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Bitcoin has reached a critical point in its brief history, with three possible paths ahead. The first path is the one most enthusiasts have been cheering for: it goes straight to being recognized as a legitimate currency and becomes part of our everyday lives. The second path envisions Bitcoin transforming into an even bigger phenomenon than what we see today becoming something like the TCP/IP protocol that powered the rise of the internet all those years ago.

This would mean that Bitcoin becomes established as an infrastructure platform upon which future technologies and applications are built, much like how many different companies now offer services over the internet because they all work through TCP/IP (eg, email).

But there's also another possibility, one that would revolutionize the Bitcoin revolution, something whose rise was boosted by speculation rather than actual usefulness. If it falls down this path, bitcoin becomes little more than an obscure occasional curiosity about the 21st century's version of Dutch tulips. Developments in recent weeks have been leaning towards one of these three paths, but which is the most likely?

BITCOIN GETS PERSONAL

Bitcoin has gone mainstream, even if the price hasn't always behaved accordingly. It's not only bitcoin-accepting merchants that are beginning to crop up but also entire companies being built around Bitcoin itself. For example one of the most recent success stories is how Reddit started accepting bitcoin for its premium service. Additionally, some people have looked into using bitcoins for international money transfers via services like BitInstant with good success rates and extremely low fees compared to traditional means of moving cash across borders. Even more recently it was announced that Coinbase landed a major investor in the form of famed online stock broker SecondMarket which will be helping them build an ecosystem around the digital currency so it can attract larger investors. Finally, it looks like eBay and PayPal could soon start accepting bitcoin too, which would only increase the currency's legitimacy.

BITCOIN IS THE NEW TCP/IP WITH A FEW FLAWS

Most importantly for this vision is that Bitcoin has taken off as a speculative investment rather than for any practical use. There are still many people who are primarily interested in buying bitcoins with the hope of selling them later on at an even higher price. This means they are not really used to purchasing goods or services but instead it is merely seen as a vehicle to make more money over time by holding onto it until the price goes up further. Even for those merchants that accept bitcoin many of them immediately convert it into government-issued currency rather than keeping some form of it. This is not unlike people in the early days of the internet holding on to their stocks in hopes they could sell them off at a higher price than what they initially spent for it and eventually ride the wave all the way up. However, this also means that if anything were to happen and bitcoin's fortunes reversed then most of these people would likely abandon ship immediately rather than sticking around for much longer.

BITCOIN IS LESS LIKE A BUBBLE AND MORE LIKE A FAD

There are already signs that Bitcoin is losing momentum with one of its highest-volume exchanges shutting down merely two months after opening its doors. Additionally, many merchants have stopped accepting it as a form of payment because of the volatility involved with not being able to predict how much a single bitcoin will cost from hour to hour. It's also worth noting that many warning signs of a bubble have been popping up around Bitcoin, such as Bloomberg News reporting on the phenomenon and various websites being set up to monitor its chatter online.

Thus, while there is still a chance that it could be on track for mass adoption where only the rich would invest in bitcoins and regular users use it for everyday transactions, this seems unlikely given its rapid descent so far. In fact, it might not even take something quite so dramatic to cause the entire experiment with Bitcoin to come crashing down, perhaps some simple bad press after a major theft or cyberattack will do the trick. At this point, any number of things could set the ball in motion for Bitcoin to start losing traction, but it will likely happen well before we actually see mass adoption of the currency.