This week, the Oxford Dictionaries chose “selfie” as the word of the year. It beat out a number of other relatively new Internet and social-media related terms, including “bitcoin.” 

In an interesting coincidence, US law-enforcement and regulatory authorities appeared earlier this week at the first-ever congressional hearing on virtual currencies. The focus of the hearing was on “bitcoin,” the peer-to-peer digital currency introduced in 2008. Bitcoin is not backed by any central bank and can be traded on a number of exchanges, swapped in private transactions or used to buy a variety of consumer goods. There are approximately 12 million bitcoins in circulation today. Approximately US$8 billion in bitcoin transactions took place in the 12-month period ending in October 2013. 

Following the positive remarks of some US officials in the wake of the hearing, the price of Bitcoin topped US$700 on the Tokyo-based virtual Mt. Gox exchange. Bitcoin traded at about US $13 in January.

A senior representative of the Department of Justice stated at the hearing that virtual currency systems “offer legitimate financial services and have the potential to promote more efficient global commerce.” Outgoing Federal Reserve Chairman Ben Bernanke, who did not attend the Senate hearing, stated in a letter to the hearing that virtual currencies “may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system.”

But what is bitcoin? Who can and should regulate virtual currencies? And how should they be regulated? There is no doubt that innovation always outpaces regulation. Therefore, US regulators need to scramble to understand the legitimate and potentially illicit uses of virtual currencies. For example, one of the appealing aspects of virtual currencies is that transaction costs are generally lower than those of credit or debit cards. However the anonymity of virtual currencies may appeal to criminals and poses a challenge for US law enforcement authorities.

In a letter to the Senate hearing, SEC Chairman Mary Jo White said that bitcoin likely would be a security and should be regulated as such. That may not be so clear, however. Traditional currencies are not regulated as securities. Moreover, virtual currencies don’t belong to any nation or central bank and few, if any, countries have attempted to develop or apply law or regulation to digital money. In a NYTimes.com article on Tuesday, reporter Quentin Hardy quotes an ex-pat American user of bitcoin: “It [Bitcoin] opened my eyes to the fact that the US isn’t as influential as I thought. Bitcoin is a currency, a commodity and an accountancy built by developers that is completely decentralized. It’s fundamentally better.”

Some commentators fear that if the US attempts to regulate virtual currencies, it will push businesses outside the country to jurisdictions with little to no regulation. A senior representative of FinCEN, however, apparently disagreed. She said that as virtual currency evolves, regulation in the US and abroad will catch up because it will have to. The goal will be to mitigate anti-money laundering risks and risks of illicit activity while minimizing burdens, she added.

It is no wonder that “selfie” is the “word of the year” for 2013. Everybody knows what a selfie is. But just wait ’til next year. “Bitcoin” may just be the word of the year for 2014.