The virtual currency, bitcoin, took a big step toward the mainstream on Monday as federal authorities signalled 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, which is tasked with protecting the integrity of the dollar.

Value soars to $700

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. By Monday evening, the value of a bitcoin unit soared past $700 on some exchanges. The total outstanding pool of bitcoin, which is created by a network of users who solve complex mathematical problems, is now worth more than $7 billion.

The Senate hearing on Monday was the clearest indication yet of the governments 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 Departments Financial Crimes Enforcement Network. It recognises the innovation virtual currencies provide, and the benefits they might offer.

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 actually be considered currencies or whether they are more properly categorised as commodities or securities. Shasky Calvery said the Internal Revenue Service was actively working on its own rules for bitcoin.

Bitcoin has experienced a remarkable ascent since it was created in 2009 by an anonymous programmer or collective known as Satoshi Nakamoto.

The money, which is not tied to any national currency, has been popular with technophiles who are sceptical of the world’s central banks. Only a finite amount of bitcoin will ever be created 21 million units.

Users have bid up the price on Internet exchanges, betting that the currency will be more widely used in the future. — New York Times News Service