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What did 2014 mean for Bitcoin?

December 18th, 2014 - Posted by Debbi Lyle Essey in Anti-Money Laundering

Crude oil, the Russian Rouble and Greek stocks could all have made the grade this year, but Bitcoin has stolen the title as the worst investment of 2014. 

Following a steep and consistent decline in price of more than 50% from January to December, business website Quartz bestowed the unattractive accolade on the crypto-currency it termed 'atrociously awful.' 

While the world's most popular crypto-currency, the anonymity Bitcoin gives its users and its decentralised and unregulated nature make it a useful tool to launder money or purchase illegal goods online.

In a post we talked about the Dark Wallet, one of several Bitcoin transfer tools designed to protect users' identities.  By encrypting and mixing users' Bitcoin payments, a process called 'tumbling,' these tools seek to render the flow of money online untraceable. 

These tools, along with a web of 'Dark Net' marketplaces offering illegal goods and services in exchange for Bitcoin, make money laundering using the virtual currency accessible and anonymous. 

US law enforcement agencies are beginning to take a more active approach to combating the problem.  November saw the FBI shut down more than 400 illegal online marketplaces and arrest 17 individuals linked to the sites in a globally coordinated attack.

One of the sites shut down by the FBI was Silk Road 2, the successor of the original Silk Road shut down in 2013.  This demonstrates how difficult it is for law enforcement to keep up with the Dark Web.  Due to the anonymity provided by the tools Dark Web marketplaces use, a successful shut down operation can take years.  The criminals however, can have a new marketplace up and running in a matter of days.           

The increased scrutiny of regulators and the targeted action of law enforcement is making it more difficult for those abusing the crypto-currency for illegal activity.  Whether this has led to the decrease in price is unclear.  What is clear is the waning interest of users, the investment community and the media.

A Nexis search for Bitcoin in UK publications during 2014 shows the media's interest in the digital currency has drastically dropped.  There was a great deal of media interest at the beginning of the year when Bitcoin rose past the $1000 mark, and it is at this point a wider cohort of businesses and investors began to look to Bitcoin's potential.

bitcoin media profile 

Huge fluctuations in price have deterred major institutions from treating Bitcoin as a long-term investment and many commentators now wonder if there is a place for digital currencies in the financial services industry.

Despite the decrease in interest from the media and the financial services sector, there remains a growing enthusiasm for Bitcoin in young, tech-savvyentrepreneurs (not to mention Wikileaks) who see huge potential in the technology behind the crypto-currency.

The blockchain is the foundation of Bitcoin technology and it is providing the infrastructure for innovations in historical preservation, smart contracts and trust-free asset distribution to list a few.

Bitcoin may be losing the interest of both the media and the investment community, but it has by no means been written off globally.

Regulator and law enforcement action is finally having a quantifiable effect on the world's most popular crypto-currency.  The fundamental technology behind Bitcoin may be groundbreaking, but there is no doubt as to its potential for widespread misuse.

What do you think?