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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.

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Comments (26)

  • woodywoodford's picture

    I still have no idea what bitcoin is

  • In reply to woodywoodford
    duffmt6's picture

    woodywoodford:

    I still have no idea what bitcoin is


    http://www.gizmodo.com.au/2013/05/how-a-bitcoin-tr...

    "For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."

  • yeahright's picture

    Basically the government is trying to do something, not because Bitcoin is illegal, but because users use it illegally? Sounds fair....

    Probably wall street pushing this, an alternative to currency exchange fees, credit card fees etc. and they don't like it.

    There are video games like "Second Life" which have assets that you can sell for dollars, isn't that in a sense the same? You can sell your real estate and land etc. in the game for real money.

    Frank Sinatra - "Alcohol may be man's worst enemy, but the bible says love your enemy."

  • alexpasch's picture

    Why hasn't it tanked? Still at $110+ as far as I can tell (I own no bitcoins so I'm kinda indifferent - I do love the idea of it though).

    Consultant to a Fortune 50 Company

  • duffmt6's picture

    I would really like to see the gov't keep their hands off of Bitcoin (out of both principle and curiosity).

    With that said, serious question - does anyone use Bitcoin for legitimate transaction purposes? I have heard of a few small retailers adding Bitcoin compatibility but it's still impractical to use as a normal currency, right?

    "For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."

  • Kenny Powers's picture

    fuck the government. seriously.

    My drinkin' problem left today, she packed up all her bags and walked away.

  • Amphipathic's picture

    This (along with all the other news in the past couple days) is going to pour gasoline on the anti-gov't fire of the right.

  • In reply to alexpasch
    NorthSider's picture

    alexpasch:

    Why hasn't it tanked? Still at $110+ as far as I can tell (I own no bitcoins so I'm kinda indifferent - I do love the idea of it though).

    Probably because there is no real ability to short the currency. Volume is so low these days, doesn't seem like there are many active traders of the currency.

    "For all the tribulations in our lives, for all the troubles that remain in the world, the decline of violence is an accomplishment we can savor, and an impetus to cherish the forces of civilization and enlightenment that made it possible."

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  • TNA's picture

    We have the government limiting bitcoin. Wire taping news agencies. IRS punitively attacking different people and groups. Department of "Justice" doing all kinds of unjust things. You need a filibuster to get the White House to admit they won't use drones to kill Americans.

    You have Boston become a militarized zone. Homeland Security driving around in tanks.

    Boy, so glad to live in the land of the "free". What a joke. Boy would I love the government to focus on balancing a budget or protecting freedoms instead of wasting energy going after BitCoin.

  • investmentpimp's picture

    lol bitcoins aint gonna die out though mt gox is an exchange, many see it as a benchmark for prices. there are plenty of ways to get bitcoin

  • krauser's picture

    I guess the terrorists will have to go back to laundering their funds through HSBC and the other big banks.

  • Lambie's picture

    Bitcoin honestly won't be missed, not with companies like Amazon releasing their own system-wide coins and all.

    Bitcoin is like that teenager with a stick with a red doo-rag bag full of cheetos tied to the end of it, deciding to "fight the system" and run away from home. But ho-ho-ho, he's back home in 3 days and realizes "fighting the system" is better done in a heated home.

    Not ragging on Bitcoin, it was amusing to watch, but it had no substance to begin with.

  • renitent.precept's picture

    It seems as though people are significantly worried at this stage. The price is still quite strong.

  • EURCHF parity's picture

    What you are missing out on is that unlike previous government crackdowns on virtual currencies, this time, the entity being attacked was not the currency, nor even its exchange (Mt Gox, which is not US based) but a particular service provider who supposedly broke US law (by not being registered as a payments business in the US).

    Bitcoin is alive and well, in fact since the crash it's been hovering comfortably around 100-120, which is a good deal higher than its previous stable level pre-crash. If nothing else, this tells you people still find value in the thing. Wait til the next deposit seizure in Europe...

    There's no bitcoin entity to shut down. At most, you could make it harder for non-IT-literate people to use it; but the website that made bitcoin famous, Silk Road, has shown that you can easily run a completely illegal website inside the US with no issues. Even if somehow, the US government passes a deal with Japan giving it authority to shut down MtGox, other exchanges might spring up, about as easily discoverable as the identity of Satoshi, the bitcoin creator(s?).

    And this is why people get excited about bitcoin - because unlike other attempts at replacing the USD for a small subset of people who do not trust it, like e-gold, Liberty Dollar, etc. it is not centralised, so the efforts required to shut it down will scale up with the value an entity would gain from shutting it down*. This is afaik the first time a virtual currency has managed this and the key innovation that provides its value.

    You have seen similar concepts in file sharing; despite various governments' best efforts to stem what is turning into a (supposed) multi billion dollar loss for dozens of corporations, the Pirate Bay and torrents are alive and well. Shutting down Napster just allowed for new, better incumbents. You'll note file sharing is illegal (if it infringes copyright) yet I am willing to bet 90% of this forum's users do it.

    *should the government, or a mafia group, choose to destroy bitcoin, they could attempt to muster computing power equivalent to 51% of the network - which would cost hundreds of millions of dollars, and this cost rises every day - and even then, would only be able to manufacture fake transactions for the duration of the time that they can maintain 51% of the network. This is clearly not worth it.

