For approximately the past decade, cryptocurrencies were used by those who wanted to transact business anonymously and without oversight or restrictions imposed by any governmental authority. More recently, the concept of cryptocurrencies has been used to raise capital outside of traditional financial structures. Indeed, the rise of raising money through the issuance of “virtual tokens” using “Initial Coin Offerings” (“ICOs”) has caused a sharp rise in the prevalence and market value of cryptocurrencies.
Those involved with cryptocurrencies believe that their virtues include stronger security against theft, easier transactions, and insulation from government-induced currency fluctuations, among other things. But the inescapable reality is that hackers, technical errors, and fraud happen. In addition, regulators have been taking notice and have been attempting to flex their authority, although the manner in which any given regulation applies to cryptocurrencies is far from certain. One thing that is certain, is that the cryptocurrency “industry” poses unique and evolving risk. Given this, the insurance industry is also engaged in attempting address the needs of this emerging market, although underwriters can be expected to rigorously assess the risks posed, and insurance procurement can be a challenge for some.