Cryptocurrencies, including bitcoin, may be the wave of the future, as more and more companies and countries accept them as valid forms of currency. As with any new technology, however, the potential for risk and error is prevalent. Although cryptocurrencies are backed by various blockchains designed to reduce risk, a certain amount of risk is unavoidable. And where there is risk, insurance follows.
For example, the Mt. Gox scandal, which is speculated to involve a bitcoin insider taking bitcoins from the exchange, is estimated to result in losses of more than $400 million. Traditionally, insureds attempted to find coverage for risks related to cryptocurrencies by finding novel constructions of provisions in extant insurance policies. Often, the insured was simply left without any coverage. But certain insurers have begun taking the bull by the horns and marketing a new kind of product—cryptocurrency insurance.
Available Cryptocurrency Coverage
In 2014, Great American Insurance Company began to offer the first official Bitcoin Insurance coverage to businesses. Specifically, Great American began granting endorsements to existing crime policies for customers who accept bitcoin for additional crime insurance. The Great American policy covers Employee Dishonesty, Money & Securities Forgery and Computer Fraud, with additional coverages available as endorsements.
Additional cryptocurrency coverage options arrived in 2015, including when Bitcoin Financial Group, LLC began to offer various insurance products for insureds through a special service called BitSecure. The coverage offered by BitSecure is tailored to the needs of the particular insured but, broadly speaking, is designed to be broader than the crime coverage offered by Great American.
Insurance is also being offered by companies like Coinbase, Inc. and Elliptic Enterprise Ltd. for bitcoin storage. These policies are currently somewhat limited, however, and the specifics of coverage vary depending on the company that is offering it. In general, these policies will protect a company from theft as well as losses resulting from errors in the technology used to provide whatever service the company offers.
The availability of cryptocurrency insurance is growing. In November 2016, Mitsui Sumitomo Insurance began offering cryptocurrency insurance to cryptocurrency exchanges. The Mitsui policy covers loss from both internal and external causes, e.g., theft by employees or third parties, cyberattacks, unauthorized access and mistakes. Mitsui also provides “individual consulting” to insureds to help insureds maintain appropriate security measures. Mitsui’s policy was developed with Japan’s largest bitcoin exchange, bitFlyer, which now ranks as the sixth- highest-by-volume bitcoin exchange in the world. This marks Japan’s continued endorsement of bitcoin and cryptocurrency; in April, the country began to accept bitcoin as a legal payment method.
Cryptocurrency appears to be here to stay, at least for the immediate future, and so do the risks associated with it. Companies dealing frequently in cryptocurrency would do well to consider obtaining an insurance product, like one discussed here, rather than hoping that coverage can be found in one of their existing insurance policies. As the use of cryptocurrencies becomes more widespread, companies may begin to consider using these products, even if they do not consider themselves to be primarily tech companies, as any new wave of technology has the potential to cause ripple effects throughout multiple industries.