Bitcoin
Bitcoin (virtual currency) coins are seen in an illustration photograph taken at La Maison du Bitcoin in ParisReuters

In yet another accusation on bitcoin, a UK internet watchdog has claimed that it found the popular digital currency is being used by paedophiles to buy explicit child sexual abuse images online.

The Internet Watch Foundation (IWF) said in its 2014 annual report that the "most prolific" commercial websites that sell child sexual abuse images started accepting bitcoins for payments in 2014.

Previously, such content was available only on hidden services on the Tor network, where bitcoin was largely used for payments in return for various illegal services.

"One area we look at in particular is the commerciality of child sexual abuse images and videos - people who want to buy and sell this type of content online," said Emma Hardy, the IWF's director of external relations.

"We noticed for the first time ever last year that cryptocurrency or bitcoin was being used."

"We need to ensure we engage with those who run bitcoin services but also other ordinary payment mechanisms, financial providers, to ensure we can help prevent them being abused by criminals," she added.

IWF said it was notified of some 37 websites that sold child sex abuse images for bitcoins between January and April 2014. The child sexual abuse websites accepting only bitcoins appeared as separate folders on legitimate websites which had been hacked and the URLs were being distributed via spam emails, the watchdog said.

The foundation is working with several bitcoin exchanges to share intelligence and develop strategies for preventing the abuse of bitcoin by distributors of child sexual abuse material online.

The report comes as bitcoin and other cryptocurrencies are facing severe criticism over their use to pay for illegal goods and services. Critics said digital currencies would help terrorists, money launders and illegal drug dealers as a payment method and funding option.

Digital currencies such as bitcoin are not regulated as other fiat currencies and are transferred over a peer-to-peer network without the help of intermediary. While they reduce or eliminate the cost of transaction, their movement is difficult to trace. Therefore, criminals are extensively making use of its "benefits", creating a headache for governments.