What Does Bitcoin's Memorable Year Mean for the Future?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

From the U.S. government's shutdown to the snowstorm that hit Cairo for the first time in over a century, 2013 was definitely an interesting year. For Bitcoin, the "underground" digital money system, it was a landmark year.

In 2013, Bitcoin was crowned "word of the year" by the Australian National Dictionary Centre, it crossed the $1,200 threshold but halved in value in just a split second, it raised eyebrows among regulators and world-class economists, while its "rebellious nature" allured Wall Street and Silicon Valley.

Here are a few of the most memorable Bitcoin moments of 2013:

The open source peer-to-peer currency kicked off a roller-coaster year with the wallet – the "go-to" Bitcoin wallet service – surpassing 100,000 users. Throughout 2013 and as the Bitcoin craze begun to gather pace, the number of new users skyrocketed to nearly one million.

On Valentine's Day, social discovery and discussion site Reddit started accepting Bitcoins for its premium Reddit Gold service. At the time, it was the second most popular website after WordPress to accept Bitcoin as a payment option. Slowly but surely, others like L.A.-based travel agency and the University of Nicosia in Cyprus followed suit, paving the way for the virtual currency's push into the mainstream.

On March 11, the "math-based" money network experienced a major hiccup. A bug in the system caused the blockchain – the publicly maintained Bitcoin ledger – to split into two. Miners and traders hit the panic button after watching Bitcoin take an almost 25% nosedive. But the split lasted only six hours and everything went back to normal again.

During the next month, a flurry of Bitcoin news drove its value to peak at $266 making Bitcoin traders rub their hands in glee; but not for long. Out of the blue, a Reddit user by the name of "Bitcoinbillionaire" gave away more than $13,000 worth of Bitcoins, randomly rewarding 13 redditors. And on April 11, Mt Gox, the top Bitcoin exchange, halted trading for nearly a day. Bitcoin tumbled all the way down, losing as much as 70% of its value.

In May, the U.S. government made waves on the Bitcoin world. The Department of Homeland Security ordered mobile payments service Dwolla – one of the easiest ways to get U.S. funds in and out of Bitcoin – to seize all account activities with Mt. Gox. DHS officials claimed that Mt. Gox was operating an "unlicensed money transmitting business."

Later in the summer, Bitcoin gained a legal footing in Germany. The Finance Ministry ruled that Bitcoin is a "unit of account" and any profit from it is subject to the country's 25% capital-gains tax, unless it is held for more than a year.

Bitcoin made headlines again in October when the world's first Bitcoin ATM was installed in a Waves Coffee House in Vancouver, and the FBI shut down Silk Road, the online drug marketplace that used it for payments. Growing concerns over the darker side to the use of Bitcoin led to the first-ever congressional hearing on virtual currencies held in November. U.S. officials gave Bitcoin the thumbs up, calling it a "legitimate" financial service, and its price continued to zoom.

Boosted by an astronomical surge in Chinese demand, the digital currency topped out above $1,200 in December, making many jaws drop. But as soon as China decided to bar financial institutions from handling Bitcoin transactions forcing the country's biggest exchange to stop accepting new fiat deposits, the love-it-or-hate-it virtual cash crashed and lost 50% of its value, as well as its mojo.

What's next for Bitcoin in 2014?

Bitcoin is exciting to watch because it's unpredictable. Even so, who can resist a bit of crystal-ball gazing into the future of the world's most controversial currency?

On one side, there are those like Bitcoin entrepreneur Roger Ver, also known as "Bitcoin Jesus," who have faith in the crypto-currency's potential as a commonly used payment method. "2014 will be the year that Bitcoin gains mainstream acceptance," he says. With Bitcoin start-ups popping up like mushrooms after the rain and vendor adoption steadily increasing, this argument makes sense.

On the bearish side, Mark Williams, finance professor at Boston University School of Management, predicts that Bitcoin "will trade for under $10 a share by the first half of 2014, single digit pricing reflecting its option value as a pure commodity play."

What's going to happen? Nobody really knows.

My take on Bitcoin

Most of those who've joined the Bitcoin fray focus mainly on Bitcoin's potential as a rival to traditional paper money. That's one way of looking at it.

For Bitcoin to emerge as a viable alternative to today's paper cash, the world as we know it has to change first. As I pointed out in a recent article, its decentralized nature, though relevant to the current trend of open-source economy, disrupts the international monetary status quo. This status quo might change in favor of Bitcoin, provided that governments, regulators, and monetary authorities around the globe are a part of that change – something that's highly unlikely to happen any time soon.

But Bitcoin is more of a system than it is a currency. And as an open-source transactions system, it could revolutionize the incumbent payment mechanisms by adding social value. However, when humans let their selfish craving for wealth wash over them, even if that wealth is only virtual, the best of innovations lose their luster and end up being nothing more than a standing joke.

Today, many people buy Bitcoins hoping to cash in on its extreme volatility, not because they truly believe in it. How do you explain then all those alternative digital currencies or "alt-coins" cryptocoins created by forking the Bitcoin system and adjusting it – which, with a few rare exceptions, tickle speculators pink just like a brand new toy does to a child.

What's next?

Want to figure out how to profit on business analysis like this? The key is to learn how to turn business insights into portfolio gold by taking your first steps as an investor. Those who wait on the sidelines are missing out on huge gains and putting their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you what you need to get started, and even gives you access to some stocks to buy first. Click here to get your copy today -- it's absolutely free.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2777921, ~/Articles/ArticleHandler.aspx, 5/24/2016 11:22:42 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Fani Kelesidou

Born and raised in Greece, Fani is currently pursuing a PhD in International Political Economy. She keeps a keen eye on politicians' shenanigans and focuses on explaining their impact on the global economy. Besides that, she enjoys digging deeper into unfolding fashion trends and retailers' business strategies, as well as the emerging wearable-tech market. You can follow her on twitter@FaniKelesidou

Today's Market

updated 2 hours ago Sponsored by:
DOW 17,706.05 213.12 1.22%
S&P 500 2,076.06 28.02 1.37%
NASD 4,861.06 95.27 2.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes