Kim Dotcom claims that pressure from "Hollywood and the US government" led Paypal to cancel processing payments for his Mega file-sharing service, but the cloud storage company could be looking to cryptocurrency bitcoin as a solution.

In a statement the company claims that pressure from Visa and MasterCard led Paypal to take the decision to cancelling its relationship with the company after they were put under pressure from the film and music industry and the US government.

Mega is a cloud storage company launched at the beginning of 2013 in New Zealand by Dotcom, the internet entrepreneur who previously ran MegaUpload before it was seized by the US authorities for hosting content which breached copyright.

Since launch, Mega says it has registered more than 15 million customers and currently hosts more than 4 billion files, 99.7% of which are smaller than 20MB.

Referencing the decision by Paypal on Twitter, Dotcom hinted that the world's most valuable cryptocurrency - bitcoin - could be the solution:

Let's give Bitcoin a boost :-) #Mega — Kim Dotcom (@KimDotcom) February 27, 2015

IBTimes UK has asked Dotcom to clarify if this was simply a throwaway comment or if Mega is actively looking at implementing payments through bitcoin.

Pressure from on high

In a blog post, the cloud storage company said that it believed MasterCard and Visa had pressured Paypal into pulling its services from Mega.

However the company believes that in turn, Visa and MasterCard were pressured into cancelling their relationship with Mega by US senator Patrick Leahy, the chairman of the Senate Judiciary Committee following the publication of a report last September by NetNames on "shadowy" file-hosting services which surprisingly included Mega.

The report, entitled 'The Cyberlocker Door: A Report How Shadowy Cyberlockers Use Credit Card Companies to Make Millions', listed Mega alongside what TorrentFreak called "some of the market's most dubious players". Mega threatened legal action following the publication of the report.

Mega says:

Mega is aware of a report published by NetNames (partially funded from the MPAA supported Digital Citizens Alliance) that incorrectly claims Mega's business to not be a legitimate cloud storage service. Mega is aware that Senator Leahy (Vermont, Chair Senate Judiciary Committee) then pressured Visa and MasterCard to cease providing payment services to the companies named in that report. Visa and MasterCard then pressured PayPal to cease providing payment services to Mega,"

A Paypal spokesperson told IBTimes UK: "PayPal can confirm that we have decided to end our relationship with Mega for business reasons. We respect the privacy of all our customers and former customers and will not provide further details about this decision."

IBTimes UK has contacted Visa and Mastercard to comment on these allegations, but at the time of publication none have responded.

Mega says it complied with all requests from Paypal to show evidence that its business is "legitimate and legally compliant" allowing the payment processing company to share those details with Visa and Mastercard.

However this was not enough and eventually Paypal made "a non-negotiable decision" to terminate services.

Legitimate business

The cloud storage service says that PayPal has apologised for what has happened and confirmed that Mega management are "upstanding and acting in good faith" and that the business "is legitimate".

Paypal said the key concern which led to the breakdown in the relationship was that Mega has a unique model with its end-to-end encryption which leads to "unknowability of what is on the platform".

The company says it will not "compromise its end-to-end user controlled encryption model and is proud to not be part of the USA business network that discriminates against legitimate international businesses."

Mega has said that until a new payment system is in place it will temporarily not enforce its storage limits or suspend any accounts for non-payment as well as extending it existing subscriptions by two months free-of-charge.

Whether or not that payment system is bitcoin remains to be seen, but this is not the first time this month Dotcom has made cryptic remarks related to the cryptocurrency.

Dotcom has been tweeting about a mysterious new internet called MegaNet which will leverage the blockchain technology on which bitcoin is built.