Bitcoin breaks through $1,000 for the first time and surges 7,600% this year

Bitcoin continued its rally on Wednesday (November 28) and successfully broke through $1,000, the first time the virtual currency has broken through the $1,000 mark since its creation. So far this year, Bitcoin has risen by more than 7,600%.

Many analysts and investors have labeled Bitcoin's wild rise a bubble, but growing awareness of Bitcoin as a digital currency and a U.S. Senate hearing last week have paved the way for a big rally.

The U.S. Senate held a hearing on the virtual currency on November 18, and the authorities hinted that they are willing to accept Bitcoin as a legal means of payment. The result eased concerns that the U.S. government might take measures to prevent people from using Bitcoin. A major obstacle to the use of Bitcoin was thus removed.

“What we are seeing is governments publicly stating that they are aware of the role of Bitcoin in the financial system and that they are considering how to regulate the virtual currency, which is undoubtedly good news for the currency,” Zennon Kapron, general manager of KapronAsiam, told CNBC.

Federal Reserve Chairman Ben Bernanke has also expressed support for Bitcoin. In an open letter to the Senate (before the Senate hearing), Bernanke's views are similar to those expressed by former Fed Vice Chairman Alan Blinder at a House hearing in 1995 on digital currencies.

“Brand’s policy at the time made the key point that while these types of innovations may carry risks related to enforcement and regulatory issues, there are areas where they can offer long-term promise, particularly if they can promote a faster, more secure, and more efficient payment system,” Bernanke wrote in the letter.

Much of the recent surge in demand for bitcoin has come from China, where the outcome of a U.S. Senate hearing raised hopes that China might scrap strict measures regulating its digital currency.

Bitcoin is a kind of online virtual currency, which is mainly based on a set of cryptographic codes and generated through complex algorithms. Anyone can download and run the Bitcoin client to participate in the production of Bitcoin. This process is also vividly called "mining."

The operating mechanism of Bitcoin is different from that of traditional currencies. Since it does not rely on a specific central issuing agency, decentralization has become a typical feature of Bitcoin. No person, organization, or government can manipulate the total amount of Bitcoin currency, and therefore cannot create inflation. Since it was "invented" in 2009, its total amount of currency has been gradually increasing at a predetermined rate, but the currency system has only produced no more than 10.5 million in the past four years. This growth rate is gradually slowing down and will eventually reach the issuance limit of 21 million in 2014. The issuance mechanism of Bitcoin determines that the more people produce it, the more difficult it is to produce.

In fact, Bitcoin is not the only virtual currency on the Internet. For example, Tencent's Q coins and other virtual game coins are used. However, the difference between Bitcoin and other virtual currencies is that it does not need to be issued by anyone, and the total amount is fixed. In addition, Bitcoin can also be used in the real world. Statistics show that there are currently 7,500 merchants and restaurants around the world that accept Bitcoin. Especially in Europe and the United States, Bitcoin is relatively well accepted.