Is the U.S. Justice Department on the verge of dropping the hammer on bitcoin

Numerous Washington officials have repeatedly warned that bitcoin could be utilized for illicit transactions, criminal activities and terrorism financing. Some of these individuals can be found at the Internal Revenue Service, the Treasury Department and now the United States Department of Justice.

Attorney General Eric Holder delivered testimony at a House Judicial Committee hearing Tuesday in which he confirmed that the department was working with various financial regulators to pinpoint culprits who acquire drugs, weapons and other illegal goods and services with virtual currencies.

Holder, who has been involved with several controversies since being appointed as the top lawyer in the nation, had a stern warning for the bitcoin community: “Those who favor virtual currencies solely for their ability to help mask drug trafficking or other illicit conduct should think twice.”

HammerThe Attorney General added that the Justice Department is working to upgrade its technology to combat any illegal operations affiliated with bitcoin and other digital currencies “to ensure our investigations are not impeded by any improvement in criminals’ ability to move funds anonymously.”

“Virtual currencies can pose challenges for law enforcement given the appeal they have among those seeking to conceal illegal activity,” Holder told the House Judiciary Committee. “This potential must be closely considered. We are working with our financial regulatory partners to account for this emerging technology.”

Is this a signal that the Justice Department will use its resources to clamp down on the bitcoin industry? Although nothing has come to fruition yet, various public officials have cautioned that bitcoin regulations and restrictions were coming – one of these civil servants was Treasury Secretary Jack Lew, who has noted of this a couple of occasions.

During the meteoric rise of bitcoin over the past year, many have warned that the future of the revolutionary peer-to-peer decentralized network would be in danger because of the power of the state, an institution that would not want to be threatened or have its partners – Wall Street – to lose profits and revenues.

It seems any attempts to clamp down on bitcoin are being impeded, though – temporarily anyway. It was reported Wednesday that Texas Republican Congressman Steve Stockman introduced legislation that would classify bitcoin as a currency and not as taxable property.

The bill is entitled “The Virtual Currency Act” that would “change the tax status of virtual currencies from property to currency.” It would revise how the IRS and law enforcement agencies view digital currencies. This has gained the favor of the bitcoin community, according to a statement released by the NYC Bitcoin Center.

“We salute Congressman Stockman for making good on his promise to support digital currencies like Bitcoin,” said Nick Spanos, founder of the bitcoin organization. “The Congressman displayed an interest in Bitcoin’s path-breaking, job-creating technology early on.  On behalf of the entire digital currency community who have a stake in this nascent industry’s growth and its normalization into the economy, Bitcoin Center NYC thanks Congressman Stockman for leading the charge amid what often seems like conspicuous silence on the matter.”

We reported Wednesday of how bitcoin was demonstrated on Capitol Hill and one proponent of the virtual currency actually converted his dollars into bitcoin ($10 for 0.02 BTC).