As 2014 draws to a close, there’s plenty of lessons to look back on and learn from over the year. But perhaps none are as telling as that of Bitcoin. The cryptocurrency was all the rage this time last year, with many employees requesting payment by Bitcoin. Some hailed it as Gold 2.0, others as a mirage.
But now, in the harsh light of almost-2015, Bitcoin’s year has been catastrophic. And the future of Bitcoin doesn’t look too bright either. But is it possible that the cyber currency paved the way for others like it?
For those who might not know: Bitcoin is essentially digital money that’s not backed by or tied to any nation or government. Bitcoins are one of many new online currencies that are all vying to get in on the market, though Bitcoin’s arguably the most popular. It works like digital gold (it’s electronically mined, with special software) and its value can easily fluctuate over a short period of time. Which can make it pretty volatile.
But the idea behind it seems perfect for the Internet age: It serves as money to places that will accept it (reportedly upwards of 100,000 businesses), it’s allegedly highly-encrypted when it’s stored in your digital wallet, can’t be frozen, and the anonymous transactions can be made across the world with little to no fees. It could be a game-changer for communities around the globe, as noted in a blog post from TMT Perspectives from early 2014:
Recently, there has been a great deal of speculation about the long-term viability of Bitcoin and what role it and other digital currencies might play in the future. Bitcoins possess most of the necessary elements for a viable currency—they are portable, they have a limited supply, and they are easily divisible (the smallest unit of the currency is one-hundred-millionth of a Bitcoin). Given that they are immune to direct government manipulation and don’t rely on banking institutions, the currency might be especially beneficial to the developing world, bringing financial services to billions of people without access to banks and credit cards. But a viable currency also needs to stay valuable over time, and given the extreme volatility of bitcoins, it is far from certain that that will be the case.
That prediction turned out to only prove truer in the following year. Over the course of 2014, Bitcoin was ruled a property instead of a currency by the IRS, A Bitcoin mining company was shut down by the FTC, and Mt. Gox, a Bitcoin exchange based in Tokyo that handled 70 percent of all Bitcoin interactions, lost (an equivalent of) millions in US dollars and ultimately shut down. As Mark Gilbert writes for Bloomberg, despite plenty of promotion and buzz Bitcoin is trailing behind the Russian ruble thanks to one havoc of a year:
Bitcoin is second only to gold on the list of topics guaranteed to arouse the wrath of the Internet trolls. Yet relentless promotion can’t hide these facts: The digital currency peaked at a value of $1,130 just over a year ago. Its plunge of more than 56 percent in 2014 makes it the world’s worst performing currency this year, according to Bloomberg, which tracks 175 foreign-exchange values:
…At a current value of about $326, Bitcoin isn’t dead, yet it may be mortally wounded. The Dec. 20 sentencing of Charlie Shrem, one of the digital currency’s most vocal cheerleaders as vice-chairman of the Bitcoin Foundation and chief executive of an exchange called BitInstant, to two years in prison for illegal money transfers doesn’t help.
Though Bitcoin doesn’t look like it’ll be around to stay, there’s still a place for the work they’ve done. The excitement–and of course the warnings–around Bitcoin could be a reflection of a future trend that Bitcoin was just too early for. Jason Voiovich, a guest blogger at Duets Blog, writes that Bitcoin is the Moses of digital currency; it’ll lead the way, but it won’t get to see the promised land:
If you think about it, what we’re talking about here is a change in the nature of money itself. Currency has been the exclusive domain of the state in any advanced economy for hundreds of years. In fact, most governments mandate an exclusive monopoly over it. At its core, money is solely a measure of confidence in the institution granting it, and few governments want to give that up.
But I think we’re almost there.
In the next couple of years, the widespread adoption of ApplePay, Google Wallet, and other smartphone-enabled payment technologies will decouple money from paper, coins, or plastic, making it completely virtual. That’s the last step. The last iterative innovation required. Once the average person no longer carries a wallet with paper money (or even a credit card), it’s not much of a leap of faith to explore different currencies.
Bitcoin may have failed to live up to its hype, if it had sorted out its security and regulatory issues earlier, but it’s ideas may live on. Not to mix analogies, but if we consider Bitcoin to be the Napster of online currencies–in terms of kicking down the door and drawing the ire of its enemies–there are plenty of uses and situations when digital currency, free from slow and expensive transactions of the past. Even India, who a year ago effectively shut down Bitcoin transactions in the country, is now acknowledging that the adoption of virtual currencies is inevitable. We may not know where Bitcoin’s fate lies yet, but it’s clear they’ve tapped into a concept that could stick around.