Virtual money Bitcoin hits $265 on Bitstamp online exchange

Bitcoin's price hit a record at $265 on the BitStamp online exchange, as the virtual currency gained more traction.

The digital money, which can be used to pay for goods and services on the internet, had shot 20-fold its value so far this year, with increasing trading activity.

Bitcoins traded at $251.36 apiece at 6:30 pm in New York on BitStamp, one of the more active web-based exchanges where Bitcoins trade for dollars, euros and other currencies.

The rally comes a month the ''Silk Road Hidden Website,'' where people could get drugs, guns and other illicit goods using Bitcoins was forced shut (See: FBI shuts down illegal drug site Silk Road ).

The site closure resulted in the currency losing a third of its value in the days after the website was shut down (See: Bitcoin owners furious at FBI's freeze on Silk Road).

Bloomberg quoted Ugo Egbunike, director of the business development at IndexUniverse, an index –fund researcher, as saying Bitcoins were gaining increasing popularity, particularly in China.

The virtual currency is basically software that's designed to be untraceable, which is particularly appealing to those seeking to trade anonymously via the web.

According to a report by the Federal Reserve Bank of Chicago, about 30 transactions per minute were taking place, at an average amount of 16 Bitcoins.

Since its introduction in 2008 by a programmer or group of programmers going under the name of Satoshi Nakamoto, Bitcoins are increasingly being used to pay for just about everything on the internet, with almost 12 million Bitcoins in circulation, reveals Bitcoincharts, a website that tracks the digital money's activity.

Meanwhile, a four-month-old Australian Bitcoin bank holding over $1 million has been hacked, which has left thousands of customers high and dry.

The alleged hacking which happened on 23 and 26 October, cleaning out all the 4100 Bitcoins held by the operator of the service known only as ''Tradefortress.''

According to Tradefortress, hackers stole all 4100 Bitcoins held by the wallet service, or $1.3 million at the time of writing. The operator said that it was only in this week that he decided to notify customers.

According to  commentators, the incident again raised questions as to whether Bitcoin was indeed a viable, stable and secure currency.

Tradefortress, a young Sydney man who told ABC News he was just over 18, would however not reveal his name to the newspaper.

Tradefortress offered the wallet service through a website called Inputs.io.

According to the news channel, the owner of the Inputs.io domain name, "Tradefortress", had been traced back to a block of flats at Hornsby in New South Wales using domain registration records.