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Bitcoin's US buzz stokes fears in Washington

Slipping through the fingers of central banks and regulators, Bitcoins are pouring into Americans' virtual wallets. The Fed chairman and US Senate are paying attention. So, too, are beer drinkers in New York.

When Richard Weston meets customers in a Washington, D.C. café and asks "Do you have a wallet?," he means the virtual kind. He is a "Bitcoiner" - part of a growing community of fans of the Internet currency. Bitcoin is on a steady, forward march in the US, and whoever buys Bitcoins needs an accompanying online piggy bank. Personally, Weston prefers the website Blockchain.info.

Weston also chairs the group of Bitcoiners in the American capital. Its 40 members have embraced the mathematical creation developed by the pseudonymous "Satoshi Nakamoto" in Japan in 2009. The virtual currency is based on a system whereby two parties, with the click of a mouse, can seamlessly transact funds back and forth - without fees, regulations or third-party controls.

"There's this digital signature, the cryptography - the whole idea of this decentralized peer-to-peer network," Weston told DW. "There is no central control of the Bitcoin protocol."

The Bitcoin virtual currency market is limited to 21 million coins. The network's algorithm doesn't allow for more. The number of Bitcoin enthusiasts, however, is rising.

"When the price starts to get high, I see a lot of speculators come in - people who are trying to make a quick buck," he said. Others, he says, see the virtual currency as something a savings account, while some view the coins as a collector's item akin to physical coins or postage stamps.

A booming market

The value of the currency has increased exponentially over the past years. Those who hopped on the Bitcoin bandwagon early enough have made a pretty penny, Weston says. Most coins are moving fluidly in private business transactions, with the number of businesses accepting them rising continually.

In California, Virgin Galactic is now offering earthlings a trip to space in exchange for the virtual currency. Municipal employees in Vicco, Kentucky, can opt to receive their paycheck in the form of Bitcoins; the city's police chief has already done so. In a New York bar, a beer can also be paid for virtually.

"It's very easy," says the bar's owner, Alex Likhtenstein. On his iPad, he clicks Bitcoin's "checkout" feature and tallies up his customers' tabs - all without a credit card. The virtual receipt shows the sum in dollars converted into Bitcoins. The payment arrives in dollar form in the account of the bar owner. "Send payment, and we're done," he says.

No risk, no reward

As harmless as it all sounds, the Bitcoin business is anything but, say experts such as Alexander Privitera, who directs the business and economics program at the American Institute for Contemporary German Studies at Johns Hopkins University. "The problem is that since the interest for bitcoins has increased over the past few months dramatically, the price for Bitcoins - since this is a fixed amount of Bitcoins that are in circulation - has risen dramatically," he told DW.

The currency has proven to be less stable than its fans will typically attest to. Bitcoins regularly peak and plummet. The first bubble burst in 2011, falling from $30 to $2 (22 to 1.5 euros). At the beginning of December 2013, a single Bitcoin was worth $1,200. When that bubble burst a few days later, it cut the currency's value in half.

"We're dealing with an anonymous currency on an online platform that theoretically doesn't leave any trace, and you're trying to tap into these Bitcoins," Privitera said. "But you're not calling Ben Bernanke and trying to extract from him any kind of monetary easing. There is nobody to call."

Dollar's replacement?

US Federal Reserve Chairman Ben Bernanke recently gave the Internet currency his restrained blessing. The Fed doesn't have the authority to get involved in the issue, he said. The fact that the chairman of the Federal Reserve even spoke on the issue was enough to give the Bitcoin business a boost, insiders say.

Others, like former US Congressman Ron Paul, warn of Bitcoins' growing influence. "When the dollar is in trouble, that will be one of the alternatives, and the more Bitcoins are used, the worse it will be for the dollar."

Those worries have been shared by other US politicians during hearings in Congress. While no one spoke of banning or regulating Bitcoins, Democratic Senator Tom Carper voiced fears that records of bitcoin transfers would be tracked and stored digitally. A second issue also bothered him: "Virtual currencies can be an effective tool for those looking to launder money, traffic illegal drugs, and even further the exploitation of children around the world," he said during a Senate hearing on the issue in late November.

Bitcoin fan Richard Weston says that similar concerns have almost always accompanied the rise of a new technologies as they disrupt established markets. "One of the first groups of bad guys to get a hold of automobiles were bankrobbers, because they could outrun the cops that were riding horses. Should we ban automobiles?" he asked.

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