Many people ignored Bitcoin at first – but then, the value saw a notable increase in 2011, when one bitcoin went from US$0.30 to $32. Since then, it’s had a history of fluctuating in value. In 2013, its value went up yet again, reaching $266 and then again decreased in price to around $50. This shows just how volatile, yet valuable cryptocurrencies can be.
Currently, the value of one bitcoin is around $65,647. This dramatic increase in the value of Bitcoin is something that has caught the attention of individuals and businesses alike.
In line with this, it is important to understand that there are a number of risks for Bitcoin users and investors, and those who handle other cryptocurrencies as well. These risks can only be managed with the right type of cryptocurrency insurance in place, which will be discussed in this article.
What Are Cryptocurrencies and How Do They Work?
Cryptocurrencies are digital or virtual currencies that are secured by cryptography, hence the name “cryptocurrencies.” Cryptocurrencies are based on blockchain technology which is like a distributed ledger across a vast computer network, recording each transaction made.
The blockchain is thus able to record and protect the information from being changed or hacked. Blockchain technology also allows for cryptocurrencies to exist without a central authority which, in theory, would protect cryptocurrencies from government manipulation. In line with this, another appealing trait of Bitcoin for many users is that it can allow for a degree of anonymity or pseudonymity.
So from this section, we derive these key points about cryptocurrencies:
- They are digital currencies;
- There is typically no central authority over cryptocurrencies; and
- Cryptocurrency use has a reputation for being relatively anonymous or pseudonymous.
What Is Cryptocurrency Insurance?
While there are many impressive things about the technical architecture of cryptocurrencies and they may, in theory, be impervious to the manipulation of a central authority and to counterfeiting, hacking is still a big possibility.
This is the main risk that cryptocurrency insurance addresses and is also the main reason why you need cryptocurrency insurance.
Typically, investors or users of cryptocurrencies are worried about two things:
- The volatility of the cryptocurrency landscape; and
- The security of their stored cryptocurrency.
Though cryptocurrency insurance does not protect against the intrinsic volatility of cryptocurrencies, this type of insurance will provide a degree of protection in the event that hacking or other kinds of cybercrime were to happen.
Cryptocurrency insurance can have the following coverage points:
- Crime liability - protection against cybersecurity intrusions and subsequent losses.
- Cyber liability - coverage for instances of a data breach that compromises customer data and can lead to lawsuits.
- Directors & Officers’ Legal Liabilities - coverage for lawsuits and criminal investigations towards directors and officers, in connection with a cybercrime incident or data breach.
- Product Negligence, Errors and Omissions - protection for the business and its employees when charged with negligence or inadequate work following a cybercrime incident.
Why You Need Cryptocurrency Insurance
1. The Attractive Value of Cryptocurrencies
If we look at any kind of cryptocurrency, it’s evident that they are volatile. It can also be noticed that some cryptocurrencies blow up suddenly from their initial value, such as what happened with Bitcoin. To date, the most valuable cryptocurrencies include Bitcoin, Ethereum, Binance Coin, Tether, Cardano, and more. Each of these has a market cap of billions or trillions of dollars.
When talking about crime or cybercrime, perpetrators (in this case, hackers) need to have three things: means, motive, and opportunity. To many cybercriminals, the tantalizing blowups in value that cryptocurrencies get from time to time is enough of a motive to strike.
Though blockchain technology makes it extremely difficult to hack cryptocurrencies, determined hackers, spurred by the tantalizing values of certain cryptocurrencies, can and have found ways to access digital wallets.
As cryptocurrency values go up and down and up again, cryptocurrency insurance can at least assure you of something: that you will be protected from loss due to cybercrimes.
2. The Anonymity or Pseudonymity of the Landscape
Earlier, we established that the cryptocurrency world is characterized by anonymity and pseudonymity. Furthermore, there is no central authority in this system. Because of these factors put together, businesses and investors who lose cryptocurrency due to hacking will have an extremely difficult time tracing the theft.
This doesn’t mean that cryptocurrency is completely untraceable, as proven by the resolution of the Colonial Pipeline ransomware attack. However, this wasn’t a case of stolen cryptocurrency; this was just ransom using cryptocurrency which was later on traced. This instance does prove, however, that tracing cryptocurrency is not totally impossible – with the help of the FBI.
Unfortunately though, in a majority of cases wherein cryptocurrency is stolen, it is extremely unlikely to get the full amount, if any, back.
3. The Prevalence of Hacking and Extent of Loss
Just how prevalent are cryptocurrency thefts? Consider this: one of the biggest cryptocurrency thefts happened in late 2021. Hackers exploited a vulnerability in Poly Network, a cryptocurrency platform, and stole around $600 million worth of cryptocurrency assets.
In the end, the matter was partially resolved with millions being returned by the hacker – which was a surprising turn of events. However, around $33 million was not recovered. This is a prime example of why you need cryptocurrency insurance if you’re a business or entity involved with digital currencies.
4. Possibility of Legal Repercussions
The loss of cryptocurrency is one thing. On top of monetary loss, your business can be served lawsuits when cryptocurrency is lost or if there has been a data breach. Cryptocurrency insurance provides protection for this too.
Businesses and Entities That Need Cryptocurrency Insurance
As we’ve mentioned in this article, investors and businesses that use, store, and secure cryptocurrencies can benefit from cryptocurrency insurance. A few examples of entities that need cryptocurrency insurance include the following:
- Businesses that accept and store cryptocurrency payments;
- Cryptocurrency trading platforms;
- Cryptocurrency mining businesses; and
- Cryptocurrency payment processors.
Cryptocurrency Insurance That Your Business Can Count On
That wraps up our guide on why you need cryptocurrency insurance. If you’d like to set up this type of insurance for you or your business, we’re here to help!
KASE Insurance is an award-winning insurance brokerage firm based in Ontario. We specialize in putting together insurance policies that address the unique needs of businesses. If you are in the cryptocurrency sector, we can give you the personalized coverage that you need to protect your business from losses and lawsuits following cyberattacks and data breaches.