Declan McCullagh/CNET

SAN JOSE -- The Winklevoss twins, who transformed a lucrative Facebook payout into a venture capital fund, say it's now time for Bitcoin companies to work with governments rather than against them.

Cameron and Tyler Winklevoss, the twin Harvard graduates famously portrayed in the 2010 film "The Social Network," showed up at the Bitcoin 2013 conference to talk up the future of what is the Internet's favorite alternative currency -- as long as it escapes a government crackdown.

"I don't think anyone wants a fight -- I think everyone here wants to build Bitcoin, to work with regulators," Cameron Winklevoss told over 1,000 conference attendees yesterday evening. "Cooperation is really the way forward."

The Winklevii, who became enough of a cultural icon to be immortalized with Snooki and Kermit the Frog in pistachio commercials, have motives that are far from altruistic: they reportedly own 1 percent of all Bitcoins mined to date. They also led a seed funding round that yesterday raised $1.5 million for BitInstant, a New York startup that makes it easier to buy and sell Bitcoins.

"You can laugh all you want, but Bitcoin's real," Tyler Winklevoss said. "FinCEN acknowledges virtual currencies. They've given guidance, which is a big step." That's a reference to a March 2013 statement from FinCEN, an arm of the Treasury Department, which slapped Bitcoin exchanges with a hefty set of regulations borrowed from the banking world. Smaller U.S.-based exchanges promptly went out of business, prompting a Bitcoin Foundation board member to warn last month that the rules are "choking" entrepreneurs.

Lack of government control is precisely why Bitcoin has grown so rapidly. Unlike what devotees refer to with disdain as government "fiat currency" -- more can be brought into existence with a printing press run -- the supply of Bitcoins is sharply, algorithmically, limited. An all-digital currency allows people in places like Cyprus or Argentina to evade currency controls with ease. It also, in at least some ways, is far more anonymous than moving cash through the legacy banking system.

But that period of benign neglect appears to be over. The Royal Bank of Canada pulled the plug three weeks ago on a Calgary startup that acted as a Bitcoin marketplace. An internal FBI report predicts "malicious actors will exploit Bitcoin to launder money."

A Homeland Security police unit that investigates money laundering crimes obtained a court order this week cutting off Dwolla payments to Mt. Gox, a Japan-based company that operates the largest Bitcoin exchange. The Feds allege that Mt. Gox lied about being a money transmitting business, a felony if true. (It also means that Mt. Gox employees, who are presumably aware of the legal troubles of Kim Dotcom and those gambling executives a few years ago, probably don't want to set foot on U.S. soil right now.)

That may be why Peter Vessenes, the executive director of the Bitcoin Foundation who's also enmeshed in a messy lawsuit against Mt. Gox, also stressed the need for governmental cooperation.

"We'll be hiring someone to work on [Capitol] Hill and interact with regulators," Vessenes said. "I'm someone who thinks we should have a civil conversation.... It's time to engage with regulators and have a good, productive conversation."

Then again, that didn't stop the E-Gold online payment system from being shut down after a federal indictment on charges of money laundering. Not only did E-Gold chairman Douglas Jackson interact with regulators, he even testified before the U.S. Congress a year before the indictment took place.

One difference is that Bitcoin is, by design, far more distributed. That's one reason why alternative currency enthusiasts and Federal Reserve critics love it so much: the merry band of libertarian activists from New Hampshire who produce the Free Talk Live radio show not only showed up at the conference but were also broadcasting live for a few hours from the event floor. The antiwar and liberty activists at BitcoinNotBombs were happily selling T-shirts for $20, or a fractional payment in Bitcoins, from their booth yesterday evening even after the conference had officially ended for the day.

So far, the informal alliance of liberty-minded aficionados and technical savants who embraced Bitcoin early on and the buttoned-down investors who merely want to get rich has held. But now cracks are showing.

One Bitcoin trader dismissed libertarian politics in a conversation with CNET yesterday, saying what's important is merely liquidity and a stable market and that Panama-based companies like Coinapult don't help accomplish that in the eyes of regulators. At a booth a few feet away, conferencegoers were arguing about whether the Commodity Futures Trading Commission or the Securities and Exchange Commission would be the preferred regulatory agency for a fund that would let investors buy and sell Bitcoins. And many venture capitalists actually prefer regulation, believing it's a sign of a mature market.

"Will we win?" asks Cameron Winklevoss. "I think everyone in this room is pretty confident in saying Bitcoin is a winner. We bet on the horse, not a donkey here."