The Department of Justice andSecurities and Exchange Commission are telling a U.S. Senatecommittee that Bitcoins are legitimate financial instruments,boosting prospects for wider acceptance of the virtual currency.
Representatives from the agencies told the U.S. SenateCommittee on Homeland Security and Governmental Affairs ahead ofa hearing tomorrow that the digital money offers benefits andcarries risks, like any other online-payment system, according toletters they released before the meeting.
The committee scheduled the hearing "to explore potentialpromises and risks related to virtual currency for the federalgovernment and society at large" after the Silk Road HiddenWebsite was shut down in October. The closing of themarketplace, where people could obtain drugs, guns and otherillicit goods using Bitcoins, is helping fuel a rally in thevirtual currency as speculators bet that the digital money willgain more mainstream acceptance.
"The FBI's approach to virtual currencies is guided by arecognition that online payment systems, both centralized anddecentralized, offer legitimate financial services," Peter Kadzik, principal deputy assistant attorney general, wrote in aletter. "Like any financial service, virtual currency system ofeither type can be exploited by malicious actors, butcentralized and decentralized online payment systems can varysignificantly in the types and degrees of illicit financial riskthey pose."Virtual Money
Introduced in 2008 by a programmer or group of programmersgoing under the name of Satoshi Nakamoto, Bitcoin is being usedto pay for everything from gourmet coffee to smartphones on theInternet. There are almost 12 million Bitcoins in circulation,according to Bitcoincharts, a website that tracks activityacross various exchanges.
Bitcoins were trading for $460 apiece today on Bitstamp,one of the more active online exchanges, where the digital moneyis traded for dollars, euros and other currencies. The virtualcurrency reached a record of $473 earlier today, and is up morethan 30-fold so far this year.
"Two years ago it was alarm when Silk Road first came onthe scene," said Jerry Brito, senior research fellow at theMercatus Center at George Mason University who is alsotestifying in front of the committee tomorrow. "Since then,Congress has been educating itself and understands that thereare great potential benefits, and like any new technology thereare going to be some challenges. But they see there is a balanceto be struck here and they are generally positive on thetechnology."Gaining Acceptance
Since the virtual currency exists as software that'sdesigned to be untraceable, it's an attractive tender for thoseseeking to transact anonymously via the Web. While the closingof Silk Road initially caused the digital money to lose a thirdof its value within days, Bitcoins have recovered and rallied torecord levels as speculators and investors bet that the currencywill be less of a fad and gain more mainstream acceptance.
Ben Bernanke, chairman of the Federal Reserve, is alsoweighing in on the hearing, saying that it has no plans toregulate the currency.
"Although the Federal Reserve generally monitorsdevelopments in virtual currencies and other payments systeminnovations, it does not necessarily have authority to directlysupervise or regulate these innovations or the entities thatprovide them to the market," Bernanke wrote in a letter to thecommittee.
The hearings will bolster the view that Bitcoins are anacceptable alternate means of conducting transactions, and thattheir use will grow, said Brito.
"These hearings means Bitcoin is finally coming into itsown; it's a real thing and it's not going anywhere and thesehearings highlight that," he said.
To contact the editor responsible for this story:Pui-Wing Tam at firstname.lastname@example.org
More From Bloomberg