Mr. Karpeles (Photo: Twitter)

Yesterday the Department of Homeland Security shut down Bitcoin trading platform Mt. Gox's ability to accept or send transfers using Dwolla, a mobile payment service. A representative from Dwolla told Betabeat that the DHS had sent them a "seizure warrant" for the account, but declined to provide further detail. Now, in the warrant, obtained by Ars Technica, the reason for the seizure has been revealed: DHS believes Mt. Gox is operating an "unlicensed money transmitting business."

In the warrant, a special agent for Homeland Security Investigations states that he has reason to believe Mt. Gox is breaking 18 U.S.C. section 1960, a crime punishable by up to 5 years in jail. The law reads:

(a) Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.
(b) As used in this section—
(1) the term “unlicensed money transmitting business” means a money transmitting business which affects interstate or foreign commerce in any manner or degree...

According to the warrant, DHS used an undercover informant who bought Bitcoins using Dwolla and then had them converted to dollars. Explains Ars:

Tracing that money, HSI was able to see that the money passed through a Wells Fargo account, number 7657841313, which was created by a single authorized signer: Mark Karpeles, the president and CEO of Mt. Gox.

Because Mr. Karpeles did not register Mt. Gox as a money transferring business when he opened the Wells Fargo account, the DHS says they have the right to seize the funds in Mt. Gox's Dwolla account, which is comprised of "Mt. Gox customers that withdraw said funds from Mt. Gox and direct their transfer to Dwolla."

You can read the full warrant here.

(Photo: Silicon Angle)

Update: Warrant Reveals Homeland Security Seized Mt. Gox’s Dwolla Account for ‘Unlicensed Money Transmitting’

The Department of Homeland Security appears to have shut down the ability to use Dwolla, a mobile payment service, to withdraw and deposit money into Mt. Gox, a Bitcoin trading platform. A Dwolla representative confirmed the move to Betabeat. Chris Coyne, cofounder of OKCupid, posted a screenshot of an email he received from Dwolla, stating that due to recent orders from the Department of Homeland Security, Dwolla cannot complete the bank transfer to Mt. Gox.

A representative for Dwolla told Betabeat that the company is "not party" to this matter and encourages those with questions to reach out to Mt. Gox or the DHS.

"The Department of Homeland Security and U.S. District Court for the District of Maryland issued a 'Seizure Warrant' for the funds associated with Mutum Sigillium’s Dwolla account (a.k.a. Mt. Gox)," he said. "In light of the court order, procured by the Department of Homeland Security, Dwolla has ceased all account activities associated with Dwolla services for Mutum Sigillum while Dwolla’s holding partner transferred Mutum Sigillium’s balance, per the warrant."

"Dwolla requires a court order before honoring requests such as seizing funds or revoking access to an account," he added.

Here's a screenshot of the email, posted to Hacker News:

Update: Here is what Mt. Gox sent us in response to a request for comment:

Thank you for the email. We can see that the Dwolla transactions are not getting processed right now. We will contact Dwolla and post an announcement regarding this. Your patience is appreciated till then.

Update 2: Mt. Gox has posted the following comment to its Facebook page:

Like many who have contacted us, MtGox has read on the Internet that the United States Department of Homeland Security had a court order and/or warrant issued from the United States District Court in Maryland which it served upon the Dwolla mobile payment service with respect to accounts used for trading with MtGox. We take this information seriously. However, as of this time we have not been provided with a copy of the court order and/or warrant, and do not know its scope and/or the reasons for its issuance. MtGox is investigating and will provide further reports when additional information becomes known.

Why won't it work?! (Photo: Rob Bateman, www.nukomp.com, via Flickr)

Twice as many households have "smart tvs" as streaming devices--but only 69 percent of them are actually connected to the Internet. Grandparents! [GigaOm]

“When I got here, I was very emotionally touched by all the great companies in this area....These were all the companies I had heard of since I was a kid. I felt like I should be here. Like I belong.” [New York Times]

Here is how you remove tagged Instagram posts from your profile. [Wired]

Earlier this year, Mt. Gox and CoinLab teamed up in a partnership to reach the American market more efficiently. Now CoinLab is suing for $75 million in damages. [Gawker]

Do you trust your friends enough to give them the extra set of keys to your Facebook account? [L.A. Times]

But, you know, Bitcoin market. (Photo: Common American Journal)

Bitcoin day traders are at loose ends again today, as the major exchange Mt. Gox just announced they've shut down trading, in order to "allow the market to cooldown following the drop in price."

The press release is, we are very sorry to report, not terribly reassuring:

"First of all we would like to reassure you but no we were not last night victim of a DDoS but instead victim of our own success!"

