The Department of Homeland Security, also known as DHS, has shut down the ability to use the payment service Dwolla to transfer money into and out of the largest and most popular Bitcoin exchange Mt.Gox. This effectively freezes the exchange’s ability to cash out users’ Bitcoins for real money since users cannot pay for Bitcoins with cash or get cash for their Bitcoins.

According to information obtained by Betabeat, The DHS has obtained a seizure warranty from the US District Court for the District of Maryland. This allows them to seize the funds associated with Mutum Sigillium’s Dwolla account (Mt Gox) and to hold them indefinitely. At the current moment, Mt.Gox is aware of the seizure and warrant, but has not been served with any papers to explain the scope or purpose of the warrant.

This move further punctures another hole in the Bitcoin balloon that has been rising ever since thousands of people flocked towards the digital currency when instability in European markets began to rise. Since then, the currency has suffered a few setbacks and has fluctuated wildly due to speculation, denial of service attacks, and many other problems. This latest move by the DHS has to be one of the most bizarre because DHS would be the last branch of the government we’d expect to go after Mt.Gox or any bitcoin exchange. I’d more expect something like the IRS, FTC, SEC or DoJ than the DHS. If the DHS is getting involved it must mean that there is some sort of national security risk that they are trying to sell as part of the reason for the seizure.

While I’m not sure that Bitcoins will continue to exist as a result of countless setbacks and opposition, I do believe Bitcoins have started a conversation that has jumpstarted interest in digital currencies and will likely have an impact for decades to come. I believe that Bitcoins are a target for many governments due to their anonymous nature and the ability to trade them digitally, however, to me the are simply an over inflated currency that speculators have used to either get rich quick or to hide their assets. I like the idea of Bitcoins and what the enable, but I’m just not sold that Bitcoins themselves are the digital currency that the world needs.