Bitcoin because “it offers more flexibility to further diversify and maximize returns on our cash.”
Soon after, citing the ‘environment impact of Bitcoin’ where the miners (background workers who work under the hood to run the World’s most popular cryptocurrency) consume huge amount of electricity, Elon Musk reversed his decision of accepting Bitcoin, which drastically affected the value of Bitcoin.
According to the latest estimate of the Cambridge Center for Alternative Finance (CCAF), the Bitcoin mines consume around 110 Terawatt Hours per year – that is 0.55% of global electricity production, or roughly it equals the electricity consumption of countries like Sweden or Malaysia. Though it seems as a huge amount of electricity; if you consider the energy consumption of conventional currencies of all countries (including its digital format), it will be only a fraction. After all, the idea of the Satoshi Nakomoto (Founding Father(s) of Bitcoin) is to create the Universal Digital Currency to break the geographical, national and notional borders of the world.
Again in June 2021, Elon Musk changed his stance and said that his company will accept Bitcoin when the virtual currency is greener. Meaning, the miners should use clean energy from the renewal energy sources.
Given this scenario, what a CFO can do.
CFOs Role in Financial Management of a Business
In the increasingly crypto-centric world of today, the CFOs study the various types of crypto currencies and its ‘mining mechanism.’ As the second-generation crypto currencies/tokens do not consume much energy like Bitcoin, the cryptos including Ethereum follow the ‘proof-of-stake’ model instead of ‘proof-of-work’. To become a validator of Ethereum, the miner has to stake 32 Eth (that is pledging 32 Ethereum coins); thereby, reducing the energy consumption drastically. This enables the common user to send their currency across the globe in a fraction of the cost.
Likewise, the crypto world is constantly framing innovate ideas and concepts. The CFO of any organization equip themselves with these changes to help businesses make ‘right decisions’ at the right time. CFOs thoroughly understand the difference between ‘Proof-of-Work’ and ‘Proof-of-Stake’ model, the various non-financial crypto projects/tokens and how it works. We, as CFOs learn the ‘crypt-specific terminologies, jargons and eventually understand how the ‘parallel universe’ called ‘Crypto-currencies’ and its related projects’ work or doesn’t work to take a prudent call on behalf of businesses/organization.