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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.

Source: RT.com