US regulators said that bitcoins are legitimate financial instruments. In a letter released before tomorrow's scheduled hearing, the Department of Justice and the Securities and Exchange Commission told the US Senate Committee on Homeland Security and Governmental Affairs that the digital currency has benefits and risks similar to that of any online payment system.
In the letter, Principal Deputy Assistant Attorney General Peter Kadzik wrote, "The FBI's approach to virtual currencies is guided by a recognition that online payment systems, both centralized and decentralized, offer legitimate financial services. Like any financial service, virtual currency system of either type can be exploited by malicious actors, but centralized and decentralized online payment systems can vary significantly in the types and degrees of illicit financial risk they pose."
The US Senate committee had arranged for the hearing to look at the promises and risks offered by virtual money to the federal government and the society. In October, the Silk Road hidden website was closed by federal authorities. The online marketplace allowed buyers and sellers to use bitcoins to purchase and obtain drugs, guns and other illicit items. The closure of the website led speculators to bet that digital money will be more accepted in the mainstream, fueling a rally in bitcoins.
Bitcoins were introduced by a person or a group of persons using the name of Satoshi Nakamoto in 2008. It is now used to buy for products on the Internet. Bitcoincharts, a website that monitors the activity of the digital currency in different exchanges, estimates that there nearly 12 million bitcoins being circulated.
According to Jerry Brito, a senior research fellow at George Mason University's Mercatus Center, "Two years ago it was alarm when Silk Road first came on the scene. Since then, Congress has been educating itself and understands that there are great potential benefits, and like any new technology there are going to be some challenges. But they see there is a balance to be struck here and they are generally positive on the technology." Brito is also testifying on tomorrow's Senate committee hearing.
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