Bank depositors get tax-payer funded insurance in many jurisdictions (such as FDIC in America) in case a bank goes bankrupt. Your Bitcoin in Mt.Gox or BitFinex….buyer beware.
People paying by Credit Card can fight back against a fraudulent charge. Once you send those Bitcoin it is like handing over cash…buyer beware.
Bitcoin early adopters and true believers are technically savvy enough to protect themselves in these kind of situations. For 99.99% of the world, a bit more reassurance is needed.
That sounds like a job for Insurance – pay some money for peace of mind. This post looks at how Insurance companies are stepping up to the plate.
The most high profile Bitcoin exchange failure was Mt.Gox, based in Japan. So it is no surprise that the first major rollout of Insurance for Bitcoin exchanges comes from Japan
Mitsui Sumitomo Insurance offers insurance to bitcoin exchanges globally. This is not exactly new, but in the past each deal was very custom negotiated. Mitsui Sumitomo Insurance seems to want to make this a more routine line of business.
The plan’s total theft cover ranges from ten million yen (US$88,500) up to one billion yen (US$8.85 million). It also covers loss from internal and external threats, including employee theft, mistakes, cyberattacks, and other unauthorized access.
The first customer is Japan’s largest exchange, Bitflyer. By working with a highly professional exchange, Mitsui Sumitomo Insurance can offer best practice advice. After a number of bitcoin exchange blow ups, the best practices are now well established. If a bitcoin exchange follows these, the risk of loss goes down (which is good for the Insurer) and being insured will help bitcoin exchanges to gain consumer confidence.
This is a critical plank in Bitcoin growing up and becoming mainstream.
The Bank like Bitcoin platforms
For a while we had very distinct companies in each Bitcoin segment – wallet, exchange, payment processing. However, as Bitcoin grows up we are seeing more Bank like Bitcoin platforms in the sense that they offer a full suite of services. These full service Bitcoin platforms such as Coinbase, Xapo and Circle already have insurance. Mainstream insurance offerings will let new players get consumer confidence – just like a small bank being able to offer deposit insurance.
Xapo pioneered the use of insurance because secure storage is their core proposition, using A.M. Best rated insurance providers.
Taxpayers and regulators should breathe a sigh of relief
There is no possibility of bailout in Bitcoin-land. Private sector Insurance becomes the alternative. This will raise the professional bar for all Bitcoin players. To get Insurance they will have to meet basic standards and without Insurance they won’t get consumer confidence. Regulators and their political masters may then relax a bit more because the risk is left to the private sector to manage. Taxpayers will never be on the hook again in a bailout.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.