"We are nearing a tipping point for broad adoption of Bitcoin -- what we at Coinbase believe to be one of the most important shifts in the global economy in our lifetime," the firm said in a blog post. Coinbase is an international digital wallet that allows you to securely buy, use, and accept Bitcoin currency. Bitcoin has been attracting a lot of interest, and its value surpassed $1,000 at the end of November. Backers of the currency have been pushing for its increased usage.
The company said last week that the number of people using its Bitcoin wallet crossed the 650,000 mark.
Virtual currencies are accepted at a growing number of merchants. Even Snoop Dogg announced that he plans to sell his next album for Bitcoins.
In October, many Bitcoin users and traders were going crazy thanks to an announcement from China's main search engine Baidu that one of its subsidiary services now accepts the virtual currency.
Baidu, China's domestic substitute of Google, is the fifth most-visited website in the world. The company's announcement two months ago has rallied China's demand for the virtual currency.
BTCChina, the first and the largest yuan-to-Bitcoin trading platform, has seen its transaction volume surging since the Baidu announcement.
In fact, it was the currency's popularity that motivated Baidu's decision. "In China, Bitcoin is considered quite 'trendy,'" the search giant said in a statement.
Bitcoin's rally was also fueled by positive remarks from the U.S. Department of Justice, which described the digital currency as a "legal means of exchange."
The limited supply of Bitcoins have also been driving the price up.
Chinese Bitcoin investors may find the currency attractive for a different reason than just a profitable investment. Bitcoin presents a tool for the Chinese to topple some of China's strict regulations, including those on capital controls. Most directly, China regulates its internal foreign exchanges, and since most online marketplaces don't accept yuan, Chinese consumers have previously been limited in the sorts of online commerce they can enjoy.
Now two months later, Baidu announced that it stopped accepting Bitcoins after the nation's central bank blocked financial institutions from handling transactions.
China's central bank blocked financial institutions from handling Bitcoin transactions, moving to regulate the virtual currency. China's central bank said the public is free to participate in Internet transactions provided they take on the risk themselves. The ban on financial institutions handling Bitcoins signals concerns that the digital currency may threaten capital controls and financial stability.
China's step to start regulating the Bitcoin exchanges could be good for the consumer. Recognition of the currency to buy and sell goods and services was the purpose anyway. Using a currency for speculation and illegal purposes is never a good thing.
China's statement on Bitcoin is open for interpretation; you can read it here.
It's not over and out for Bitcoins
Some weeks ago, Bank of America predicted Bitcoin will become a "major means of payment for e-commerce" and a "serious competitor to traditional money transfer providers."
"As a medium of exchange, Bitcoin has clear potential for growth," bank analysts stated in a December 5 research report.
The bank estimates that each Bitcoin has a fair value around $1,300, though they warn the currency valuations could create a bubble. The currency's volatility may interfere with its use as a trusted trade currency, according to Bank of America. It also takes nearly an hour to trade Bitcoins on various online exchanges.
Young and immature market
Although Bitcoin continues to attract attention and investment dollars, it is still a young market with plenty of kinks to iron out. Most Americans have no patience for the arduous process of setting up an account at any of the dozens of Bitcoin exchanges, as most have lengthy application forms and complicated banking requirements, often requiring offshore accounts.
To bridge the gap between investor interest and difficulty accessing markets, an American company called WPCS International has decided to offer Americans a simple form of exposure through its own common stock.
The company announced on December 17, that they entered into various agreements to acquire BTX Trader LLC (www.btxtrader.com), a multi-exchange bitcoin trading platform. WPCS International offers investors direct exposure to the rapidly growing Bitcoin services market.
Bitcoin has great potential as a highly secure, low-cost vehicle for electronic transactions in competition with credit cards. It could enjoy a powerful first-mover advantage, allowing it to set the standard for digital currency transactions.
Bitcoin is, of course, reliant on broad-based ecosystem adoption. Consumers need to adopt the currency, but they also need to have somewhere to spend it, which is why merchants' acceptance is critical.
There could be a very powerful incentive for online merchants to accept the currency, particularly if the transaction fees that are incurred with the acceptance and processing of Bitcoin transactions are lower than what they would otherwise pay the payment networks such as PayPal.
One of the significant factors behind the success of Paypal was that eBay pushed so hard to make it the payment mechanism of choice for all eBay-related transactions.
Adoption is crucial for Bitcoin to succeed. At this stage, it's mainly a few large Internet properties such as WordPress, Baidu, and a few others. But with the interest of artists in Bitcoin, broad-based adoption is around the corner.
There is very active use of Bitcoin currency as a basis for P2P transactions among consumers and merchants overseas. But it's slowly moving to more active consideration among major retailers.
The first Bitcoin ATM was recently introduced in Canada. The Bitcoin ecosystem is also starting to see serious investment or consideration from well-respected venture capital funds such as Accel Partners and Andreessen Horowitz.
One thing is for sure: Bitcoin's success hinges on how well it's adopted.
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The article The 1 Thing Bitcoin Needs to Succeed originally appeared on Fool.com.Johan Seijkens has no position in any stocks mentioned. The Motley Fool recommends Baidu, Bank of America, and eBay. The Motley Fool owns shares of Baidu, Bank of America, and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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