Bitcoin should not be \'killed in the cradle\', US Senator Tom Carper urges. Reuters

Bitcoin and other crypto-currencies should not be 'killed in the cradle' and have the potential to help internet and national trade, a US senator has urged.

Sen. Tom Carper, chairman of the Homeland Security and Governmental Affairs Committee, said the IRS (International Revenue Service) and FBI have assured him that they can police illicit uses of bitcoin and other virtual currencies, such as money laundering and online drug dealing.

Speaking to CNBC, Carper likened virtual currencies to the beginning of the internet, when the "early message on the internet was let's not kill the baby in the cradle."

Carper added: "We know there's some bad stuff that can happen through the use of virtual currencies like bitcoin, but we also know that some good things could happen. It can enhance transactions between buyers and sellers. It can actually help internet and national trade, and lower the cost of transactions."

The senator's comments come soon after the US Senate held a hearing on the use of bitcoin and other virtual currencies, which are decentralised and not regulated by any bank.

Talking about the hearing, Carper said: "The theme that emerged...was let's keep an eye on the bad stuff, tamp it down, find out what kind of legislation that we need in order to tamp it down, and that's what we're doing."

Although bitcoin can and has been used for purchasing illegal drugs, weapons and stolen credit card details online, it's widening use for legitimate transactions and soaring value has given it some credit.

Carper's approach to bitcoin is markedly different to that of China, which recently banned all financial institutions and services from dealing with it and other crypto-currencies, resulting in bitcoin exchanges based there losing contact with companies used to deal with their financial transactions.

During the same week as Carper's comments were broadcast, China's largest online shopping site, Taobao, announced it will ban the trading of bitcoin and sales of all related products such as computers used to mine the currency.