The new law revokes an old rule prohibiting the use of anything other than U.S. currency.
Bitcoin, the controversial crypto currency, is officially legal in the state of California.
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Governor Jerry Brown signed the AB 129 bill authored by Democratic Assemblyman Roger Dickinson on Saturday. Lawmakers also approved the measure on Monday, Reuters said.
The new law revokes Section 107 of California's Corporation Code which forbids companies and individuals from using money other than what the U.S. considers "lawful."
Technically, the outdated law rendered bitcoin and other virtual currencies illegal.
“In an era of evolving payment methods, from Amazon Coins to Starbucks Stars, it is impractical to ignore the growing use of cash alternatives,” Roger Dickinson said. “This bill is intended to fine-tune current law to address Californians’ payment habits in the mobile and digital fields.”
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The legalization of bitcoin in California follows Mt. Gox's court approval to begin its bankruptcy proceedings in the U.S. Mt. Gox was a bitcoin exchange based in Tokyo Japan. Once a leading exchange, Mt. Gox handled 70 percent of all bitcoin transactions last year.