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Banking Partners Force Paxum to Drop Bitcoin

Banking Partners Force Paxum to Drop Bitcoin
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Feb 14, 2012 10:30 AM PST    Text size: 

MONTREAL — TradeHill, a major bitcoin exchange, has suspended trading following the exit of ewallet service Paxum from the market and a $100,000 loss from a fraudulent payment processor.

Paxum last week said that it can no longer accept any accounts related to bitcoin or their exchanges and that all current bitcoin-related accounts have been closed.   

Bitcoin uses P2P networking, digital signatures and cryptographic proof to enable payments between parties. Payments are made in bitcoins, a digital currency issued and transferred by the bitcoin network that are recorded in a public history.

For TradeHill, the news has been devastating because Paxum was the exchange's primary money transmission service.

"Effective immediately TradeHill will be shutting down trading /deposits and returning all client funds," TradeHill CEO Jered Kenna said in a statement. "Due to increasing regulation TradeHill cannot operate in its 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."

TradeHill officials went on to say that one of its payment processors removed more than $100,000 dollars 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 would also like to make it known that our relationship with Paxum has been great and hope to work with them in the future.

"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."

Paxum’s partners consider bitcoin exchanges “high risk,” Paxum's Ruth Blair told Betabeat. “We simply must cease all business with bitcoin based on our banking partners/Mastercard, etc. We don’t have a choice in the matter I’m afraid.

“The main fears had to do with the fact that it’s a decentralized currency and as such there isn’t much control over it,” Paxum said. “In the end, it is converted to a legal tender (generally U.S. dollars), but it is unclear to them how this currency is supported and who pours actual money into it, and more importantly, why.”

One or more of Paxum’s partners have put a policy into place that basically bans bitcoin, Blair told the website. Blair said the policy requires frequent checks and audits by a third party that would be incompatible with the decentralized currency.

“We are trying to soften the general outlook on bitcoin by shedding more light on the situation, but the new rules that appeared almost overnight are very clear and unfortunately we cannot predict if and when this might change,” Blair said. “We will try to bridge the gap between bitcoin and our partners, but we will abide by the rules, as we are not willing to take risks when it comes to our clients’ funds.

"We believe it is important for us to provide all of our clients with a safe, secure environment where they know they can trust us and their money is safe.”

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