  • In reply to TNA
    UFOinsider's picture

    It was fun while it lasted, but realistically, who thought it would?

    Get busy living

  • stanvalchek's picture

    Even if Bitcoins are only used for illegal transactions, that still leaves them with a ton of potential users. The people saying they're going to replace the dollar are stupid, but I think they will still have a valuable niche use.

  • In reply to EURCHF parity
    NorthSider's picture

    EURCHF parity:

    What you are missing out on is that unlike previous government crackdowns on virtual currencies, this time, the entity being attacked was not the currency, nor even its exchange (Mt Gox, which is not US based) but a particular service provider who supposedly broke US law (by not being registered as a payments business in the US).

    Bitcoin is alive and well, in fact since the crash it's been hovering comfortably around 100-120, which is a good deal higher than its previous stable level pre-crash. If nothing else, this tells you people still find value in the thing. Wait til the next deposit seizure in Europe...

    There's no bitcoin entity to shut down. At most, you could make it harder for non-IT-literate people to use it; but the website that made bitcoin famous, Silk Road, has shown that you can easily run a completely illegal website inside the US with no issues. Even if somehow, the US government passes a deal with Japan giving it authority to shut down MtGox, other exchanges might spring up, about as easily discoverable as the identity of Satoshi, the bitcoin creator(s?).

    And this is why people get excited about bitcoin - because unlike other attempts at replacing the USD for a small subset of people who do not trust it, like e-gold, Liberty Dollar, etc. it is not centralised, so the efforts required to shut it down will scale up with the value an entity would gain from shutting it down*. This is afaik the first time a virtual currency has managed this and the key innovation that provides its value.

    You have seen similar concepts in file sharing; despite various governments' best efforts to stem what is turning into a (supposed) multi billion dollar loss for dozens of corporations, the Pirate Bay and torrents are alive and well. Shutting down Napster just allowed for new, better incumbents. You'll note file sharing is illegal (if it infringes copyright) yet I am willing to bet 90% of this forum's users do it.

    *should the government, or a mafia group, choose to destroy bitcoin, they could attempt to muster computing power equivalent to 51% of the network - which would cost hundreds of millions of dollars, and this cost rises every day - and even then, would only be able to manufacture fake transactions for the duration of the time that they can maintain 51% of the network. This is clearly not worth it.

    I really do like the concept of Bitcoin, and I definitely hear what you're saying re: decentralization. However, I think you're being a bit too optimistic if you don't think the U.S. Government could shut down Bitcoin if it so desired.

    Your analogy is persuasive - one can easily call to mind 'illicit' activities that the government is helpless to combat (speeding, pot, etc.). However, it's not quite germane. The difference between pirating music or software and transacting in Bitcoins is crucial. In the former, you steal from a private corporation; in the latter, you threaten the most fundamental power of the public edifice - the fiat power of currency. Perhaps equally important, you siphon tax dollars through 'grey market' transactions.

    Bitcoin is harmless as a passing fad - a blip on the government's radar. However, the thought that it could be popular is an image that I can guarantee you will not sit well with Mr. Bernanke and crowd. The potential for Bitcoin transactions to circumvent taxes, anti-money laundering policies and the government's stranglehold on currency-for-goods transactions is untenable at a large scale.

    The government could destroy Bitcoin tomorrow by shutting down all of the intermediaries that transact between USDs and Bitcoins. They can even outlaw vendors accepting Bitcoin as a means of payment for good measure. Once Bitcoin loses a value-link to the USD and ability to deal with US corporations, its value as a currency is virtually eradicated.

    Incidentally, I do believe that if Bitcoin were somehow to prevail against government action - that is, corporations refuse to stop accepting Bitcoins as payment and underground exchanges continue to allow transfers of wealth between USD and Bitcoins - you're no longer talking about a currency revolution, you're talking about a full-fledged coup. When the government loses the autonomy of taxation and commerce regulations, its authority over social justice and defense is soon to follow. Economic primacy is necessary for true sovereignty. Without it, the government is effete.

    "For all the tribulations in our lives, for all the troubles that remain in the world, the decline of violence is an accomplishment we can savor, and an impetus to cherish the forces of civilization and enlightenment that made it possible."

  • MindOverMonkey's picture

    It is ridiculous that we have allowed our government to grow this powerful. They try to get rid of competing currencies because they are threatened by the idea that they might no longer be able to have complete control of money in the US. Our current monetary system is unsustainable and yet the government continues to convince the American people that giving it all of this power is for the people's benefit.

    Fuck the government, END THE FED.

  • DCDepository's picture

    I'm in agreement with NorthSider--if the federal government wanted to it could easily stop Bitcoin and others in their tracks by simply disallowing the acceptance of those payments as legal tender for private transactions. If retailers are not on board then Bitcoin and others will be relegated to the niche market and will never gain widespread usage in the U.S. The feds could easily make arrangements with other G7 economic powers--without these important economies on board with Bitcoin you're just talking about a black market novelty.

  • In reply to Kenny Powers
    CRE's picture

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  • In reply to NorthSider
    UFOinsider's picture

    Get busy living

  • In reply to yeahright
    link's picture