The New York State Department of Financial Services (NYDFS) heard from bitcoin start-ups, venture capitalists, law enforcement agencies and academics as it seeks to map out a regulatory approach to the nascent crypto-currency market.

Having already explored the issue over the last six months, Benjamin Lawsky, the state's superintendent of financial services, used his opening statement at the hearings to strike a positive note, arguing that bitcoin could "have a number of benefits for our financial system" and that there might be a "kernel of something here that has a profound impact on the future of payments technology and the financial system".

However, Lawsky warned, the virtual currency industry is currently a Wild West, and a new robust regulatory regime must be explored, rather than relying on money transmission rules designed for firms created 150 years ago.

"The question, then, is what type of licensing, examination, and collateral requirements for the virtual currency industry will provide appropriate guardrails to protect consumers and our national security - without stifling beneficial innovation," said Lawsky.

Cameron and Tyler Winklevoss - who have fingers in several bitcoin pies, including as investors in BitInstant, whose CEO, Charlie Shrem, was arrested in the build up to this week's hearings - offered qualified support for greater regulation.

"The Wild West attracts cowboys. A sheriff would be good thing," Cameron Winklevoss told the hearings, but warned that "over-regulation could cripple its development".

Picking up on this theme, Fred Wilson, a partner at Union Square Ventures, which has invested in CoinBase, pitched for a "safe harbour" approach to regulation, allowing young start-ups to notify lawmakers that they are operating and then letting them gradually navigate their way through the licencing process without having to worry about being shut down.

Unsurprisingly, New York County district attorney, Cyrus Vance, took issue with the safe harbour idea, calling for strict oversight as well as more tools for law enforcement to tackle the use of virtual currencies for money laundering.

Meanwhile Coinbase co-founder Fred Ehrsam and Circle Internet CEO Jeremy Allaire both cautiously welcomed efforts to provide regulatory clarity. With multi-million dollar investments behind them, both men admitted that they are unusual in the bitcoin world, in that they can afford to meet AML and KYC requirements and are willing to accept rules that could spur greater consumer confidence in virtual money.

However, Allaire did hint at worries that state-by-state regulation could clash with the global, borderless nature of bitcoin, calling for a coordinated, international approach.

You can read written testimony and watch the full sessions here