Bitcoin needs more consumer protection

Bitcoin start-ups need to do a better job policing themselves or risk getting bogged down in regulation and legal fees, said an executive of a cryptocurrency "wallet" company.

"As an industry we need to be much more committed to consumer protection than we already are," said Blockchain.info COO Peter Smith said in an interview Monday at TechCrunch Disrupt in New York.

Blockchain, which builds software that allows users to securely manage their funds, is the Internet's most popular bitcoin service, with about 1.6 million wallets on its platform.

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Educating consumers about the different types of bitcoin services, specifically exchanges and digital wallets, is one of the key things the community needs to do as soon as possible, Smith said.

Case in point: More than $450 million worth of bitcoin vanished when Mt.Gox, a popular bitcoin exchange, collapsed in February. Mt.Gox was a centralized trust, where all users' coins are stored together in a master account. So when the exchange was the target of an attack, all bitcoins in the exchanged were vulnerable.

The centralization makes such exchanges riskier, and consumers need to be aware that they should only keep small amounts of money in such platforms, Smith said. Platforms like Mt.Gox a really made for people like day traders, and the average bitcoin enthusiast shouldn't keep large sums there, he said.

Smith said digital wallet serviceslike his companyhave security features that allow users to store the private keys (which are needed to access their bitcoins) and send payments, and are probably more appropriate for the average consumer.

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Bitcoin needs more consumer protection