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Bitcoin bickering: How much regulation?

Battling for bitcoin
Battling for bitcoin

Within the bitcoin uprising, there is a battle for the hearts of the early bitcoin adopters.

On the one side, there are bitcoin entrepreneurs like Barry Silbert. He is the founder of Bitcoin Investment Trust, a kind of bitcoin mutual fund for high-net-worth investors. He believes regulation will help to accelerate the adoption of bitcoin.

On the other side there are bitcoin investors like Mike Robinson, who believe government intervention of any kind poses the biggest threat to bitcoin's future.

In the middle is the Bitcoin Foundation, an advocacy group which has the delicate task of balancing the desires of both parties of the bitcoin faithful.

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"Regulation gives some people a sense they are in a secure environment," said Jim Harper, global policy counsel for The Bitcoin Foundation. "But to others regulation signals the environment is unsafe."

Preventing an unsafe environment is what Benjamin Lawsky wants to do. The head of New York state's Department of Financial Services is exploring ways to regulate bitcoin. He believes in bitcoin's promise of cheaper, faster money transfers, but realizes the anonymity it provides could make it a safe haven for terrorists and money launderers.

Click here for the full documentary of "The Bitcoin Uprising"

"When it comes to virtual currencies, let's face it, regulators—all of us—are in new and somewhat uncharted waters," Lawksy said.

Bitcoin's mysterious creator never intended a government to get involved. The digital currency's programming code controls its supply, not a central bank.

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The program is self-regulating. Payments are tracked by a long string of digits or number assigned to each one. The transactions are verified and posted by an open-source ledger called a block chain.

Still, governments and regulators are taking notice.

China bans banks from dealing with it. Russia bans it outright. Here in the U.S. the approach has been cautious. The Federal Reserve said it has no authority to regulate it, while the CEO of JPMorgan Chase, Jamie Dimon, said bitcoin could never survive the regulation his bank is subject to.

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Harper shrugs off Dimon's comments and those of other naysayers.

"When people in positions of high authority, people who are—are very successful in the status quo question bitcoin that's actually a form of encouragement to the bitcoin community 'cause we see a different world in the future," Harper said.

—By CNBC's Mary Thompson.