US Makes Bitcoin Exchange-Silk Road Arrests (BBC)
The BitInstant Bitcoin exchange is based in New York
The operators of two exchanges for the virtual currency Bitcoin have been arrested in the US.
The Department of Justice said Robert Faiella, known as BTCKing, and Charlie Shrem from BitInstant.com have both been charged with money laundering.
The authorities said the pair were engaged in a scheme to sell more than $1m (£603,000) in bitcoins to users of online drug marketplace the Silk Road.
The site was shut down last year and its alleged owner was arrested.
Mr Shrem was arrested on Sunday at New York’s JFK airport. He was expected to appear in court on Monday, prosecutors said.
HOW BITCOINS WORK
Bitcoin is often referred to as a new kind of currency.
But it may be better to think of its units as being virtual tokens that have value because enough people believe they do and there is a finite number of them.
Each bitcoin is represented by a unique online registration number.
These numbers are created through a process called "mining", which involves a computer solving a difficult mathematical problem with a 64-digit solution.
Each time a problem is solved the computer's owner is rewarded with bitcoins.
To receive a bitcoin, a user must also have a Bitcoin address - a randomly generated string of 27 to 34 letters and numbers - which acts as a kind of virtual postbox to and from which the bitcoins are sent.
Since there is no registry of these addresses, people can use them to protect their anonymity when making a transaction.
These addresses are in turn stored in Bitcoin wallets, which are used to manage savings. They operate like privately run bank accounts - with the proviso that if the data is lost, so are the bitcoins contained.
Mr Faiella was arrested on Monday at his home in Cape Coral, Florida.
Bitcoin exchanges are services that allow users to trade bitcoins for traditional currencies.
James Hunt, from the US Drug Enforcement Agency, said in a statement: “Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way.
“Drug law enforcement’s job is to investigate and identify those who abet the illicit drug trade at all levels of production and distribution, including those lining their own pockets by feigning ignorance of any wrong doing and turning a blind eye.”