Bitcoin hits record high, attracts attention of US lawmakers

Bitcoin was thought to be dead and dying after a series of attacks to the Tor network, and the shutdown of the site “Silk Road” a site where users could purchase anything illicit from drugs to fake passports.  But since then Bitcoin has surged to record highs, attracting the attention of the US Senate which has scheduled a hearing for Nov. 18th.

From Bloomberg:

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Bitcoin’s price climbed to a record at $330.01 on the BitStamp online exchange, as U.S. senators scheduled a hearing to discuss the future of the digital money and other virtual currencies.

The U.S. Senate Committee on Homeland Security and Governmental Affairs will meet on Nov. 18 “to explore potential promises and risks related to virtual currency for the federal government and society at large,” it said in a statement today.

Bitcoin is the interesting experiment in alternative currencies.  Given that there has been discussion about potential alternatives to the US Dollar as a global reserve currency, the rise and attention of Bitcoin has interesting timing.  Could a virtual currency such as Bitcoin, not backed by a country’s central bank, compete with major currencies for trade?  Because of the design of Bitcoin being encrypted and thus anonymous, it attracted use by criminals.  This was unfortunate for the currency, as people associate Bitcoin with Silk Road and other criminal activities.  Bitcoin had many legitimate, legal users who used Bitcoin simply as an alternative to the banking system for the sale and purchase of legitimate, legal goods and services.

Central Banks are watching the development of Bitcoin closely.

 Especially, now that even the Fed is looking at BitCoin when a few days ago the Chicago Fed issued ‘Bitcoin: A primer” in which the Fed states quite simply:

 So far, the uses of bitcoin as a medium of exchange appear limited, particularly if one excludes illegal activities. It has been used as a means to transfer funds outside of traditional and regulated channels and, presumably, as a speculative investment opportunity. People bet on bitcoin because it may develop into a full-fledged currency. Some of bitcoin’s features make it less convenient than existing currencies and payment systems, particularly for those who have no strong desire to avoid them in the first place. Nor does it truly embody what Hayek and others in the “Austrian School of Economics” proposed. Should bitcoin become widely accepted, it is unlikely that it will remain free of government intervention, if only because the governance of the bitcoin code and network is opaque and vulnerable.

Finally, while the Fed may be late to the game, the ECB has already made its feelings on BitCoin well-known long ago: recall from over a year ago: “The ECB Explains What A Ponzi Scheme Is; Awkward Silence Follows [10]” in which the European central banks didn’t mince its words: BitCoin is nothing but a ponzi scheme to the central bank tasked with preserving the viability of an entire insolvent continent, and a a currency which unlike BitCoin would never survive absent regulatory intervention.

So while the electronic currency is soaring exponentially as it goes through its appreciation golden age, will the one thing that can finally end the dream of BitCoin holders arrive soon: when the government, and existing monetary authorities, start taking it seriously.

Chicago Fed – Bitcoin A Primer.pdf

 

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