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This question originally appeared on Quora, and was answered by Will O’Brien, owner of On Bitcoin.

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:

1. 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.
2. If you are amassing BTC as an investment rather than day trading or buying and spending, consider cold storage.
3. 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.
4. 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
Pros:

• 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.

Cons:

• 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
Pros:

• iPhone app!
• You can buy BTC with SMS payments.

Cons:

• Very techie user interface, not intuitive.
• No services. Very basic buy/sell functionality.

Mt.Gox - Japan-based Bitcoin exchange
Pros:

• In the early days, Mt.Gox had a large amount of volume and liquidity.
• Still considered a leading exchange.

Cons:

• 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
Pros:

• Reviewed as better than Mt.Gox.
• Based in USA.

Cons:

• 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)
Pros:

• Innovative security implementation enables most secure wallet.
• User-friendly site, easy to execute transactions.
• Best account creation flow.

Cons:

• 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

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22 Companies Called to New York to Answer Questions about Bitcoin

The New York State Department of Financial Services has subpoenaed 22 companies in an effort to better understand the uses and implications of alternative currency Bitcoin.

“If virtual currencies remain a virtual Wild West for narcotraffickers and other criminals, that would not only threaten our country’s national security, but also the very existence of the virtual currency industry as a legitimate business enterprise,” said Benjamin M. Lawsky, Superintendent of Financial Services, in a release. “We believe that – for a number of reasons – putting in place appropriate regulatory safeguards for virtual currencies will be beneficial to the long-term strength of the virtual currency industry.”

Forbes published a list of 22 companies that were subpoenaed due to their involvement in Bitcoin.

• BitInstant
• BitPay
• Coinabul
• Coinbase Inc.
• CoinLab
• Coinsetter
• Dwolla
• eCoin Cashier
• Payward, Inc.
• TrustCash Holdings Inc.
• ZipZap
• Butterfly Labs
• Andreesen Horowitz
• Bitcoin Opportunity Fund
• Boost VC Bitcoin Fund
• Founders Fund
• Google Ventures
• Lightspeed Venture Partners
• Tribeca Venture Partners
• Tropos Funds
• Union Square Ventures
• Winklevoss Capital Management

Below is the full release providing context on the subpoena.

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Charlie Shrem Calls Bitcoin the Currency of the Future, Wants to Grow the Bitcoin Ecosystem

In his morning keynote at the Inside Bitcoins conference in New York City, 23 year-old Charlie Shrem described Bitcoin as spurring a paradigm shift in the financial sector. Shrem is Vice Chairman of the Bitcoin Foundation and CEO of BitInstant.

The growth of Bitcoin—the digital currency that allows for feeless and instantly settled transactions–is directly related to wider acceptance by traditional retailers, assuring the security of transactions and combatting some of the less than favorable press that Bitcoin has garnered.

However, the growth of Bitcoin is also dependent on entrepreneurs like Charlie. Once laughed out of every venture capitalist’s office in New York City, Charlie Shrem convinced his mother to take out her life savings in order to start BitInstant, which solved the problem of “how do you buy bitcoins?” Today, as a result of Shrem’s efforts, you can walk into any 7/11 and buy Bitcoin in addition to your daily coffee or Slurpee. Later the famous, or infamous, Winklevoss twins invested in the startup.

Shrem’s latest endeavor is named Bitcoin Wireless, whose aim is to allow for the exchange of mobile airtime minutes as a currency (reminiscent of the virtues of mobile transaction pioneer M-Pesa).

Another innovation cited by Shrem in his talk was that of the Harvey brothers out of New Hampshire, who are launching the first Bitcoin ATM network; the ATM’s will allow for virtually instant cash-for-bitcoin exchanges.

With so much optimism and innovation surrounding Bitcoin, Charlie Shrem was quick to also point out some less rosy realities. Bitcoin has reputational issues to address; while these are due to Bitcoin’s “early days” when the currency’s environment was akin to the “Wild Wild West” and have been amplified by some members of the media, these issues are very real.

Next, is the issue of how Bitcoin might play with respect to traditional banks and financial institutions. In his talk, Shrem was hopeful that Bitcoin would one day be harmoniously incorporated into the traditional banking system, co-existing alongside credit cards, cheques and other more traditional instruments of financial transactions.

On the net, does Bitcoin’s future look bright? According to Shrem, “Bitcoin is doing to the world what Email did to snail mail.”

Authored by Michael Smouha and Ronan Murphy, Contributors to On Bitcoin

Conference photo tweeted by @saumvaish

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According to a Wall Street Journal report, state regulators have issued warnings to a handful of Bitcoin-related companies, alerting them that they may be running afoul of money-transmission laws.

As the video below explains, because you can be largely anonymous in these transactions, there is concern that virtual currency can be used for money laundering or other illegal activities.

One of the companies identified as having received a warning is BitInstant. We also reported last week that the State of California issued a cease and desist letter to the Bitcoin Foundation.

We’ll be following this story closely.

CC image by by zcopley

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Boost Bitcoin Fund and Accelerator

There are lots of startups getting into Bitcoin, from networks like Ripple to exchanges like BitInstant. Now there’s a new fund designed to support Bitcoin startups, called Boost Bitcoin Fund.

Adam Draper, Founder & CEO of Boost VC, announced the Boost Bitcoin Fund on his blog.

Bitcoin, the decentralized, ungoverned currency has become an obsession of mine. Almost all of my blog posts have been about it, and almost all of my meetings in the last 3 months have been in reference to it. Bitcoin is the most exciting innovation that is happening in the world today. That is why we here at Boost VC are excited to announce the Boost Bitcoin Fund.

The Boost Bitcoin Fund is a follow-on, or “start” fund for Bitcoin companies that graduate from the Boost accelerator program. The fund will provide each Bitcoin company in the summer cohort with a $50k investment after completing the program in September, in addition to the $15k invested by Boost VC. The fund is anchored by Lightspeed Venture Partners, Rothenberg Ventures, The Bitcoin Opportunity Fund and Ben Davenport. This impressive set of investors have already established themselves as true “thought leaders” in the alternative currency space, and I’m incredibly excited to have them onboard.

The idea for the fund came together 3 months ago when we decided to accept 5-7 Bitcoin companies into our summer session. We received incredibly positive responses from the investment community following our announcement, and as a result, decided to put together this follow on fund for this cohort of companies. Interest was so strong that the capital came together in a week! These awesome investors have partnered with Boost in the hope of producing the next generation of Bitcoin entrepreneurs and innovators. We’re committed to pushing Bitcoin toward becoming the next digital frontier.

As an added bonus one fourth of this fund will be invested as Bitcoin into the startup companies.

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