The government's problem with creating a physical version of digital currency? It's the same thing as making actual currency.
Michael Caldwell had a pretty cool idea: He wanted to make a physical Bitcoin so people could actually hold their virtual wealth in the palms of their hands. Seems like a simple thing to make, right? Unfortunately, the U.S. government doesn't think that's so: The Treasury Department has stepped in and forced Caldwell to stop making his shiny e-money, at least for the time being.
Casascius Bitcoins are a set of "collectible" gold coins representing everyone's favorite "cyrptocurrency." Bitcoin holders can pay to have a predetermined amount of money transferred to a keycode, which is printed on the coin. (Interestingly, while there was originally a 25 Bitcoin version, one Bitcoin is now the highest denomination available.)
It's that last part that caught the Treasury department's attention. By creating pieces of physical currency with an designated monetary value, Casascius is technically considered a "money transmitter business," a type of company that is regulated by the federal government and 47 out of 50 states. So, while Caldwell's coins aren't illegal, he will need to receive a federal license to continue making them. He might also need to apply for individual licenses at the state level. It would be a very long, expensive process.
Regardless of what Caldwell decides what to do, Casascius is closing its doors for now.