Virtual currency Bitcoin takes step towards becoming mainstream

The virtual currency bitcoin moved closer to becoming mainstream yesterday with federal authorities signaling their willingness to accept it as a legitimate payment alternative.

At a senate hearing, several federal officials opined that such financial networks offered real benefits for the financial system even as they acknowledged that new forms of digital money had provided avenues for money laundering and illegal activity.

According to Edward Lowery, a special agent with the Secret Service, tasked with protecting the integrity of the dollar, there were plenty of opportunities for digital currencies to operate within existing laws and regulations.

Indications that the government would take a 'hands off' approach as regards bitcoin's development, even as it cracked down on criminal networks using the digital money, sparked a strong rally in the price of the crypto-currency.

By last evening, the value of a bitcoin unit shot past $700 on some exchanges.

The Senate hearing came as the clearest indication till date of the government's desire to come to terms with the consequences of this growth, and the recognition that bitcoin and other similar networks could acquire a significant presence across the financial landscape.

According to Jennifer Shasky Calvery, the director of the treasury department's Financial Crimes Enforcement Network, the decision to bring virtual currency within the scope of regulatory fame needed to be viewed by those who respected and obeyed the basic rule of law, as a positive development for the sector.

Meanwhile, Bitcoin's rally is gathering pace as the US Department of Justice's description of the digital currency as a ''legal means of exchange'' boosted the prospects of its wider acceptance as an alternative payment system.

Bitcoins, exist as software and are not regulated by any country or banking authority. The currency shot to $744 on Bitstamp, an active web-based exchange where it trades for dollars, euros and other currencies, following news of the developments at the hearing. The gains extended an advance that saw Bitcoins price quadruple in the past two months and increase 45-fold so far this year.

The rally had gained from growing interest of investors in China and a limited supply of Bitcoins, while last month's closing of the Silk Road Hidden Website - where people could obtain drugs, guns and other illicit goods using Bitcoins - was already encouraging speculators to bet Bitcoins would gain increased mainstream acceptance.

At the hearing, government agencies from the US Secret Service to the Financial Crimes Enforcement Network had weighed in to say that the virtual currency that was designed to be difficult to trace had potential benefits, as well as risks.