Feds stamp on cash pipeline to Mt Gox, Bitcoin's Wall Street

Warrant served on account used to transfer crypto-dosh

The Department of Homeland Security has frozen an online trade route between US citizens and Mt. Gox - the world's largest exchange of crypto-currency Bitcoin.

The move will be interpreted as an opening skirmish in a battle to control the electronic cash, which has exploded in popularity and so far avoided regulation by governments.

The feds confirmed an investigation is underway after it emerged a "seizure warrant" was filed against Dwolla, a US-only mobile payments service used by Bitcoin traders.

Netizens can exchange dollars and bitcoins on Mt. Gox via a Dwolla account held by Mutum Sigillum LLC. The warrant against the Mutum account effectively halted transfers of money between the popular bitcoin exchange and Dwolla users.

Iowa startup Dwolla admitted yesterday it can no longer process cash payments to Mt. Gox's intermediary Mutum Sigillum. Any cash awaiting transfer between Dwolla and bitcoin converter Mt. Gox will be refunded.

This morning Mt Gox released this statement:

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.

Nicole Navas, a spokesperson for the US Immigration and Customs Enforcement (ICE) department, today told CNET: "In order not to compromise this ongoing investigation being conducted by ICE Homeland Security Investigations Baltimore, we cannot comment beyond the information in the warrant, which was filed in the District of Maryland earlier today."

The implications of this action are not yet clear, but it could indicate the beginning of a long battle to bring Bitcoin under the rule of US law. Just last week, America's Commodity Futures Trading Commission confirmed it was looking into Bitcoin and deciding whether regulating the e-cash was possible - or necessary.

In March, the US Treasury said any firms dealing in the virtual currency would be considered "money services businesses" just like any other, which means they must hand over transaction information to the government and work to prevent money laundering.

A denial-of-service attack on Mt. Gox in April followed a spectacular crash in the currency's value which saw over $100 wiped off the value of each crypto-coin.

More than $1bn worth of Bitcoin is currently in circulation, with well over half of all transactions passing through Mt. Gox. ®