The Department of Homeland Security (DHS) has shut down transactions between Mt. Gox, the largest Bitcoin exchange, and Dwolla, a key payment service for Bitcoin accounts on Tuesday.
This action is, to date, the strongest movement the U.S. government has made against the virtual currency. The action doesn't mean the death of the Bitcoin is nigh, but it does make the currency far less liquid - making it difficult for adopters to use in purchasing goods. In April, the currency saw its value drop from $266 to $105 in a day, largely believed to be the result of the currency's inability to easily exchange hands.
Dwolla's seizure was first reported by OKCupid cofounder Chris Coyne, who tweeted a message sent to him from Dwolla stating that DHS executed a seizure warrant against the platform. Such actions are usually reserved for criminal investigations. But a cursory search of the U.S. District Court of Maryland, the court which apparently filed action against Dwolla, hasn't produced any court records for the seizure, GigaOm says, suggesting the records may be sealed.
The seizure was placed against Mutum Sigillum LLC's account. That account belongs to Mt. Gox. Dwolla stated it wasn't party to the issue and referred questions to Mt. Gox officials. Mt. Gox, in turn, issued a statement on its official Facebook page late Tuesday. The Japanese exchange said it hasn't received a court order from the DHS, and is unaware of any reasoning behind the seizure.
The DHS has refused to comment on the story, citing an ongoing investigation by ICE Homeland Security Investigations. One of the biggest critiques, and now liability, of the Bitcoin is its use in anonymous criminal activity, like buying drugs and laundering money, from black market retailers like The Silk Road.
While the investigation has yet to play out, it may help to refine the relationship between the Bitcoin and U.S. regulations. The only restrictions currently set on the virtual currency are a set of guidelines issued by the Treasury Department's Financial Crimes Enforcement Network, which targets money laundering operations, in March.
Bitcoin may be big in Japan, but in the U.S., it may have to play by a different, opaque, set of rules.
