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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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In August, Tradehill announced that they had suspended trading over regulation concerns. When we reached Tradehill for comment, they provided the following explanation:

The Internet Archive Federal Credit Union has experienced operational and regulatory issues and we are no longer able to continue our developing relationship. Both Tradehill and IAFCU were excited about this relationship and both regret this unfortunate outcome. Tradehill’s integration with IAFCU had allowed for clients to buy Bitcoin with a balance in an account with their own name. This allowed clients to trade Bitcoin with funds that were stored in a federally insured institution.

Well, Tradehill is back, sort of.

Tradehill is now running an auction business, hosting BitSyncom’s newest round of next-gen Avalon ASIC mining equipment sales. The company is launching a series of auctions, which allows customers to set their own purchase price.

To participate in the auctions, you still need to have a Tradehill verified account, and all bids are in Bitcoin.

While this wasn’t the business Tradehill originally set out, it looks like they are creating some defensibility in the Bitcoin mining equipment space. Tradehill auctions is the exclusive provider of Avalon products, as it is not possible to purchase Avalon chips directly from Avalon.

Visit Tradehill Auctions to learn more.

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Bitcoin News

A roundup of the top Bitcoin news from August 26 to September 1:

Tuesday, August 27

• FinCEN Gives Early Guidance on Bitcoin Regulation

Wednesday, August 28

• Bitcoin ATM RoboCoin Kiosk Goes on Sale for $20,000

Thursday, August 29

• Legal Firm Riddell Williams Hires Bitcoin Experts to Lead Payments Practice

Friday, August 30

• Bitcoin Exchange Tradehill Suspends Trading Due to Regulation Concerns

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More Troubles for Bitcoin Exchange Tradehill

Tradehill is a US-based Bitcoin exchange that has grown in popularity as the chief competitor to Japan-based Mt. Gox. Tradehill has tried to position itself as an exchange for traders, especially those looking to move larger blocks of BTC.

Now the company has run into troubles, and has posted a bulletin on its site notifying users that it has suspended trading “due to banking and regulatory issues.”

In February 2012, Tradehill shut down “due to increased regulation” and a dispute of $100,000 with one of its payment processors. CEO Jered Kenna posted the announcement on Bitcointalk. The company later bounced back from this issues and has been on the rise, until this latest suspension of business.

Below is the full bulletin from Tradehill. We have reached out to the company for further comment.

Many of you have come to know Tradehill as the digital currency exchange of choice over the last six months. We have appreciated your patronage and have delighted in providing a reliable service to help you reach deep liquidity in the Bitcoin market. We have recently made the decision to temporarily suspend trading on the Tradehill platform, due to banking and regulatory issues. This decision has not been made lightly and we regret having to take such action. However, we embrace the silver lining of our situation and plan to take this opportunity to upgrade, improve, and polish our trading platform.

Tradehill registered with FinCEN in August 2013 and is actively engaging with banks and regulators to continue development of future business products and practices.

We would like to thank our clients, current and past partners, supporters, and advocates for all their continued support. The Bitcoin space has proven to be an exciting and dynamic environment. We are proud to have the opportunity to be at the forefront of this new domain.

[Update 11:15AM PT: Tradehill shared with On Bitcoin the following details around their suspended trading]

The Internet Archive Federal Credit Union has experienced operational and regulatory issues and we are no longer able to continue our developing relationship. Both Tradehill and IAFCU were excited about this relationship and both regret this unfortunate outcome. Tradehill’s integration with IAFCU had allowed for clients to buy Bitcoin with a balance in an account with their own name. This allowed clients to trade Bitcoin with funds that were stored in a federally insured institution.

Our clients still have full access to their funds. We are consulting with regulators to define the most appropriate licensing strategy for our current and future business practices. We are also actively engaging with banks and regulators to continue development of best practices for Bitcoin regulation and compliance.

This is only a temporary suspension of trading. We are continuing with planned development of our trading platform, to provide an improved user experience, as well as additional planned products. We hope to resume trading operations soon.

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Blueseed Continues Full Steam Ahead with Bitcoin Funding

Blueseed is a live/work/play startup community for 1000 entrepreneurs, on a cruise ship to be stationed 30 minutes by ferry from the coast of Silicon Valley.

The location is in international waters, outside U.S. jurisdiction, and allows entrepreneurs from anywhere in the world to start or scale their companies without needing U.S. work visas. Instead, easier-to-obtain B1/B2 business/travel visas will be used to arrive on Blueseed and to visit the mainland in order to connect with the Silicon Valley ecosystem.

Blueseed creates a new class of real-estate – technology-enhanced and ocean-based – and differentiates from existing business accelerators by creating an entire ecosystem (mentors, talent pool, investors, service providers etc.), and enabling a very close-knit community, modelled after university campuses. So far, with no dollars spent on marketing, over 1300 entrepreneurs from 400 startups in 66 countries have expressed interest.

Blueseed Announces Funding from Bit Angels

In light of last week’s major developments within the U.S. House of Representatives and U.S. Securities and Exchange Commission, Blueseed is announcing reaching a new milestone towards launching its startup ship for entrepreneurs – receiving the first investment from the first group of angel investors focused on the digital currency Bitcoin.

Last week, the House Republican Conference strongly opposed the Comprehensive Immigration Reform bill passed by the Senate, which among its 1198 pages included a section for granting an “INVEST” visa to international startup entrepreneurs. This development is unfortunately detrimental to the chances of a startup visa being enacted. Blueseed represents a viable, entrepreneurial alternative to this political problem.

Last week as well, the SEC announced that it will be lifting the ban on general solicitation, an 80-year old measure that has been preventing startups from publicly disclosing their ongoing fundraising campaigns. Blueseed will be able to take advantage of the opportunity to publicly announce its next fundraising round once the new provision becomes effective, in order to raise the amounts needed to launch the community.

Blueseed is also proud to announce receiving the first investment from Bit Angels, the first Bitcoin angel investors group. The group’s goal is fostering the growth of startups that promote Bitcoin, the decentralized digital currency. The Bit Angels regard Blueseed as an upcoming Bitcoin-friendly jurisdiction, with a streamlined legal and regulatory system, accelerating the growth of the Bitcoin ecosystem. In another first, Blueseed has received one investor’s contribution directly in Bitcoins. Leading the Bitcoin round was Jered Kenna, co-founder of Tradehill, the largest Bitcoin exchange in the U.S.

Learn more at Blueseed.

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