Nobody knows what will happen with Bitcoin. This is meant to be a bullish take on its potential as if written from the future -- at the end of 2014. None of the following has actually happened -- it's just one take on what could happen to Bitcoin. For a bearish take, click here.
While mainstream media picked up Bitcoin's story in 2013, it wasn't until 2014 that it fulfilled much of its potential as the digital form of cash. Three key developments over the past year helped Bitcoin achieve its goals, and it's now clear that bitcoins will remain a viable form of payment over the long term.
Development No. 1: government acceptance
The first hearings in the U.S. government were mainly positive with respect to Bitcoin's future and the government's ability to work it into existing regulations. Fed chairman at the time, Ben Bernanke, wrote that such currencies could "promote a faster, more secure, and more efficient payment system." With Bitcoin previously linked to black markets for drugs and assassins-for-hire on the darker parts of the Internet, the legality of the currency and the government's response was a major question for the currency's future. But the government's welcomeness, while discouraging those who believed it would help circumvent government's power to regulate commerce, helped improve Bitcoin's image among the larger population.
Associating with Bitcoin didn't automatically mean you dealt with black market goods and services, which led to a flourishing and legitimate marketplace in the beginning of 2014.
Development No. 2: merchant acceptance
The high volatility of bitcoins' price to dollars was thought to be an impediment to its use as an actual currency as opposed to commodity. It was believed speculators would stockpile bitcoins, and none would be spent. However, as merchants began to accept bitcoin after the government's positive response and a proliferation of processing services, those who believed their bitcoins wouldn't appreciate any more in value spent them on goods for which they previously would have used dollars. And merchants, who believed in appreciating bitcoin prices, gladly accepted.
Of course, both those who spend and those who accept have been wrong about the price at different times, making such transactions still a bit riskier than using cash. However, a bitcoin's price has been fairly stable -- around $1,000 per bitcoin over the past several months in late 2014 -- helping confidence in acceptance.
Development No. 3: mass-market consumer services
With merchant and consumer demand to begin using Bitcoin, companies like eBay's (EBAY 2.08%) PayPal took the opportunity to embrace Bitcoin while grabbing market share from payment incumbents Visa and MasterCard. PayPal executives had repeatedly expressed that they were keeping an eye on Bitcoin and incorporated the currency seamlessly into their current digital payment offerings in early 2014. PayPal had a streak for latching onto the disruptive actors of the economy, evidenced by their integration with mobile vehicle for hire start-up Uber as part of their wider step into capturing mobile payments through applications.
Such consumer services made it dramatically easier for the average consumer to use Bitcoin and helped solidify its position as a viable currency.
The success of Bitcoin
These three developments helped Bitcoin achieve success as a digital currency in 2014. The days of hoarding speculators have passed, as well as questions of legality, ease of use, and fly-by-night exchanges. The competitive payment landscape lowered margins for payment processors but opened up new avenues of commerce.
This was a look into the future as if Bitcoin succeeds -- the events above are fictional, and are just one take on Bitcoin's future. For an opposite viewpoint, click here.