Oh really?

"Indeed the rather astonishing amount of new account opened in the last few days added to the existing one plus the number of trade made a huge impact on the overall system that started to lag. As expected in such situation people started to panic, started to sell Bitcoin in mass (Panic Sale) resulting in an increase of trade that ultimately froze the trade engine!"

Aren't you reassured by all those exclamation marks?!

The post goes on to boast that the number of trades executed has tripled in the last 24 hours, and there are around 20,000 new accounts created every day. Mt. Gox also promises that its working to improve the site to meet the demand. Also: "please note that we may have to close the exchange for two hours in the next 12 to 24hrs to add several new servers to our system."

Yeah, that sounds like a stable replacement for old-fashioned currency. Sure.

bitcoin.clarkmoody.com

Last week we covered the crazy increase in the price of Bitcoins. The biggest problem, we noted, was the same one that's always worried Bitcoin users: the online currency’s vulnerability to hacker-induced fluctuations. Well, guess what happened today? Many of the major Bitcoin exchange services, including the popular Mt. Gox, went down for hours, and the cause appears to be--surprise, surprise!--DDoS attacks.

The disruptions caused the price of a single coin to go on the most absurd roller coaster ride in the currency’s short history. Seriously, the graph of today’s prices could easily pass for a kid's drawing. After climbing to record high of $266 earlier today, the price of Bitcoins fell $161 to a low of $105, before leveling out at $164 at last update when the company restored service.

Members of the Bitcoin subreddit rallied behind an image of Spartans holding Bitcoin-emblazoned shields from the movie 300 with the word "HOLD!" across the top, while another user attempted to justify the currency's craziness with some business-tech know-how.

But hack attacks seem like the most like explanation. A similar, albeit much smaller attack, took place last week, shutting down exchange services shortly after the currency hit a then-record high of $145.

In a strategy that would impress even Gordon Gecko, the Tokyo-based Mt. Gox last week said that “Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit.”

Must have been a really fun day at the first Manhattan bar to sell drinks for Bitcoins.

They can't stop Bitcoining. (Getty Images)

Betabeat noticed back in August that professional Wall Street traders were taking an interest in Bitcoin. Even though the Bitcoin market is valued lower than in the past, and volatility (read: easy opportunities to flip coins and make fast money) has also flattened out, it seems pro bankers are still trading in BTC. 

Reuters reports that workers at Morgan Stanley and Goldman Sachs in London and New York have been visiting Bitcoin exchanges up to 30 times in a day as finance professionals peer into the digital Wild West created by the Bitcoin gold rush. The article does not specify whether the traders work in foreign exchange, the closest analogue to Bitcoin speculation, or if they trade stocks. It's also possible that some of the finance professionals looking at Bitcoin work in IT.

But one trader who said Bitcoin is his "second job" estimated 90 percent of traders have bought Bitcoin. "It is a better form of money than we have right now, or than anyone has designed so far," he told Retuers anonymously.

Finance pros may have been attracted by the increasingly complex Bitcoin instruments, such as options and margin trading:

Perhaps the most notorious is Bitcoinica, a platform offering margin trading, short selling and stop orders run by 17-year-old Chinese high school student Zhou Tong.

Users can leverage their bets up to a ratio of 10:1 on Bitcoinica, meaning they can lose more than their initial investment.

Zhou Tong, who is professionally advised by a forex trader and the head of a Singapore-based algorithmic trading firm, now lends his name to international slang.

To be "Zhou Tonged" is to be wiped out financially.

As Bitcoin draws in new demographics, its susceptibility to regulation grows. Mt. Gox, the largest Bitcoin trading exchange, sued the French bank Credit Mutuel's Credit Industriel et Commercial after the bank shut down Mt. Gox's account. A court ruled to have the account reopened and Mt. Gox compensated, but had to refer the question of whether Bitcoin is a virtual currency under French law "and thus subject to relevant regulation" to another court.

Meanwhile Bitcoin may have a different sort of day in front of a judge as the now-defunct exchange TradeHill is embroiled in a lawsuit with payments provider Dwolla.

(falkvinge.net)

Established banks and payments processors are skittish about the cryptocurrency Bitcoin, it would seem, prompting Canadian e-payments service Paxum to drop its Bitcoin clients last week.

Paxum, an e-commerce payments solution popular with adult web sites, started working with Bitcoin exchanges more than a year ago. Paxum hooked up with leading Bitcoin exchange Mt. Gox in December 2010, major Bitcoin exchange Tradehill in July 2011, and more recently with BitInstant, a service that speeds up Bitcoin transactions by fronting customers the credit, and others.

