CHARLIE SHREM was a featured speaker at a gathering of Bitcoin enthusiasts in Miami on January 26th. The next day he was making less welcome headlines, after being arrested and accused of conspiring to provide $1m-worth of the virtual currency to shoppers on Silk Road, an online marketplace for illegal drugs. Silk Road was shut down last year. Its alleged founder, Ross Ulbricht, has since been indicted. Now crimebusters are turning their attention to the exchanges that allowed customers at such black-market bazaars to trade traceable old-economy currencies for near-anonymous virtual ones. Mr Shrem's arrest shocked Bitcoin groupies; the 24-year-old has been one of the currency's most vocal advocates, and was seen as having no links to its dark side. His exchange, BitInstant, has financial backing from the Winklevoss twins, internet entrepreneurs who claim that Facebook was their idea. According to the complaint, however, Mr Shrem personally processed orders for Robert Faiella, who faces similar charges, despite knowing the Bitcoins would be resold to Silk Road users (at a 10% markup); he concealed the orders from his business partner when the partner grew suspicious; and he advised Mr Faiella (whose online alias was BTCKing) on how to circumvent transaction limits imposed by BitInstant's anti-money-laundering policy, even though it was Mr Shrem's job to enforce these as compliance officer. If convicted, the two men face up to 30 years in prison. Bitcoin's fans complain that its illicit uses are attracting too much attention and its potential to shake up the payments business too little. Regulators are still not sure what to make of it. Responses differ from country to country. Finland's central bank views Bitcoin as a "digital commodity," not a currency. In Germany it is treated as private money. China has clamped down, restricting banks" use of virtual currencies. In America regulatory guidance has been slow in coming. Last year federal regulators did say that virtual-currency exchanges might be considered "money-service" businesses, akin to cheque-cashing firms or bureaux de change. These have to comply with know-your-customer and other money-laundering rules, but are licensed by the states. So state regulators are now scrambling to understand e-currencies better. All eyes are on New York, whose superintendent of financial services, Benjamin Lawsky, held hearings on the issue this week. He wants a new set of rules - dubbed the "BitLicence" - specifically for virtual currencies. Bitcoinistas are split on the idea. Some fear that it will strangle a promising new technology that could help to circumvent the transaction fees charged by banks. Others believe that it might confer legitimacy on a tainted business. Anticipating a flurry of red tape, virtual-currency firms are starting to take on more compliance experts. The new hires will be busy. "If the choice for regulators is to permit money-laundering on the one hand or to permit innovation on the other," declared Mr Lawsky, "we are always going to choose squelching the money-laundering first."