The value of the virtual currency has been rapidly rising since a US Senate committee hearing earlier in November which described it as a “legitimate financial service”.
Bitcoin has become popular in part due to it being difficult to trace transactions. To process Bitcoin transactions, a procedure called "mining" must take place, which involves a computer solving a difficult mathematical problem with a 64-digit solution. For each problem solved, one block of bitcoins is processed. In addition the miner is rewarded with new bitcoins. There are currently about 11 million bitcoins in existence.
Enthusiasts of the currency say it is a highly efficient way of handling global money transfers. "For Bitcoin to go from zero to $1,000 in just five years has been amazing to watch," said Mike Hearn, a Bitcoin developer and Google engineer. "It's easy to forget that Bitcoin's true value is not in an arbitrary exchange rate, but in its ability to enable new applications and services which aren't possible with today's payment networks."