Bitcoin Faces Dept. of Homeland Security Crackdown

The Department of Homeland Security (DHS) has taken control of two bank accounts belonging to a company that exchanged US dollars for the 'Bitcoin' virtual currency. The department claims the accounts had not been properly registered with financial regulators.

Bitcoin is not issued by any real-world financial institution. Instead, each unit of currency is represented by a unique piece of code generated by an algorithm.

Whenever somebody makes a payment using Bitcoins, the details of the transaction are shared using a peer-to-peer network, similar to they way some users share music and video files. The theory is that there's no possible dispute about who owns a particular coin.

Virtual Currency Supposedly Inflation-Proof

Supporters of the system say the algorithm used to create the currency means there's an inherent limit to how many Bitcoins can be in circulation. They say this protects users against the inflation risk that comes if governments simply print more cash to deal with debts.

However, government agencies have questioned whether Bitcoins are secure, given that they aren't subject to any official regulation.

Bitcoin users can exchange real world currencies into Bitcoins, and vice versa, through a series of businesses. The Department of Homeland Security has now seized two real world bank accounts belonging to one of these firms, Mutum Sigillum. (Source: reuters.com)

The seizure is the result of recent law changes which say firms that exchange real dollars for virtual currencies must register with financial regulators. The goal of such a procedure is to prevent money laundering.

Bitcoin Exchanges Raise Regulatory Issues

According to officials, Mutum Sigillum has not followed established regulations and gave false answers to officials' questions when opening one of the accounts. (Source: gawker.com)

The man who owns Mutum Sigillum, Mark Karpeles, is also the owner of Mt Gox, an organization that deals with roughly 80 per cent of Bitcoin exchanges.

Some Bitcoin users are concerned that these events could negatively impact public confidence in the virtual currency.