Not to be outdone from last week, Bitcoin value has continued its rise from $210 last week to exceeding $250 this week. Much of this is still speculated to be due to the introduction of China to Bitcoin exchange markets (and not without some convincing evidence.) Also this week–a new paper about how the protocol can be exploited comes out and media outlets jump on a “Bitcoin is broken” story. Hint: It’s not. Finally, the US Senate is set to hold hearings on the impact and use of virtual currencies–including Bitcoin–this could be the start of yet another round of regulatory questions.

China and Bitcoin: You’re going places, baby

Over the weekend, BTC China became the world’s No. 1 exchange for bitcoins by volume–over a 24 hour period 36,104 bitcoins transferred on BTC China to 24,913 bitcoins on MtGox. Until that date, MtGox and Bitstamp were head-to-head in the race for the most volume. No doubt, this means that the Chinese market has a strong position of interest.

Bobby Lee, CEO of BTC China, told CoinDesk: “It’s an honor to see that BTC China has been propelled ahead to number one in the worldwide rankings. The real credit goes to the people in China, for having recognized the importance and value of bitcoin.”

It’s not as important that BTC China found its way into the top position over the weekend, but that BTC China came onto the radar as recently as late October. Wired magazine ran a story then about how BTC China found its way into the top four exchanges in the world, showing that China’s untapped market is just beginning to wake up.

Questions still remain about how the Chinese government will end up viewing the use of bitcoins (with quiet regard at this point.) But, if part of China’s largest search engine Baidu accepting BTC for services is any indication there is a lot of fertile ground there.

New study: Bitcoin is not broken

Another month, another study of the Bitcoin protocol is circulating about how it could be attacked and quickly picked up alongside the claim that “Bitcoin is broken.” Long story short: Bitcoin is not broken.

The paper comes from Cornell University, written by researchers Ittay Eyal and Emin Gun Sirer, outlines an economic attack where a mining pool controlling 25% of the mining power could leverage a sort of economic blackmail to pile on more miners to reach 51% power and take control of the protocol that way.

Bitcoin Magazine wrote up an excellent breakdown of the attack (in detail) and why this sort of thing probably couldn’t fly:

Is this a fatal threat to Bitcoin? Not really. The idea behind the attack is not new; very similar attacks were theorized about on the Bitcoin forums as early as 2010, and lead Bitcoin developer Gavin Andresen himself participated in the discussion. However, at the time no action was taken – largely because everyone at the time considered the attack to be not worth worrying about compared to the other threats that Bitcoin has to face. In practice, most Bitcoin miners act altruistically to support the network, both out of ideological considerations and because they do not want to destabilize the source of their own revenue. Such higher-level economic concerns are beyond the scope of Eyal and Sirer’s paper, but they seriously reduce the chance that this economic attack will work in practice.

Bitcoin mining isn’t just about computers, it’s not just about a protocol that can be exploited: Bitcoin is powered by people.

In order to succeed in this sort of attack not only does a big-enough coalition of miners need to choose to go rogue, but that pool of people also needs to maintain enough cohesion and lack-of-integrity to keep it up. After that, enough  other miners need to make the same decision based on the blackmail. As pointed out in the quote above, the culture of the Bitcoin community just wouldn’t support this sort of behavior.

Sure, cheats will arise who may attempt to exploit the protocol, the people, and even the culture; but these are different problems than the technical attacks we’ve seen to date.

The United States Senate eyeballs Bitcoin

According to Senate aides, Bitcoin is about to come under scrutiny as part of two upcoming hearings about the role of digital currency in the US economy. The regulation of Bitcoin and other digital currencies has come up a few times, but rarely has it risen as high as the US Senate. It would be hard to ignore digital currencies and their impact on the economy and already there has been some media tussles over the potential criminal use of BTC, and then there’s the recent raid of Silk Road.

Add the attention of regulators in New York City to the pile and it would appear that bitcoins and virtual currencies have indeed hit the point where governments are starting to pay attention.

According to a post on the Wall Street Journal’s blog, one of the meetings will focus on Bitcoin. “The hearings will be held by the Senate Committee on Homeland Security and Government Affairs and by a subpart of the Senate Banking Committee, the aides said.”

The hearings have been called by Sens. Tom Carper (D., Del.) and Tom Coburn (R., Okla.) who are connected directly to the Homeland Security panel, and have asked numerous financial-industry regulators and law-enforcement agencies about their encounters with virtual currencies.

The WSJ cites a letter written by the senators sent to numerous segments of the government. “As with all emerging technologies, the federal government must make sure that potential threats and risks are dealt with swiftly; however, we must also ensure that rash or uninformed actions don’t stifle a potentially valuable technology.”