The London based insurance giant, Lloyd’s has recently published a report on the risk factor associated with Bitcoin and other digital currencies. The report titled “Bitcoin – Risk factors for insurance” provides a detailed description of different kinds of threats faced by Bitcoin. According to the company, the security risk associated with Bitcoin will never be reduced to zero.
The Lloyd’s report, authored by multiple experts was specially commissioned to understand and assess the risks associated with insuring Bitcoin based businesses. The report shows that the companies involved in Bitcoin businesses will continue to face a “dynamic threat” irrespective of the security practices they follow.
At the time when almost anything can be insured, including the way one looks, insurance cover for Bitcoin shouldn’t be a big deal. While Bitcoin is constantly plagued by cyberattacks and price fluctuations, it is still exhibiting steady growth in adoption and the mainstream financial industry has also started adopting it.
The incidences with Mt Gox, Bter, other wallet providers and exchanges which has amounted to millions of dollars in losses has got the Bitcoin companies lining up for insurance policies against such incidences. At the same time, Bitcoin faces threats from multiple sides. Bitcoin faces both insider threats and external ones. In order to safeguard themselves from such threats, the companies should ensure that they have a really good security system in place by implementing cold storage, multi-sig and hybrid wallet systems to store Bitcoin.
The poor track record exhibited by Bitcoin exchanges so far when it comes to securing their Bitcoin deposits is another factor responsible for pushing the risk factor upward. As the industry is constantly progressing, the insurance companies will have to approach this industry in a different way, as compared to conventional businesses. Usually, insurers take the previous track record into consideration before insuring businesses. But with the Bitcoin industry, it should be the other way around. The insurers should keep track of the new developments and security upgrades these Bitcoin companies are implementing to gauge the risk instead of depending upon past records.
Few Bitcoin businesses like Coinbase and Xapo have already made announcements about their insurance policies making it more evident that we can expect more Bitcoin companies to receive insurance coverage in the coming days.