Britain eyes Bitcoin, rivals, with virtual currency rules

Britain took its first steps yesterday towards regulating the rapidly expanding use of virtual currencies, launching a study to look at the opportunities and risks presented by digital currency bitcoin and its rivals.

The announcement came in a package of measures unveiled by finance minister George Osborne aimed at boosting financial innovation in London to help fend off challengers to the city's status as the world's leading financial centre.

Unlike conventional money, virtual currencies are not backed by a central bank or government, but have become increasingly used as a means of online exchange with some bricks-and-mortar vendors also accepting them as payment for goods and services.

"The government will look at the potential virtual and digital currencies have for achieving positive change and for encouraging innovation in our world leading financial sector, as well as the potential risks," said a finance ministry statement.

The government said it would begin researching how such currencies could, or should, be regulated in Britain. So far there has been no coordinated global approach to regulating virtual currencies and no country has given them legal status.

Bitcoin, the best known of the 200 or so computer-generated currencies, has come under particular scrutiny since Tokyo-based exchange Mt Gox went bankrupt in February after losing an estimated US$650 million worth of customer bitcoins.