But on Friday afternoon, the operators of Paxum's Bitcoin-related accounts received an email with the subject line "Bitcoin termination." Paxum's banking partners, which include MasterCard, had called off the Bitcoin party.

Paxum declined to name the partners that were responsible for the change.

Although Bitcoin is not illegal, Paxum's partners consider the cryptocurrency "high risk," Paxum explained. "We simply must cease all business with Bitcoin based on our banking partners/Mastercard etc. We don't have a choice in the matter I'm afraid," Ruth Blair, a representative for Paxum, told Betabeat via Skype.

"The main fears had to do with the fact that it's a decentralized currency and as such there isn't much control over it," Paxum said in a statement to Betabeat. "In the end, it is converted to a legal tender (generally USD), but it is unclear to them how this currency is supported and who pours actual money into it, and more importantly, why."

One or more of Paxum's partners have put a policy into place essentially banning Bitcoin, Paxum confirmed. The policy requires frequent checks and audits by a third party that would be incompatible with the decentralized currency. "We are trying to soften the general outlook on Bitcoin by shedding more light on the situation, but the new rules that appeared almost overnight are very clear and unfortunately we cannot predict if and when this might change," Paxum said. "We will try to bridge the gap between Bitcoin and our partners, but we will abide by the rules, as we are not willing to take risks when it comes to our clients' funds. We believe  it is important for us to provide all of our clients with a safe, secure environment where they know they can trust us and their money is safe."

Contrary to initial impressions, there is no new government regulation that prompted the change, Ms. Blair said, nor was the change prompted by any Bitcoin-related fraud.

"We had been in discussions with our banking partners, Mastercard and our auditors for the last couple of weeks, and on Friday our banking partners ended the discussions with us and stated that it was too much of a potential risk to continue doing business with Bitcoin and Bitcoin Exchangers and instructed us to close all Bitcoin-related accounts," Ms. Blair wrote on Friday in the forum for adult site webmasters, GoFuckYourself. "We had no choice but to follow those instructions and therefore, all Bitcoin associations were severed on Friday."

The email:

Dear client,

Effective immediately; Paxum Inc can no longer accept any accounts related to Bitcoin or Bitcoin Exchange. All current Bitcoin accounts have been closed and may no longer perform any transaction. Account holders will be able to withdraw their funds via wire transfer.

Best regards,

<Removed>
<Removed>
www.paxum.com

Paxum is a global e-wallet, payroll manager and money transfer service similar to PayPal. Adult content companies use it to pay affiliates and "cam models," and to purchase traffic, domains, hosting through easy and relatively quick peer-to-peer payments. As we already know, porn sites and Bitcoin users have similar needs. "This is why we have been so popular with Bitcoin clients, since accessing money through our system is very easy, low-cost and fast," Ms. Blair said. "We also have other mainstream clients, but we are much more established in adult at this time. We do plan to target more mainstream clients in addition to our adult clientele as we progress our business."

E-payments network Dwolla is still working with Bitcoin exchanges. Dwolla did not immediately respond to a query about whether they'd had similar concerns from their partners, which include Veridian Credit Union and the payments solutions provider The Members Group.

CORRECTION: This post originally had MasterCard in the headline; Paxum says the real push for the change came from its banking partners, "not really MasterCard."

Brooklyn-based BitInstant

The original plan was to have three or four investors, but Mr. Ver offered in full and wanted to be on the team, Mr. Shrem said. "An offer I could not refuse!"

Mr. Shrem hired a programmer and a designer with the investment.

BitInstant has processed more than half a million dollars in transactions since launching in the beginning of September. Bitcoin transactions were taking days to weeks to process on the exchanges. BitInstant verifies a deposit and then fronts the credit to both parties so users can deposit money into their accounts immediately–hopefully in seconds, BitInstant says, but at most, within 30 minutes. It currently serves the two major Bitcoin exchanges Tradehill and Mt. Gox.

In addition to fundraising, Mr. Shrem, whose background is in ecommerce, and Gareth Nelson, the project's U.K.-based tech lead, have been pushing updates including, but not limited to, an API. That new innovation alone should inspire some interesting projects in the fast-iterating Bitcoin world.

BitInstant also now allows USD deposits into Mt. Gox, realtime updates on your order status, new payment methods including Dwolla, Liberty Reserve and Paxum ("with a record time of 11 seconds from payment on the hub page to payment into Tradehill account," BitInstant notes). And soon—maybe even this week—BitInstant will offer cash deposits at five major banks, instant PayPal withdrawals and will start serving Virwox.com and CryptoXchange.com.

