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.

No.

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

Sincerely,

Jered Kenna

Chief Executive Officer

TradeHill

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?”

Neither.

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.

Posted on: February 22, 2012