Bernanke smiles on Bitcoin, sends value rocketing

US Senate committee has heard Bitcoins are a "legitimate financial service" sending the value shooting up.

The mighty Bitcoin has been derided as many things; a fad, massively unstable, a vehicle for criminal activity, the devil’s dinero – but now it looks like the mighty digital currency has finally had some recognition from the US Senate... and its value has gone through the roof.

A Senate hearing was held last night and saw a smorgasbord of experts, including Federal Reserve chairman Ben Bernanke, giving their opinions on the currency – which were mostly cautious but positive.

The value of Bitcoin shot up to $785 after the meeting, a $200 rise from earlier that day.

"While these types of innovations may pose risks related to law enforcement and supervisory matters, there are also areas in which they may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system," said Bernanke.

A guarded statement but a blessing all the same – admission Bitcoin could offer a more efficient system is a big step for the currency, reflected in the rocketing price.

The hearing was called following the closure of Silk Road, an online black marketplace used largely for drugs, which was one of the earliest adopters of the Bitcoin currency and a name synonymous with its use. Many have said the closure of the "Amazon for drugs" site has helped to legitimise Bitcoin among its former nemeses.

"Two years ago there was alarm when Silk Road first came on the scene," Jerry Brito, senior research fellow at George Mason University told Bloomberg.

"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."

Bitcoin was created in 2008 by an anonymous developer who goes by the pseudonym Satoshi Nakamoto. The currency is decentralised and therefore can’t be controlled by any government – it’s created, controlled and traded by Bitcoin users rather than a central bank.

Its anonymous nature led to the early adoption for criminal purposes but its has quickly proved its benefits go far beyond being able to sell a bit of cocaine in relative obscurity. ‘Bitcoin can facilitate private and anonymous transactions, which are resistant to oversight and control,’ said Patrick Murck, general counsel for lobby group Bitcoin Foundation.

‘This by no means implies that using Bitcoin can or should provide anyone immunity from the law. Though it has sometimes been portrayed as such in careless media stories, Bitcoin is not a magic cloaking device that allows criminal actors free reign.

‘It does offer enhanced privacy protections, however, which is the just desert of hundreds of millions of law-abiding Americans and billions of law-abiding people worldwide.’

Bitcoin has plenty of high profile fans, most notably the "Facebook twins", Cameron and Tyler Winklevoss. The pair claim to own 1% of all Bitcoins (there are an estimated 12 million at the moment, with a fixed limit of 21 million – there’s no quantitative easing with this currency) and have defended it numerous times.

The twins have planned to set up the first investment scheme for Bitcoins, but last we heard of the Winklevii and their Bitcoin love affair someone had beaten them to it – not Zuckerberg this time but SecondMarket, an American online marketplace. They do say history repeats itself.

This story originally appeared on Management Today.