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Homeland Security seizes funds at main Bitcoin exchange

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The U.S. government has reportedly shut down a prime source of liquidity for Bitcoin by seizing an account connecting a Japanese currency exchange, Mt. Gox, and payment services provider Dwolla.

The action by Homeland Security, reported by Betabeat, appears to be timed to send a clear message, coming during a week when Google Ventures (s goog) and others announced major new investments in the popular cyber currency. The seizure itself is described in a screenshot posted by OKCupid cofounder Chris Coyne (see it below). It shows a message from Dwolla stating that Homeland Security has executed a “seizure warrant” against its account with Mt. Gox — the exchange where many people buy and sell Bitcoins.

GigaOM meet up BitCoin

What this means in practical terms is that Bitcoin traders are now shut off from one of the few ways to supply and receive funds from Mt. Gox. The Japanese exchange doesn’t work with mainstream banks — it only accepts funds via wire transfers and a handful of shadowy e-currencies.

Homeland Security typically executes seizure warrants in connection with criminal investigations, and Coyne’s screenshot refers to actions in the US District Court of Maryland. A search of court records, however, comes up empty — which could mean the records are under seal. The US government has yet to issue a statement.

Tuesday’s development is likely to provide a blow to the fledgling currency, which is mined by computers and is beyond the authority of any central bank. Last month’s Bitcoin crash, which saw its value fall from $266 to $105 in a single day, is believed to have been set off by liquidity problems at Mt. Gox. U.S.-based exchanges like Coinbase, which last week received a $5 million investment from Fred Wilson’s Union Square Ventures, provide a means to change dollars for Bitcoin, but only permits trades of up to $100.

Dwolla, which has raised more than $20 million in funding from investors including Andreessen Horowitz, Village Ventures, Thrive Capital and Union Square Ventures, offers a free web-based software platform that lets users send, receive and request funds from any other user. It says it now has 250,000 account holders.

The Homeland Security actions comes amid uncertainty about the US government’s regulatory powers over Bitcoin, which appears to be beyond the purview of the SEC.

If you want to learn more about the possibilities — and the perils — of Bitcoin, come join us at GigaOM’s free meet-up in San Jose on Thursday between 6 p.m and 9 p.m. We’ll be chatting with the CEOs of Expensify and Lemon, and engineers from Facebook(s fb) and Google. There will be cocktails too, courtesy of our friends at Ribbit Capital.

Here’s the screenshot which was posted to Hacker News:

Screen shot of Bitcoin seizure memo

28 Responses to “Homeland Security seizes funds at main Bitcoin exchange”

  1. Ronald Halverson

    A cheap and stable bitcoin is good for bitcoin users. If you have a volatile currency fluctuating between say $203 dollars one day, then it drops to $100 By next Monday; That Item you paid one bitcoin for on Tuesday just cost you an extra $103. You would have to be somebody unable to use banks to move money to justify that cost. If the feds force the currency into the informal economy It could cheapen the currency and reduce hoarding making it easier for colorful people to move their wealth from one person to another with less legal risk than using stolen art.

  2. You have something go from $266 to $105 in a day, that is not regulated, and people here question why the government is stepping in?

    If this doesn’t come under securities regulations, the laws should be amended such that it does.

  3. Bitcoin didnt crash from $266 to $105 in a single day because of liquidity problems.

    It crashed because it was a high speed bubble. Why does no one report the climb to $266 in a few days from around $100? Just the crash? As if it was stable at $266 for 6 months, then crashed. You know it was $25 in february, right? And like $10 in the fall. Ridiculous reporting.

    Bitcoins are doing what they’re designed to, allow currency trading and exchange without the govt flooding the market with printed money (QE2), or allowing banks to game the system making risky investments, then bail them out with trillions of $. Something has to give.

  4. Entropy

    But remember, the other day Obama promised that the fears and rumors of tyranny on the horizon are just nonsense….so not to worry….

  5. Mcbeese

    I will accept that Bitcoin has a chance at becoming mainstream when the IRS recognizes and takes a position on it.

    Imagine the shock some people will face if they receive an audit notice and discover the tax implications of all of their Bitcoin activity, and that taxes due are payable only in US dollars.

    • JimboToronto

      Audit notice? Do you have any understanding of the level of encryption involved in Bitcoin?

      While transactions may be easily traced through the blockchain, sender and receiver are identified only by public keys. With very little effort, near-total anonymity can be had.

      Just like with cash-under-the-table employment earnings, honest people will report their income and others will not. Governments can’t do anything about it.

  6. Internet champions, do NOT panic. This is the government reacting to a phenomenon it doesn’t understand. Once it realizes that online currency is going to become a part of the economy, whether they like it or not, they will back off rather than let the economy suffer a meltdown.

    • Heidi, you are living in a fantasy world. The US government in its zeal to be the next police state will shut down bitcoin like it has shut down anything else that threatens its control and superiority.

