Last year was not kind to Bitcoin. And 2015 already looks as if it could be just as tough for the digital currency: Bitcoin exchange Bitstamp went offline this week as it investigated a security breach; bitcoin prices fell from about $320 at the beginning of the year to roughly $270 this week, according to industry site CoinDesk.
BitStamp, which is based in Slovenia and Britain, is currently the third largest exchange by volume, according to Bitcoin Charts.
While details are scarce, a statement posted to the company's Web site says the company has "reason to believe" that one of its "operational wallets" -- a place connected to the Internet where some Bitcoins being processed by the services were stored -- was compromised on Jan. 4. The message also said that Bitstamp maintained "more than enough" offline reserves to cover the funds in the operation wallet.
But the incident harkens back to the collapse of Tokyo-based Mt. Gox, the once popular exchange that imploded spectacularly last spring. The company announced it was filing for bankruptcy in February, saying it had lost the equivalent of nearly half a billion dollars worth of bitcoins at the then-exchange rates. Just last week, Japanese authorities told a local newspaper that only a tiny fraction of the missing bitcoins could be attributed to hacking attacks from outside the company according to CoinDesk.
The Mt. Gox catastrophe was just one of many high profile incidents involving Bitcoin that helped drag down the price of the digital currency in 2014. Last January, Bitcoin prices pushed above $900 a pop -- but by the end of the year they hovered at a little more than a third of that price.
Bitcoin has continued to struggle with its association with illicit online black markets and regulators efforts to regulate it. The Bitcoin Foundation, a non-profit formed to promote the cryptocurrency which counted Mt. Gox chief executive Mark Karpeles as a founding member, lost another founder to Bitcoin's black market ties: Former vice-chairman Charlie Shrem resigned after being arrested for supporting an illicit Bitcoin exchange for notorious digital black market Silk Road. (Shrem later pleaded guilty to a count of aiding and abetting the operation of an unlicensed money transmitting business.)
What government regulations apply to Bitcoin also remain murky -- although financial regulators in New York state are working on hammering out some requirements for Bitcoin and other virtual currencies. The proposed rules would apply only to companies actually engaging in transmitting funds from one place to another, and wouldn't apply to retailers simply accepting Bitcoin or private individuals who invest in the digital currency.
All in all, as Quartz noted in December, the fallout from these sort of high profile headaches helped make Bitcoin among the worst possible investments in 2014. However, there were other bright points for those in the industry: Outside investments in Bitcoin-related technology and services and merchant acceptance of the payment method all rose during the year.
But for Bitcoin to really take off, it needs to become more popular with users, not just investors. While Bitcoin-backers continue to try to get the public engaged with the digital currency by sponsoring things like college football bowl games, the number of transactions per day -- currently about 80,000, according to Blockchain.info --- suggests it hasn't quite caught on yet.