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Bitcoin hits new heights as US lends legitimacy to virtual currencies in hearing

Published time: November 19, 2013 04:09
Edited time: November 19, 2013 08:45
A Bitcoin logo is seen at the window of Sake Zone, a restaurant that accepts Bitcoin in San Francisco, California October 9, 2013. (Reuters / Stephen Lam)

A Bitcoin logo is seen at the window of Sake Zone, a restaurant that accepts Bitcoin in San Francisco, California October 9, 2013. (Reuters / Stephen Lam)

US law enforcement and regulatory agents have expressed optimism and acknowledged risks for digital currencies, propelling the most famous of them – bitcoin – to new levels.

US officials at the first-ever congressional hearing on virtual currencies outlined the potential benefits and liabilities of bitcoin. It came as the anonymous crypto currency hit new heights upon word of the positive news coming from the Senate Homeland Security and Government Affairs Committee meeting on Capitol Hill on Monday.

Officials called bitcoins a “legitimate” financial service, despite past focus on the currency as a prime target for money launderers and other criminals looking to move drugs, take part in child pornography, or participate in other illicit activities.

"The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce," said Mythili Raman, acting assistant attorney general for the Justice Department's criminal division.

Federal Reserve Chairman Ben Bernanke said in a letter in absentia to the Senate panel that virtual currencies "may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system."

As US officials spoke approvingly of the potential of virtual currencies, the price of bitcoin shot over $900 on the Tokyo-based Mt. Gox.

Bitcoin’s value has increased tenfold since the beginning of the year. Total market capitalization of bitcoins is in excess of $8 billion based on recent prices, according to Bitcoincharts.com.

Monday’s hearing - attended by only one senator, committee chair Tom Carper (D-DE) - will be followed by a Senate Banking Committee hearing on Tuesday.

Carper said that Monday’s hearing was an effort to gain information on a growing phenomenon.

"Virtual currencies, perhaps most notably bitcoin, have captured the imagination of some, struck fear among others and confused the heck out of the rest of us, including me," he said.

Raman noted the concern that the anonymity of virtual currencies can appeal to criminals, but she said that US law enforcement has "been able to keep pace with that, and we've been able to develop protocols and strategies to address it."

Officials from both the US Secret Service, which investigates counterfeit currencies, and the US Treasury Department’s Financial Crimes Enforcement Network said they have successfully investigated criminals using bitcoins.

Jennifer Shasky Calvery, director of the Financial Crimes Enforcement Network, went as far as saying that she did not see virtual currencies posing significant obstacles to investigatory powers of her division. "We feel like we have a pretty good basis to act," she said.

Patrick Murck, general counsel for Bitcoin Foundation, said the hearing marked progress in the effort to explain to newcomers what peer-to-peer digital currencies like bitcoin are, and what must be done for “further clarity on rules of the road.” Meanwhile, he was encouraged by the positive signals coming from the US government.

“I think what you heard from the law enforcement community and the regulatory community is that they don’t need any new tools to regulate this effectively and to find illicit actors in the system,” Murck told RT in an interview. “They have the tools they need available to them right now.”

Carper said he is "encouraged that maybe it's possible to have the benefits of virtual currencies and to actually be able to not facilitate" crime.

Bitcoin – a currency not backed by a central bank, but traded on various exchanges and swapped privately - has been a high-margin and high-risk investment. The currency hit $123 on October 3, then a record $309 ten days ago, and is now on its way to new heights following Monday’s hearing.

Prices are rising on increased investment interest, fueled particularly by investment interest in China. However, the volatility still has others believing it’s a big bubble, ready to pop at any moment.

In 2011, bitcoin prices jumped from about $0.30 to $32.00, then fell back to a low of about $2.00, The Wall Street Journal reported.

Bitcoin has come a long way since its inception in 2008 by a man using the alias ‘Satoshi Nakmoto.’ It can now be used to buy coffee and pay for online dating services, and can even be retrieved from an ATM. According to Bitcoincharts, which follows the currency, there are nearly 12 million bitcoins in circulation.

Tyler and Cameron Winklevoss, who are most famous for their early investment, and later fallout, with Facebook, seem to think it’s a worthy investment. They have an $11 million stake in bitcoin and want to set up an exchange so it can be traded just like stocks and commodities. They filed a request with the US Securities and Exchange Commission in July.

Bitcoin took a 15 percent nosedive in value when the US Federal Bureau of Investigation (FBI) busted Silk Road, an online marketplace for illicit goods that used bitcoin as a form of payment, in October. The dollar value of the virtual currency slumped from about $145 per coin to $123 after the marketplace shut down. The potential future break-up of a new marketplace which has recently emerged with the same name and appearance could bring further instability to the currency.

An estimated $1.2 billion in bitcoin flowed through Silk Road. The FBI reportedly seized $28 million of the digital currency in the bust. Silk Road founder Ross William Ulbricht, 29, was arrested Oct. 1 in San Francisco on several charges of conspiracy.

Comments (12)

 

Nathan Palmer 27.11.2013 19:17

Malick Mbaye 19.11.2013 11:11

I suspect Bitcoins to have been a Setup from the very beginning! They always wanted to introduce a virtual currency anyway!!! People have to be careful when the US govt approve something that has the potential to endanger the very essence of their Controlling tool i.e Central Banking System!

  


That's quite a bit different because btc aren't managed by the banks or government. They can't just "hijack" it, it doesn't work like that. It runs by a specific algorithm and is p2p, they can't just centralize it. They would have to change everything about it to do so.

 

Marc Letourneau 19.11.2013 14:31

Normally, the Fed should oppose Bitcoin because it will remove the control and the money making from the shadow bankers behind the Federal Reserve.
Theory: The Fed had worked a way to infiltrate Bitcoin system to destroy it from the inside somehow. Two tests succeeded: two Bitcoin sites have been hacked, one in Australia and one in China, and millions of Bitcoin disappeared. We got apologies from the first one and China man disappeared possible to avoid being killed by the Chinese mob. Coincidentally, just after, the fed announced Bitcoin is legit. They will set Bitcoin up for a big heist killing two birds one shot.

 

KbXJT41 19.11.2013 12:41

Abu Sufian 19.11.2013 10:59

It will be used to track & controll citizens daily transaction / activities. They can block you whenever they want.

  


Sp oken like someone who really hasn't got a clue about the technical underpinnings. You need to catch up on your math homework.

View all comments (12)
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