      If they are willing to kill the second amendment to end any threat to their power, they will sneer at bitcoin and shut that shit down quicker than an open social network in china! AmeriKans will lose their access and ability to trade effectively.

      • Ric, before making a fool of yourself you should have learned the basics of BitCoin design and implementation, then you’d realize how silly your “shut down” argument is.

  7. Well this is a pretty sad turn of events. But I don’t think that this is the end of BTC by a long shot. We the users of BTC should probably not invest so much of the currency’s backbone into a single company or exchange. If it is going to remain free and open then it needs to be used more as a direct p2p currency.

    Not to mention if this keeps happening to the exchanges then the trade of BTC will slow down a lot. I don’t know about the rest of the people reading this but I’m going to try to make more trades directly to people rather then with an exchange.

    Heck craigslist works wonders…

  8. US government is finding out Bitcoin and cryptocurrencies are a threat to their Capitalist system. I think they saw Bitcoin as a joke, but as it is becoming more widespread they’re trying to do whatever possible to control it. A message for Bitcoin users: Do not panic! This is natural and if you sell your Bitcoins you are just feeding what the government wants. Do not rely solely on MtGox. There are other exchanges out there like BTC-e, Coinbase, BitStamp, CampBX, etc. We need to reduce exchange centralization to avoid more market manipulation.

    • Nathan Merrill

      People need to recognize the truth:

      Bitcoin is a scam.

      You had someone who came along and said “This money is worth something!” while they had a giant pile of said fake money.

      You then had people using it as a medium of exchange for tons of illegal goods, as well as for money laundering.

      What are the odds that MtGox is involved in some sort of fraud? Pretty high. Indeed, people have noted some “interesting” patterns in the buy/sells there, indicating manipulation, likely by MtGox itself.


      Also, remember kids: you have to pay taxes on bitcoin.

      • Chad William Manning

        How is this different to any other money?

        Think about it; what real value does paper/metal/credit really have in itself?

        We have a International private banking cartel running the “Federal Reserves”/”Reserve Banks” of the world.

        What gives them any moral right to be able to force us to use their currency?

        I accept that you personally may not accept them in trade for your goods and/or services, so I will go to a vendor that does.

      • Roger James

        ~ The clueless, Nathan Merrills of the world need to recognize their utter ignorance of worthless, fiat currencies and the aggressive manipulation thereof by corrupt governments around the world read USA, Japan, Euro Zone etc.

        ~ What are the odds that the Federal Reserve is involved in some sort of fraud? Absolute! As documented by Congressional testimony over the last 5 years.

      • Autolykos

        “You then had people using it as a medium of exchange for tons of illegal goods, as well as for money laundering.”

        Please do go on and share all the details you know about the tons of illegal goods and money laundering that Bitcoin is being used for. Until then, I’ll conclude that your spouting pure conjecture and trying to masquerade it as fact.

      • Guest

        What do you suppose the Dollar is worth??? Gold?? Silver??? Its FIAT MONEY

        Your going to need to Google the definition of what FIAT means.

        You can thank FDR for taking the DOLLAR OFF THE GOLD STANDA

      • Batcoin

        You can’t do more fraud and money laundering than the current banking system. Nobody else in the world is capable of doing fraud like they do it.

        Also, love your circular argument that bitcoin is a scam that you have to pay taxes on.

        I’ve seen your authoritarian posts on other threads about bitcoin. Are you paid to be here?

    • JimboToronto

      Amen. It’s barely better here in Canada where the chartered banks have been freezing the accounts of Bitcoin exchanges arbitrarily and without cause. Luckily the smarter exchanges have protected themselves from this by using multiple banks.

      I can still make an anonymous (except for the camera at the bank) cash deposit before 5:00PM and have the funds available for trading by not much after 6:00PM.

      No big deal. Unless a government wants to shut down the internet, there’s not much they can do about Bitcoin. Yes, the price of bitcoins will dip if Americans are disenfranchised but around the rest of the world, Bitcoin will continue to flourish and relentlessly increase in value long-term.

      • Alesandro0

        NullCoin, your definition or understanding of Capitalism is retarded. How is a centrally controlled anything capitalist? You mentioning ‘US government’ and ‘Capitalist’ in the same sentence like they related is ignorant and ill informed. Do us all a favour, do some research in to what capitalism actually means, what it actually stands for, and you’ll soon see. That ‘system’ in the US, right now, is no capitalism, and BitCoin, a market driven currency, is more capitalist and free market than any other currency in existence. (Get a grip man)

        • Noah Sindermann

          Alesandro0, you are the ill informed, ignorant one to naively think that the US Government and capitalist corporations are not in bed together. Perhaps you’ve been too spoonfed by Uncle Sam since birth to see the blatant corporate government corruption for yourself. The central banks see a very real growing threat to their control over currency and know they must do everything in their power to assume control over it or destroy it. Central banks control capitalism through their centralised control over currency. BitCoin is a decentralized currency that is gaining acceptance in the capitalist market, thus threatening to decentralize the “too big to fail” power held by the few central banks. That scares them.