Don’t rule out a ban on virtual currencies: Peercoin

Peercoin

A ban on the use of cryptocurrencies in the U.S. and China cannot be ruled out, although China's latest ruling is an acknowledgement of the growing use of digital currencies, the founder of virtual currency peercoin told CNBC on Friday.

China on Thursday banned financial institutions from trading bitcoins – a move that sent the value of the most widely used digital currency tumbling.

(Read more: Bitcoin crashes 20% on China clampdown fears)

"I wouldn't eliminate possibilities that they [China's authorities] issue a ban on cryptocurrencies, nor the USA," said Sunny King, architect of peercoin, a rival of bitcoin and just one of a number of digital currencies that have gained in popularity in recent years. "These things are always possible, even if you don't think it's likely."

"It seems China is fairly quick to take note of the recent bitcoin craze," he added. "We are trying to improve our user base in China, right now I think our main market is the English speaking world."

At a U.S. Senate hearing on virtual currencies last month, lawmakers signaled a willingness to accept bitcoin as a legitimate payment alternative. The outcome allayed concerns that the government would take steps that could undercut the mainstream adoption of digital currencies. This in turn helped fuel a rally in bitcoin.

(Read more: Bitcoin breaks $1,000 barrier for first time)

"I am fine with the risks, I mean sure it would be nice that it goes to legal status smoothly but regardless, I think the movement would survive and thrive on its own," King said, talking about regulation of digital currencies.

The design of peercoin began in October 2011 and the cryptocurrency was released in August 2012, King said.

It is ranked the number three cryptocurrency by coinmarkecap.com and has a market value of about $100 million.

Peercoin was trading at $5.049 on the BTC-e exchange on Friday, while bitcoin was at $972.98 and number two ranked virtual currency litecoin was valued at $34.227

King said the growth in peercoin had exceeded his expectations.

"I think it's a step by step process, you get acknowledged as a store-of-value first and then as a medium of exchange, lastly as a unit of account," he added.

(Read more: BofA: Bitcoin can become 'major means of payment' for e-commerce)

In another sign of the growing interest in digital currencies, Bank of America Merrill Lynch on Thursday issued a research note on bitcoin.

—By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter @DharaCNBC