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Bitcoin takes a step toward more legitimacy as virtual currency (video)

First Published      Last Updated Nov 19 2013 12:01 pm

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The virtual currency bitcoin took a big step toward the mainstream Monday as federal authorities signaled their willingness to accept it as a legitimate payment alternative.

A number of federal officials told a Senate hearing 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.

"There are plenty of opportunities for digital currencies to operate within existing laws and regulations," said Edward Lowery, a special agent with the Secret Service.

Signs that the government would not stand in the way of bitcoin's development, even as it has been cracking down on criminal networks that use the digital money, stoked a strong rally in the price of the crypto-currency.

The Senate hearing Monday was the clearest indication yet of the government's desire to grapple with the consequences of this growth, and the recognition that bitcoin and other similar networks could become more lasting and significant parts of the financial landscape.

"The decision to bring virtual currency within the scope of our regulatory framework should be viewed by those who respect and obey the basic rule of law as a positive development for this sector," said Jennifer Shasky Calvery, director of the Treasury Department's Financial Crimes Enforcement Network.

Shasky Calvery and the other officials at the hearing did say that basic questions still had to be answered about virtual currencies, including whether they can be considered currencies or whether they are more properly categorized as commodities or securities.

The increasingly widespread ownership of bitcoin has shifted attention away from the criminal enterprises that have used digital money, but it was a focus at the Senate hearing.

Last month, the online marketplace Silk Road, where bitcoin was the primary form of payment, was shut down and its founder arrested after authorities accused it of being used to buy and sell drugs and weapons.

It can be harder to track criminals who use bitcoin, law enforcement officials said at the hearing, because they operate across international borders and often do not use established financial institutions that report transactions.

But Mythili Raman, an assistant attorney general at the Justice Department, said that because every bitcoin transaction was recorded on a public ledger, it was possible for investigators to trace the movement of money between accounts.

"It is not in fact anonymous. It is not immune from investigation," Raman said.