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US authorities start campaign against Bitcoin?

Several people pinged me yesterday to highlight the fact that Bitcoin has now become a target of the major payments processors.

Not for acquisition.

Not for partnership.

Not for joint ventures.

Not for support.


Bitcoin is obviously becoming a threat to mainstream operations as it is now an active shut-down target.

This was demonstrated by Tradehill, the second largest Bitcoin exchange, which was shutdown due to disputes with its payment processors, and specifically MasterCard.

Before going further, if you’re not aware of Bitcoin, you can find all you need to know here.

So what happened?

Well, Bitcoin can easily be exchanged with conventional currencies through services from organisations like Mt.Gox, a Japanese site that leads the currency, and Tradehill, the US version.

On Monday, Tradehill CEO Jared Kenna wrote that the service was being shutdown immediately.

Here’s his letter of notice:

TradeHill – shutting down trading / deposits and returning all client funds

Dear Clients,

Effective immediately TradeHill will be shutting down trading / deposits and returning all client funds.  Due to increasing regulation TradeHill can not operate in it's current capacity without proper money transmission licensing. Combined with multiple bank account closures and Paxum's decision to close all Bitcoin business accounts, we have deemed the best course of action is to halt trading and pursue licensing while raising funds.

SEPA transfers for our Euro customers have been enabled.

Everyone at TradeHill has also been working without pay for several months after one of our payment processors removed over $100,000 dollars from our account without notice. We decided to cover this loss for now instead of passing it on to our customers and are taking legal action against the processor.

We will be focusing on Bitcoin.com and are preparing to release a new site before the end of the month.

It has been a pleasure working with the Bitcoin community and look forward to continuing our business in the future. More details to come soon.

Please follow our blog for more updates. tradehillblog.com



Jered Kenna

Chief Executive Officer


Tradehill’s notice of shutdown follows fast on the heels of Paxum’s decision to sever ties with Bitcoin after pressure from MasterCard.

Here’s what Paxum’s spokeswoman Ruth Blair had to say:

Paxum Ceases Business With Bitcoin 

Over the course of the last two weeks, Paxum has been in communication with our banking partners, Mastercard, and our auditors to evaluate the best interests of Paxum (and its clients) in relation to Bitcoin.

After much discussion and consideration it has been decided that, though Bitcoin's are not illegal, they are considered high risk. At Paxum we do not want to jeopardize our clients, or our business model, in any way. In light of that, and after considerable consultation, we have chosen to take the pro-active step of ceasing all business with Bitcoin and Bitcoin Exchangers.

This situation has also been discussed with Bitcoin Exchangers, who completely understand the motives behind this decision.

Thank you for your time.

Hmmm … to me it smacks of the pressure that PayPal, MasterCard and Visa exerted to shut down Wikileaks.

In other words, if we don’t like it, don’t understand it, believe it’s subversive and could be used for money laundering or terrorism; then we, the authorities that matter, will tell our instruments of power – the financial processing system – to shut it down.

Or is that just me being paranoid?

The most interesting comment on email I received from one banker who said: “is it protection of the financial market or from customer protection perspective?”


It’s for the protection of the governmental authorities at the expense of the 99%.

Oh dear, now I’m sounding like some sort of radical …



 UPDATE 8th March 2012, via PYMNTS.com

TradeHill Inc., exchange operator for online currency Bitcoin, has filed a lawsuit against payment startup Dwolla.

In the suit, TradeHill alleges that “fraudulently reversed nearly $100,000 in supposedly ‘credited’ transactions and unjustifiably blocked an attempt by TradeHill to transfer $70,000 of its funds from Dwolla's control," a press release shows.

Dwolla CEO Ben Milne has since responded. While Dwolla has not yet been served a formal notice regarding any potential lawsuit, Milne says, his company would “vigorously defend all allegations of wrongdoing” should that service take place.

Milne’s response is hardly boilerplate, and makes a significant effort at explaining some of the details behind TradeHill’s allegations. The statement is available online at Observer.com’s BetaBeat.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  1. Back in May I said “I’m sure governments will start banning bitcoins soon.”
    Are Paxum stopping everything that is high risk to their client’s money?
    I remember that Liberty Dollars, a private currency produced in the US were privately promoted as a form of currency that could be used in commerce as an alternative to Federal Reserve notes and were banned in the US last year with the founder being charged with federal crimes.

