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BRUSSELS (Reuters) - Europe should update its laws to reflect the rise of digital currencies, the head of a bitcoin start-up said, after a successful U.S. auction of bitcoins was seen as a sign of their broadening appeal.
The virtual currency has come under the scrutiny of regulators in both the United States and Europe following a series of high-profile scandals such as the bankruptcy of Tokyo-based bitcoin exchange Mt. Gox.
But authorities such as the U.S. Securities and Exchange Commission have not yet taken a uniform approach to regulating the nascent digital currency, and have limited themselves to issuing warnings about its risks for investors.
"One of the challenges is that without clear guidance from the EU, from the UK, it will limit industry development," said Jeremy Allaire, head of Circle, a bitcoin consumer finance company that allows people to use and store bitcoins online.
"Unless they have a clear view of where does this (bitcoin) fit, how do we know what the rules are?" he said in an interview with Reuters.
Launched in 2009, bitcoin offers a way for people to conduct transactions over the Internet. Its backers say its anonymity - users do not need to reveal any card or financial details when making payments - protects people from fraud. Critics say this also makes it easier to commit crimes like buying illegal drugs online.
Last October U.S. authorities seized 144,000 bitcoins online in a raid on Silk Road, an Internet black-market bazaar that authorities said had been used for illegal drug transactions. Some of those bitcoins were auctioned off last week.
Allaire said bitcoins could be regulated in the same way as other payment services such as PayPal, with strict consumer protection safeguards so people would feel safer using them.
The EU's law regulating payment services should be updated to reflect the use of bitcoins, he added.
Bitcoin supporters maintain that digital currencies are set to expand further and that as they become more mainstream the price volatility and scams that have so far bedevilled them will decrease.
In June online travel agency Expedia began accepting bitcoins as a form of payment.
"As bigger exchanges get built and you see it move from retail and speculative investors to more traditional institutional investors ... you'll see greater price stability," said Allaire.
Last week's auction of almost 30,000 bitcoins by the U.S. law enforcement authorities attracted bids from several high-profile investors, such as U.S. investment firm Pantera Capital.
The auction was won by one bidder, Silicon Valley investor Tim Draper, who called it a vote of confidence by the U.S. government in the nascent crypto-currency.
Allaire said authorities on both sides of the Atlantic were starting to come to terms with the rise of digital currency after initially shunning it.
"A number of these regulatory bodies have started to analyse it and look at the risks," he said. "Most scratched their heads at the beginning and said 'do I need to care about this? I just want it to go away.'"
Editing by Mark Trevelyan