In what is perhaps the most inevitable headline of the last couple months, the government has begun closing in on Bitcoin. The Washington Post reports that the Department of Homeland Security has frozen the Dwolla account of the primary Bitcoin exchange, Mt. Gox. Importantly, the DHS is in charge of enforcing federal anti-money laundering and drug smuggling laws - and it seems that they are starting the ball rolling on a systematic crackdown.
Agencies have issued guidelines and signaled that they are monitoring the situation, but none have taken active steps to force Bitcoin intermediaries to comply with federal regulations.
That hands-off stance may have started to change this week when the feds took action against Mt. Gox, the world’s leading Bitcoin exchange. Many people use Dwolla, a PayPal-like payment network, to send dollars to their Mt. Gox accounts. They then use those dollars to buy Bitcoins. On Tuesday, Dwolla announced that it had frozen Mt. Gox’s account at the request of federal investigators. It’s the first federal action against the currency.
CNet has confirmed that the asset seizure was initiated by Homeland Security Investigations, a division of Immigration and Customs Enforcement. Among other things, that agency has the power to enforce laws against money laundering and drug smuggling.
But either way, the move isn’t very surprising.
For years, Bitcoin supporters have touted the currency’s potential to resist government surveillance and censorship. They point to the example of Wikileaks, the whistleblower Web site whose access to funds dried up after the federal government applied informal pressure to intermediaries such as PayPal to cut off payments. The Bitcoin network is fully decentralized, so there is no one with the ability to monitor the network and block illicit transactions. If Wikileaks had funded itself through the Bitcoin network, the government wouldn’t have had such an easy time freezing its funds.
Curious to hear some thoughts, as I know there are several Bitcoin enthusiasts on here.