  2. Darn, your post forced me to push out our paper:
    “Bitcoin & Gresham’s Law – the economic inevitability of Collapse”
    Abstract. The Bitcoin economy exhibits remarkable and predictable stability on the supply side based on the power costs of mining. However, that stability is challenged if cost-curve assumption is not solely expressed by the fair cost of power. As there is at least one major player, the botnets, that can operate at a power-cost-curve of zero, the result is a breach of Gresham’s Law: stolen electricity will drive out honest mining. This has unfortunate effects for the stability of the Bitcoin economy, and the result is inevitable collapse.
    Enjoy 🙂

  3. Botnets are becoming a moot point. With the advent of GPU based mining software, a single proper miner can match if not outweigh a whole botnet.

  4. Chris, Nice overview, There is also a very good analysis written up at AVN (or Adult Video News):

  5. I love how there is literally nothing short of shutting off the internet worldwide that the self-appointed “authorities” can do about Bitcoin 🙂 lolololol dancing on the grave of central banking and nationalism teehee tahaa

  6. It appears that this is not actually an attack against Bitcoin but rather the way that Paxum and Tradehill were conducting operations between themselves.
    From the forums:(https://bitcointalk.org/index.php?topic=63521.msg744658#msg744658)
    “The issue here as was the case with Paypal is that services that accept funding via a credit card as a purchase cannot then allow those funds to be used to purchase another form of money. This is to avoid what is in reality a cash advance transaction to be treated as a purchase. One cannot go to say a Canadian Merchant with a Canadian Credit Card and for example purchase CAD or EUR. The consumer has to instead go to a bank, and get a cash advacne on the Credit Card and then purchase the USD or EUR. These rules have been in place for a very long time, long before Bitcoin or even the Internet existed, and for a very good reason.
    There are many credit cards that have a say $1000 CAD cash advance limit and say an overall $4000 CAD overall limit. If one maxes out the $1000 CAD cash advance limit, and then goes to a bank for an additional $4000 CAD one gets declined, not because the overall limit was exceeded but because the $1000 CAD cash limit was exceeded. But our card holder still wants the cash advance. So instead he funds Paxum with his $4000 CAD credit as a purchase, then uses Paxum funds to fund MtGox via BitInstant, purchases $4000 CAD (less the fees) worth of BTC, then funds Cavirtex with the BTC, and sells back the BTC for CAD effectively getting his Cash Advance in CAD out of the Credit Card.
    The reality here is that many in the financial services sector are actually realising that BTC is actually money and has to be treated as such. What I find surprising actually is how long this has been allowed to go on.
    This is why one must avoid any service that can be funded by a Credit Card for the purchase of BTC.
    Apparently, there is a rule for credit cards that states that only certain amounts can be transferred”
    And later in the same discussion thread…
    From the CEO of TradeHill: (https://bitcointalk.org/index.php?topic=63521.msg745900#msg745900)
    “I really don’t want to believe there is a conspiracy against Bitcoin. I think it’s far more likely that more institutions are becoming aware of it and are either not informed enough or just uncertain. Banks and e-wallets are all making risk based decisions and the Bitcoin economy despite being larger than I had ever hoped for is still small potatoes compared to the volumes they deal with. That said if they perceive it to be a risk at all with it only bringing in a small amount of revenue they’ll kill it in a heartbeat.
    To put it in perspective Citi has around 1.6 Trillion in assets (don’t hold me to that number) so even if Bitcoin moves a few million a month through them it’s not even a drop in the Bucket at this point. This further illustrates why I’d suggest you use a credit union instead of a large bank. They really just don’t care about any single individual or company nor do they need to.”
    Fundamentally, the issue is that Paxum was allowing bitcoins to be purchased via credit card, and that is a big no no due to the regulations that surround credit cards. To save themselves Paxum cut off TradeHill, and without their support TradeHill collapsed due to pressure from an earlier alleged fraudulent withdrawal of $100,000.
    Other exchanges don’t take credit card payments for bitcoins, and place daily withdrawal limits and so are largely unaffected by these regulations.

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