Bitcoin Insurance – Risk Is Always There to Stay

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.

READ MORE: Coinbase Publicly Announces It’s Holding Insurance Against Theft/Loss of Bitcoins 

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Chinese altcoin exchange BTER was the subject of a monster-sized hack last February that saw to nearly $2 million in bitcoins being stolen from the company’s cold wallet reserves.  It was the second largest cyberattack of the year, and many felt sympathy towards the exchange; after all, it was one in a long line of recently victimized exchanges and businesses between MyCoin, Excoin and several others, but when the company announced that it wouldn’t be able to pay back any stolen funds, sympathy turned to anger and fear, and many began voicing their concerns over the lack of insurance in the world of virtual currency.

BTER Slated to Pay Back All Stolen Funds through Partnership with

While insurance is still a topic that’s up in the air, BTER is now prepared to make amends and refund any and all lost coins through a new partnership with security firm

According to the company’s newly reopened website, customers will be paid back stolen funds over time through BTER’s future earnings and interest-free loans with of up to 1,000 bitcoins.  The company announced on Twitter:

“Most markets are re-enabled now and we are making withdrawals work for more and more coins.”

Originally, the owners of BTER were planning on selling the platform, as they didn’t feel they possessed adequate funds to be able to pay back all affected customers, but that’s all changed with the new security agreement.  When talking about the trusted firm, BTER explains:

“Working with, we reviewed all the security-related code on BTER completely and rebuilt the back-end, and trust all our cold wallets to our partner for specialized security storage, making a solid security foundation for BTER’s re-opening.”

The control of all of BTER’s hot wallets will also eventually be moved into the control of

San Francisco-based Coinbase has published an interesting blog post on Wednesday, which essentially serves a means of comforting its users.

In short: the company announced that it holds insurance against both theft and loss of the bitcoin they hold — much of which belongs to its over one million users.

Interestingly enough, however, they say that they have been insured since November of 2013, adding that “given the recent claims of insurance in the industry,” felt it appropriate to inform its user base.

They write:

[blockquote style=”2″]Coinbase is insured against theft and hacking in an amount that exceeds the average value of bitcoin we hold in online storage at any given time. The insurance covers losses due to breaches in physical or cyber security, accidental loss, and employee theft. It doesn’t cover bitcoin lost or stolen as a result of an individual user’s negligence to maintain secure control over their login credentials.[/blockquote]

While other companies may claim to be insured, Coinbase says they’ve partnered with mega insurance broker Aon, and only use underwriters with high credit ratings (S&P rating of A+ or A.M. Best Rating of A XV or higher).

For users of the service, the news is welcomed. Many in the community fear holding bitcoins anywhere other than their own possession, and for good reason (see the Mt. Gox debacle earlier this year).

Users are not — and will not be — charged for the insurance.

Silbert Big Insurance

Barry Silbert, founder CEO of SecondMarket and the Bitcoin Investment Trust, posted an interesting tweet Friday morning indicating that insurance companies may be looking for a piece of the bitcoin pie:

Interesting. We’re starting to get approached by large, well-known insurance [companies] looking to offer insurance products on bitcoin exposure

As the bitcoin realms continues its growth, major companies are looking for ways to adapt their business models to include products central to the digital currency.

Insurance is a big thing. If you’ve got an account with an FDIC-insured bank in the United States, and they go under, your money is safe (assuming it’s below the FDIC limit).

Now imagine such insurance when it comes to bitcoin start-ups that hold significant amount of user funds. You can bet customers would feel a whole lot better storing their money on, say, Coinbase or Circle.

Just take a look back to February, when Mt. Gox said they no longer had access to the funds of their users — losses that amounted to hundreds of millions of dollars. Had there been insurance there, the outcome would have likely been different.

We’re at a point in time where things are getting very interesting in this space. It won’t be long until companies you’re familiar with have their hands in the bitcoin pot in some form or another.