It might not have been word of the year for 2013, but “Bitcoin” figured prominently in the shortlists. Known formerly only to true geeks, the mysterious cryptocurrency was in the news almost every day. Many of the stories were tales of riches gained and lost: a Norwegian student who discovered that the 5,600 bitcoins he purchased for $24 in 2009 were now worth $700,000; a British man who accidentally threw away a hard drive containing digital keys to bitcoins worth over $6 million. Others were tales of crime: websites where anonymous buyers could use bitcoins to buy drugs or even pool money for potential assassinations of public figures. And still others focused on attempts at regulating Bitcoin, which ranged from declaring it altogether illegal (Thailand) to embracing it wholeheartedly (Switzerland).
Why all the fuss? Much of it has to do with Bitcoin’s pure novelty and its wild price fluctuations (from under $20 per bitcoin at the start of 2013 to a high of $1,203 in December to around $925 now). But above all, it is because Bitcoin is an extraordinary idea -- one whose ramifications no one can fully foresee. Its foundational premise is that monetary systems do not need a central government. Instead, Bitcoin relies on clever mathematics to ensure that everyone plays by the rules. In theory, at least, no one can control Bitcoin. And this means, of course, that nobody can tell Bitcoin users what they should and shouldn’t be spending their money on -- for good or for ill. That presents regulating agencies with difficult questions: Should they try to control Bitcoin? Can they control it?
If all this sounds familiar, it should. The world faced these same questions in the early days of the Internet. Whether Bitcoin is more like AOL or Google, of course, is yet to be seen. Still, how governments choose to respond to it could change global finance for good.
HOW IT WORKS
Bitcoins are sometimes called virtual cash. But a better analogy is