Bitcoin Cloud Wallets Comparison: Security and Liquidity
Q: Which site is best for keeping a cloud bitcoin account? Specifically I want to: 1) keep my balance secure, and 2) change in and out of USD easily.
Sadly, the answer is none of them at this time. But there are some exciting new companies on the horizon.
First, some background. You can hold your Bitcoins in a wallet (cloud or desktop), at an exchange, or in cold storage. Each has its own profile for security and liquidity.
Security: There is a trade-off. Wallets and exchanges that are easier to use are often less secure. This is not a rule, just the current state of affairs. The biggest risk to Bitcoin is theft. If someone gets your private key, you will be robbed. See Bitcoin Theft: Mt. Gox Attack Pillages Investor’s Bitcoin Account as an example of how a Java chat applet was used to pillage a Mt.Gox user’s account.
Liquidity: Many exchanges have difficult account creation (to ensure security) and a prolonged wait to exchange to/from BTC, both as a hedge on currency volatility and because other institutions have delays, e.g., bank transfers. There is also regulatory risk and perceived regulatory risk. For example, Tradehill recently suspended its exchange due to regulatory concerns, Mt.Gox froze USD withdrawals, and Dwolla cut off Bitcoin users.
The general rules of thumb for both security and liquidity are:
- Never keep a large amount of money in an single Bitcoin wallet. Some Bitcoiners would say a single wallet should be used only once and not hold more money than you would be comfortable losing in a theft.
- If you are amassing BTC as an investment rather than day trading or buying and spending, consider cold storage.
- Keep on top of your account security like you would at your bank. There will be new Bitcoin wallet services that do everything for you that BofA does today, but those are in the future, not the present.
- Keep on top of your service provider. If they get impacted by regulation or attacks, so will you.
With that in mind, below are the major players to consider.
Coinbase - SF-based Bitcoin wallet startup
- Probably the most user-friendly site available. It’s a simple, intuitive, web interface for buying and selling.
- Uses ACH transfer for buying/selling from USD.
- Real-time charts and exchange rates.
- VC-backed and reputable amongst the competition.
- Android app and iPhone app available.
- Account setup is not trivial. Requires adding a bank account, verifying phone number, installing 2-factor authentication, etc.
- Transaction delays: BTC-to-BTC transactions take 1 hour to clear. BTC-to-USD and USD-to-BTC transaction take days.
Bitcoin Block Explorer – Blockchain.info - web and mobile Bitcoin wallet
- iPhone app!
- You can buy BTC with SMS payments.
- Very techie user interface, not intuitive.
- No services. Very basic buy/sell functionality.
Mt.Gox - Japan-based Bitcoin exchange
- In the early days, Mt.Gox had a large amount of volume and liquidity.
- Still considered a leading exchange.
- Instability: USD withdrawals were frozen (source: Mt. Gox Halts US Dollar Withdrawals at Bitcoin Exchange).
- Attacks: DDOS attack on Mt.Gox (source: Bitcoin Exchange Mt. Gox DDoS Attack: It’s Been an Epic Few Days).
- Regulatory risk and policy changes (source: Mt. Gox Forces Users to Verify Accounts After Government Crackdown).
- Account setup very challenging: need to upload scan of driver’s license or passport, and utility bill for proof of address. Then setup security center (Yubikeys or Software Authenticators). And more.
- Not based in US.
CampBX Bitcoin Trading Platform - US-based Bitcoin trading platform
- Reviewed as better than Mt.Gox.
- Based in USA.
- Delays in initial trading after placing funds.
- May be impacted by Dwolla decision to cut off Bitcoin exchanges.
BitGo - Startup with promise of most secure wallet (note: this is a relatively new startup with interesting technology that is coming to market soon)
- Innovative security implementation enables most secure wallet.
- User-friendly site, easy to execute transactions.
- Best account creation flow.
- New to market.
Companies no longer providing Bitcoin liquidity:
- Dwolla – online payment platform (source: Payment Network Dwolla Cuts Off Bitcoin Users)
- Tradehill – high-end trading platform (source: Bitcoin Exchange Tradehill Suspends Trading Due to Regulation Concerns)
Companies not profiled in this answer:
- BTC-e – Bulgarian cryptocurrency exchange
- CoinMkt – Relatively new exchange with thousands of trades
- OKPay.com – low-cost money transfers
- BitStamp – exchange based in Slovenia
- BitInstant – Winklevoss-backed startup Bitcoin exchange (site is currently down)
- Desktop Bitcoin wallets – e.g., Bitcoin-Qt, Armory, etc.
- In-person trading platforms – find somebody nearby to trade, e.g., LocalBitcoins.com, TradeBitcoin.com
CC image by by 401(K) 2013