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Bitcoin goes mainstream as US indicates support

Value of virtual currency bitcoin skyrockets

Value of the world's most recognised virtual currency quadrupled over the past 30 days

The bitcoin bulls went on the charge last week, sending the price for one unit of the virtual currency towards the US$1,000 landmark after American lawmakers showed a willingness to lend legitimacy to digital cash.

A US Senate hearing put bitcoin firmly in the mainstream and triggered fresh support from countries that tend to fall in line with America's financial regulatory regime.

In the past 30 days, the price of a single bitcoin has quadrupled, with Chinese speculators among the most enthusiastic buyers.

The question now is whether bitcoin can fulfil the goal it was conceived for: a fast, cheap online payment method.

The fear for many is that the rapid growth and extreme price volatility that has put bitcoin in the headlines could make it completely unsuited to its original purpose.

Bitcoin had its beginnings in 2009, when an individual or group going under the pseudonym Satoshi Nakamoto published a paper laying out the idea.

The concept is simple: bitcoin is a way of sending money electronically in an instant at low cost. It eliminates the need to funnel money through third parties such as banks or card payment processors. And it is not regulated by a central bank.

People can either buy coins through a locally denominated online exchange or "mine" them by using high-performance computers.

Authorities, however, are concerned that anonymous transactions conducted online are providing an avenue for illicit and criminal activities.

But advocates of bitcoin say it offers many advantages: for example, it could be a way to provide bank accounts for the millions who lack them.

Critically, bitcoin is gradually being accepted as a form of payment for everyday items such as coffee and beer.

"As acceptance grows, that acceptance will help narrow in on what should be the proper valuation," said Zennon Kapron, from Shanghai advisory firm Kapronasia.

Only 21 million bitcoins will ever enter circulation, although each bitcoin is denominated into eight pieces.

By yesterday, one bitcoin was bringing in US$867 on the biggest international exchange, Japan's Mt Gorex.

The virtual currency has survived a series of blows, not least when US authorities closed the bitcoin-only website Silk Road - an underground community offering everything from pornography to assassination.

Yi Gang, the deputy governor of the People's Bank of China, said that it would be impossible for China's central bank to recognise the bitcoin as a legitimate financial instrument in the near future. But, Yi added, people are free to participate in the bitcoin market and he would personally adopt a long-term perspective on the currency, according to

Germany has agreed to recognise bitcoin as a "unit of account", while Cypriot investors have piled into the currency.

This article appeared in the South China Morning Post print edition as: Bitcoin goes mainstream as US indicates support
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