Bitcoins: beginning of the end or end of the beginning?

It was reported today by CNET that Immigration and Customs Enforcement (ICE) have launched a criminal investigation against Mt. Gox – the largest bitcoin exchange provider.

ICE, part of the US Department of Homeland Security, seized the Dwolla account of Mt. Gox which meant that transactions relating to bitcoins have been severely impacted. Dwolla is a payment processing startup based in Iowa and they have stopped processing any bitcoin payments whilst the criminal investigation is ongoing. The account was able to be seized as the alleged crime was operating an “unlicensed money transmitting business”.

The question now is what will happen to bitcoins and the philosophy behind it? It is clear that the US government is keeping an eye on developments and some senators are seriously concerned at the anonymity of it as a platform. Personally I don’t think it will go away but I do think it will have to alter somehow. It is a completely new idea that hasn’t really been tried before. Governments are skeptical, probably rightly, because there is no overall control structure with it and that can be a dangerous thing. Currently the price of a bitcoin fluctuates too rapidly and is far too unstable for it to challenge any real currency. It does however allow for criminals to transfer funds without being exposed – at present there doesn’t appear to be a way to get around this and so the chances are they won’t want this to be closed down without a fight.

Time will tell what happens but I think this is probably just the beginning….

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