NEW YORK (MarketWatch) — Virtual currencies have gained traction in the five years since the first bitcoin was created, but it’s less clear if bitcoin itself will be the virtual currency of the future.

“The banking system has come to the realization that digital currency isn’t going away,” said Barry Silbert, chief executive of SecondMarket. His comments came during a panel discussion at the MarketWatch Investing Insights event “Bitcoin: Boom and Bust” late Tuesday in New York.

Read a recap of live updates from Bitcoin event.

SecondMarket’s Barry Silbert Bloomberg

But there is a chance that bitcoin could be replaced by a better second mover, just like Friendster was ousted by Facebook Inc. FB, -0.89% , said Todd Harrison, founder and chief executive of Minyanville Media.

The collapse of the bitcoin exchange Mt. Gox last week thrust the virtual currency back into the limelight. Tokyo-based Mt. Gox, once the main exchange for trading bitcoin, disclosed Friday it had lost about 750,000 of its customers’ bitcoins as it filed for bankruptcy in Japan.

The announcement came after it abruptly wiped its website clean of information and halted all trading earlier that week, raising questions about the security of investing in a virtual currency that isn’t regulated by governments.

That could change. SecondMarket, the platform known for letting investors trade shares of Facebook before it went public in 2012, is currently working on creating a U.S.-based bitcoin exchange with input from regulators. The company expanded into the bitcoin space last year when it launched a bitcoin investment vehicle for accredited investors.

Silbert said Tuesday that the SecondMarket board has approved a proposal to spin off its bitcoin business into a separate company, which will include the bitcoin exchange.

Don't trust Bitcoin? What about a digital dollar?

“We are officially moving forward with it,” he said.

Bitcoin is a decentralized virtual currency that has also been trumpeted as an alternative-payments system that’s faster, cheaper, and — until last month’s exchange problems — more secure.

Unlike the U.S. dollar DXY, +0.03% or British pound GBPUSD, +0.02% , the bitcoin network isn’t controlled by a central bank. Instead, bitcoins are created through a process called mining that pits computers against each other in a race to solve cryptographic problems. The winner, or group of winners, is awarded a block of bitcoins.

The original paper describing the bitcoin network was circulated on a cryptography mailing list in late 2008 under the pseudonym Satoshi Nakamoto, and the first block of bitcoin was mined in January 2009.

Mark Williams, who teaches finance at Boston University, said bitcoin’s qualities as virtual currency and payment system are intertwined.

Mark Williams, Boston University

“If you think about bitcoin the currency, it’s really a locomotive that sits on a track that is the payment system,” said Williams.

Bitcoin is seven times more risky than gold, he said, and its high volatility has been detracting from its potential as a payment system.

Bitcoin moved into the realm of water-cooler conversation last year as its price surged from about $13 in January 2013 to more than $1,000 in November.

Bitcoin-focused companies have attracted money from venture-capital firms, including Andreessen Horowitz, Accel Partners and Union Square Ventures, as institutional investors bet that the technology behind bitcoin could change the way people send money around the world. Fortress Investment Group disclosed last week that it bought $20 million of bitcoin in 2013.

Todd Harrison, Minyanville

But even as major investors make big bets that bitcoin can become a mainstream technology, it hasn’t been able to shake its early association with illegal activities.

Charlie Shrem, a New York entrepreneur once considered an ambassador for the bitcoin industry, was arrested in January for alleged connections to the illegal drug market Silk Road.

What’s the bottom line for investors? “Don’t risk what you can’t afford to lose,” said Minyanville’s Harrison.

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