Want more government in your pocket? Wednesday, the US federal government froze the largest Bitcoin exchange.

The Department of Homeland Security seized an intermediary account which tied Dwolla to Mt. Gox, which hosts 80% of all Bitcoin trades. The problem? Mt. Gox was an “unlicensed money service.” The exchange was based in Japan.

Why did this happen? According to Gawker, Mt. Gox’s chief executive, Mark Karpeles, “failed to declare he was operating a money transmitting business when he opened an account with WellsFargo in May 2011, according to a warrant made public on Wednesday.” The US Treasury Department ruled in March that any entity exchanging online currency, such as Bitcoin (which is not backed by a centralized bank), would be suspect for money-laundering. This lead to the Treasury requiring reports of any transaction worth more than 10,000 US Dollars. According to the Wall Street Journal, “The Commodity Futures Trading Commission also is considering whether to regulate so-called virtual currencies.”

Because of this, the US authorities charged Mt. Gox with failing to register their business with the Treasury’s Financial Crimes Enforcement Network. This entirely undoes why people love Bitcoin; the Internet-based currency has no central governmental planner. The government argues that registration aids in combating terrorism and helps the War on Drugs.

A Bitcoin exchange could likely never reach the requirements needed to be a “legitimate” currency exchange. Most notably, licensed Internet exchanges require their users to be able to identify all parties involved in the transaction. Bitcoin, however, is specifically designed to be anonymous. The transaction may never be able to be traced. Thus, “it’s not all that easy to see how a Bitcoin exchange can ever become so licensed.” In other words, the current system would not allow Bitcoin to operate successfully unless it radically changed its design.

Seems to me like the US government is having a power trip on this one; after all, Bitcoin is a great way to illegally evade taxes and deal drugs. Jerry Brito from the Mercatus Center notes why the government thankfully won’t win this one. He says,

“Bitcoin has the potential to be a boon to the economy and a boon to merchants… You can’t put the genie back into the bottle… I hate to say it, but the Bitcoin community needs to start lobbying. It needs to start educating policymakers, lobbyists and influencers about the pros of Bitcoin and the impossibility or the difficulty in getting rid of all the bad uses.”

Looks like the Bitcoin war has finally begun. Let the Internet militias assemble.