2013: The year of bitcoin

2013 was quite possibly the year of bitcoin; it was the year in which its price skyrocketed above $1,000 as it simultaneously moved from the dark corners of the Internet to dinner-table discussions.
Bitcoin is open-source software that has been trumpeted as both a virtual currency and a payment system that could revolutionize the way money is sent around the world. In its early years — think 2009 — bitcoin was known among people on cryptography mailing lists and perhaps those who bought drugs over the Internet. Now, bitcoin-related companies are attracting investments from venture capital firms like Andreessen Horowitz and accredited investors can purchase shares in a bitcoin trust.
One bitcoin recently traded at $731.00 on Bitstamp, a bitcoin exchange. Here’s a chart of bitcoin’s surge this year from CoinDesk’s bitcoin price index:

CoinDesk

Bitcoin’s wild ride in 2013

Unlike the U.S. dollar and other government-backed currencies, bitcoin has no central bank; it is created through a process called mining in which a computer tries to solve a cryptographic problem. The difficulty of the problems increase with time, which is essential because the supply of bitcoin is capped at 21 million.
And as bitcoin’s price has increased, so has the scrutiny from governments and regulators. Federal authorities shut down Silk Road, the bitcoin-only online drug market, in October. The New York State Department of Financial Services said in November it would consider issuing a specific license for virtual currencies and there were hearings in Senate on virtual currencies like bitcoin.
Elsewhere, banking authorities in China, India and Europe issued warnings about the risks associated with bitcoin. Developments in China took a bite out of the bitcoin rally, which was supported in part due to increased Chinese demand, and raised questions about what geographic region could attract the next round of bitcoin mania.
Regulation will certainly play a major role in 2014 for bitcoin, as will adoption by major companies as a method of payment. Expect a continued obsession with bitcoin prices and venture-capital investments into bitcoin companies. And perhaps the biggest question of all is whether bitcoin will generate this much buzz at the end of 2014.
–Saumya Vaishampayan