Source: Independent.ie

Bitcoin, the internet "currency", is being targeted by federal regulators in the US in a major crackdown.

In the wake of the Gawker online media story two years ago, Senator Chuck Schumer described bitcoin as an "online form of money laundering" and called for the authorities to close the bitcoin-based drug market Silk Road.

Yet, until recently, the feds have taken a relatively hands-off posture. Agencies have issued guidelines and signalled 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.

Yesterday, 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.

Scrutiny

The US government refused to say more about the ongoing investigation, so it's not known if the feds have targeted Mt Gox itself or one of its customers. 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 – claiming that if the whistleblower website had funded itself through the bitcoin network, the US government wouldn't have had such an easy time freezing its funds.

Governments rely heavily on financial institutions to help them monitor financial activities and flag or block potentially illegal transactions.

The lack of intermediaries makes bitcoin an attractive technology for those who want to evade government scrutiny.

Bitcoin enthusiast Jerry Brito, of the Mercatus Centre at George Mason University, warned: "You can't put the genie back into the bottle," adding that a major crackdown would drive the network underground.