*Mr. Ver writes in to clarify. "I'm far far far away from being the 'largest used computer parts site on the West Coast.' But I likely am the largest dealer of used optical transceivers on the West Coast."

(bitcoinsforchristmas.com)

Josh Strike of Bitcoin gambling house StrikeSapphire Casino and Mark Miele of thebitcointrader.com just launched a merry marketing push that the entrepreneurs hope will be considered "a Christmas present to the whole Bitcoin community." Aw, you guys! Bitcoins for Christmas encourages Bitcoin users to put some digital currency in the digital stockings of their families and friends, sending lucky recipients an electronic candygram with instructions on how to pick up their BTC.

The site, which is offering Bitcoins at no fee, is sponsored by leading exchanges Mt. Gox and Tradehill as well as a motley lineup of Bitcoin startups from Bit Munchies to BitVapes, all of whom hope the initiative will bring in new Bitcoin users and continue educating the world about Bitcoin. "At Bitcoins for Christmas, we decided to leverage the joy of gift-giving and the pleasure of gift-receiving to create a better way to introduce someone to Bitcoin," the site says.

According to the F.A.Q.:

Why "Bitcoins for Christmas?"
Like us, you have probably tried to explain Bitcoin to someone and ended up experiencing one of the following:

1) The person you were talking to thought you were a lunatic;
2) You severely confused the person;
3) The cops were called on you;
4) Babies started crying; or
5) They installed the client and bought some Bitcoins.*
*And then you woke up and realized that this was just a dream you were having.

And they go on: "We believe that when someone is given Bitcoins (i.e. free money) from someone they know, there is a greater chance of them becoming a Bitcoin user than if you had only spoken to them about Bitcoin. Our goal, stated simply, is to spread the word of Bitcoin and grow the community."

And how did the trick-or-treaters like their Bitcoins?

Bitcoin has been trading at the depressed price of between $6 and $7 USD for the past few weeks, which seems bad for the once high-flying digital currency that had climbed to $33 USD at one point. Hardly a week has gone by without some extreme crisis. In addition, New Yorker finance columnist James Surowiecki, wrote a long treatment of Bitcoin for the MIT Technology Review in which he notes pessimistically that "the number of actual transactions conducted in bitcoins, and the value of those transactions, has been shrinking."

According to bitcoinwatch.com, the best source of Bitcoin data, more than a million dollars' worth of bitcoins were traded on June 13. By early August, less than half a million dollars in bitcoins were being used in transactions; even the currency's value had been cut in half. Successful network technologies do not tend to see usage plateau, let alone shrink, this early in their history.

Mr. Surowiecki's take on the hoarding of Bitcoin leading to its downfall was echoed by another respected mainstream writer, Paul Krugman, Nobel Prize winner in economics: "So to the extent that the experiment tells us anything about monetary regimes, it reinforces the case against anything like a new gold standard – because it shows just how vulnerable such a standard would be to money-hoarding, deflation, and depression."

Other sources of bad publicity include (from Bitcoin Economy):

– Sept 14, 2011. Bitcoin GPU mining trojan distributed over twitter retweets
– Sept 13, 2011. More Mt.Gox phishing
– Sept 12, 2011. User says Mt.Gox account hacked and funds sent to the Ukraine
– Sept 10, 2011. Bitcointalk.org forum hacked by Cosbycoin
– Sept 09, 2011. 35 trojans targeting Bitcoin detected by Kaspersky Labs
– Aug 30, 2011. Mt. Gox Phishing attacks

And also about a month ago came the discovery and publication of Bitcoin evangelist Bruce Wagner's involvement in a civil case for mortgage fraud in Illinois, in which he was fined $250,000 for misrepresentation to customers in violation of the Consumer Fraud Act and ordered to pay $115,858 in restitution to more than 60 customers. The revelation led to new speculation that perhaps Mr. Wagner was behind the MyBitcoin heist/hack, in which the popular wallet service disappeared with 154,000 Bitcoins. (Mr. Wagner denies wrongdoing.)

But despite the negative publicity, we're still receiving press releases announcing new Bitcoin exchanges, a Bitcoin mint, a new user-friendly wallet and transaction processing service, noticed the proliferation of Bitcoin-denominated online poker sites (another one here) and other Bitcoin casino games as well as the Bitcoin variations Namecoin and Solidcoin. There was a session on Bitcoin and alternative currencies during the Open Video Conference in New York last weekend. We have also been asked to fill out a survey for a graduate student thesis on Bitcoin.

All the trouble with Bitcoin, especially the loss of credibility for Mr. Wagner, who converted many non-techie users into Bitcoin enthusiasts, is driving casual users away and leaving the hardcore Bitcoiners behind.