You’ve no doubt heard of bitcoin, but what about bitcoin insurance?
While there are a few bitcoin insurance policies floating around, there’s still no widespread standard set in place. Only a handful of large, well-known insurance agencies will protect against bitcoin loss and theft.
Why do we need bitcoin insurance?
In 2014 a bitcoin exchange platform called Mt. Gox lost millions of dollars worth of bitcoin due to hacking. Just last week, over $75 million of bitcoin was stolen from another bitcoin firm, NiceHash.
Currently, there are over 2.5 million people have bitcoin, and more people are getting them by the minute.
Bitcoin value shot up to a record high of $17,000 this month before taking a dive back down to $10,000. Despite its volatility, bitcoin value is predicted by many to continue rising (with a few dips along the way, of course).
Financial institutions like Nasdaq and Chicago Mercantile Exchange are even planning to let investors trade bitcoin futures.
In short, bitcoin isn’t going away anytime soon and the threat of loss or theft is very real and very costly.
What is bitcoin?
Bitcoin is one of the most well-known virtual currencies in the world. It was created in 2009 by an unknown person under a fake name, Satoshi Nakamoto.
It is a decentralized currency, so there are no physical banks associated with bitcoin.
Bitcoins are virtually untraceable. Each bitcoin wallet holder is assigned a random number sequence with no name or information attached to it, which makes it very popular among criminals in the dark web.
Bitcoin is also infamous for its volatility. In 2014 one bitcoin went from being worth $2 to approximately $1,500 in only a matter of days.
How are bitcoins acquired?
Bitcoins can be traded, bought or “mined.”
Bitcoin mining involves solving complex math puzzles using specific hardware for your computer. After completing a puzzle, you’re given an ID number, added to a blockchain and given your bitcoins. This is actually how bitcoins are created.
Right now, about 25 bitcoins are created every 10 minutes.
Bitcoin is stored in a virtual wallet and can be transferred, similar to transferring money through a mobile app.
Most people use a website called Coinbase to buy and sell bitcoins.
How could bitcoins be insured?
Similar to cyber insurance, bitcoin insurance would have to operate strictly in the digital world.
Although some cryptocurrency exchange platforms provide bitcoin insurance, it’s extremely flawed.
For example, Coinbase provides insurance for only 2% of all online funds, and they won’t cover you if you’re hacked.
Bitcoin are especially hard to insure because they’re virtual, difficult to trace due to anonymity and are not associated with any physical location or institution.
If bitcoins were lost or stolen, it would be difficult to prove.
Many institutions are also very wary of the stigma attached to bitcoins – that they’re mostly used to fund criminal activity because they’re untraceable.
However, with cyber insurance taking off and more and more people investing in bitcoin, perhaps larger insurance companies will reconsider and hop on the bitcoin bandwagon.