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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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Payment network Dwolla prepares to block Bitcoin and virtual currency exchanges

Dwolla is a payment network that allows any business or person to send, request and accept money. Their pitch is low flat fees, or in some cases no fees at all, to send money.

With the recent Silk Road bust that is still making heads spin at the magnitude of the illicit business operated on the Bitcoin marketplace, it seems that some companies are getting nervous about being too close to Bitcoin.

Dwolla is officially cutting off Bitcoin users from its network.

Here is an email Dwolla sent to its users.

Dear Dwolla Account Holder,

As you know, Dwolla does not sell, accept, mine, value, take possession of, or hold Bitcoin or any other virtual currency product, and none of Dwolla’s users transact business with Dwolla using Bitcoin or any other virtual currency product. However, recent interest involving virtual currency and its exchanges has created uncertainty and confusion around virtual currency, and Dwolla’s relationship with a small number of its exchanges. This has forced Dwolla to reassign resources, funds, and services.

As Dwolla gears up for a new stage of growth, we recognize that we can no longer sustain this merchant base (.1 percent of Dwolla merchants) and its unique needs, and that attempting to do so jeopardizes both of our communities’ starkly different, but similarly ambitious, vision for improving payments.

Effective October 28, 2013 at 4pm CT, Dwolla will be withdrawing its service offerings to virtual currency exchanges and virtual currency related services.

What does this mean? Your account, and its functionality, will remain unaffected. However, you can deactivate your account from within your Dwolla dashboard, if you so choose. Dwolla aims to provide its users and the few affected merchants with the guidance necessary to ensure a smooth transition. To do that, we encourage users to over-communicate with our support team, report any suspicious activity, and revisit our terms of service to ensure uninterrupted services.

What is the timeline of events?

• October 10: Only existing users with a 30-day history with Dwolla will be able to send funds to merchants affected by this change.
• October 15: Affected merchants will be limited to sending money only, and will no longer be able to receive funds from customers. They will be able to issue refunds to customers at this time.
• October 28: Affected merchants’ accounts will be suspended. No further activity will be provided. October 29: Provided no security or fraud concerns, Dwolla will transfer any of the remaining funds inside the affected merchant’s Dwolla account to its linked bank account.

The decision to remove anyone from the network — no matter the circumstances — is not something Dwolla takes lightly. We are grateful for the opportunity to service and learn from these users. We wish the community and its pioneers the best.

Sincerely, Dwolla Support

Is this a good move for Dwolla?

On the upside, it gives them a clean separation from the legal and regulatory risks associated with virtual currency exchanges and marketplaces.

On the downside, they may lose customers. One user commented in a forum about the policy, “I’ve just deactivated my account. There is really no reason to use Dwolla other than to buy Bitcoins.”

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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.

CC image by wallyg

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