Feds give thumbs up to bitcoin

Virtual currencies like bitcoin have legitimate uses and should not be banned, federal law enforcement officials told a Senate panel Monday.

While the officials warned that virtual currencies are popular with drug dealers and child pornographers, they said existing laws should be sufficient to stop criminal activity.

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Jennifer Shasky Calvery, the director of the Treasury Department's Financial Crimes Enforcement Network, said the first reaction of law enforcement to new technologies or financial tools is often to worry about how criminals might abuse them.

"But it's also important that we step back and recognize that innovation is a very important part of our economy," she testified before the Senate Homeland Security and Government Affairs Committee.

Bitcoins exist only online, and owners of the currency are mostly anonymous. There is no central bank managing or backing bitcoins, and owners can trade the digital currency on a variety of exchanges or privately.

The value of the bitcoin has fluctuated widely since they were introduced four years ago, but the currency surged in recent weeks on hopes that it could become an alternative to the dollar.

Mythili Raman, the head of the Justice Department's Criminal Division, said virtual currencies could be a "cheap, efficient and convenient" way to transfer money. But she also warned that because the transactions are generally anonymous and irrevocable, they are also appealing to criminals.

"I think it is our duty as law enforcement to stay vigilant about the criminal misuse of those virtual currency systems, while recognizing that there are of course many legitimate users of those services," she said.

Shasky Calvery said law enforcement agencies could address misuse of bitcoin within the existing laws and regulatory frameworks.

"Cash is probably still the best medium for laundering money," she said.

Edward Lowery, the special agent in charge of the Secret Service's Criminal Investigative Division, said that if Congress wants to combat criminals using digital currencies, it should provide more funding so agencies could hire technologically savvy investigators.

The hearing followed a law enforcement crackdown last month on Silk Road, a popular website where anonymous users traded bitcoins for illegal goods.

The FBI shut down the site and charged its alleged operator, Ross Ulbricht, with drug trafficking, computer hacking and attempting a murder-for-hire.

The site processed about $1.2 billion in bitcoin transactions before it was shutdown, according to the FBI. A replacement site, "Silk Road 2.0," has already emerged.

“Virtual currencies, perhaps most notably bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of many of us," said Sen. Tom Carper (D-Del.), the chairman of the committee.

Carper said Congress and federal officials should keep a close watch on virtual currencies. But he also said that when the Internet and email were new, people worried about how they could help criminals.

“Whether or not virtual currencies prove to be a boom or a bust, I think it’s clear that some folks just want a chance to try and play by the rules," he said.

"That’s difficult to do if the rules or proper authorities aren’t clear or if the future is uncertain. It’s also difficult if a large number of bad apples are allowed to spoil the bunch.”