The collapse of Quadriga Fintech Solutions Corp and documentation of more than $1.7 billion worth of cryptocurrency stolen in 2018 have both been solid blows to the financial technology reputation. As of late February, cryptocurrency valued about $130 billion total worldwide. To put cryptocurrency theft into a cash perspective, last year hackers stole the equivalent of $1 trillion from the world’s banks in just twelve months. Quadriga Fintech was unable to locate $190 million in digital assets after their founder unexpectedly died in January, taking with him the only code to access those funds.
Crypto-insurance, an up and coming industry, is striving to mitigate these types of risk when dealing in cryptocurrency. BlockRe, a startup company based out of Chicago that partners with twelve active insurance companies, has billed itself as the first ever digital asset insurance and risk mitigation company. Raymond Zenkich, BlockRe’s co-founder, said his company provides coverage for “crypto asset related risk around the custody of private keys.” And other more established insurers are starting to get on the train as well, though for now there is little regulatory oversight.
BlockRe’s Zenkich believes regulation of cryptocurrency insurance is an inevitable necessity. The Securities and Exchange Commission has stated that the high rate of theft would create too much volatility in the market thus limiting their approval of bitcoin-based funds. Insurance is mostly regulated at the state level, which means it varies from state to state. The Attorney General Office in New York, for example, states that “in light of the uncertain landscape concerning whether, and how, virtual currencies are insured, customers should demand more information from their trading platforms about how risks to virtual or fiat currency are insured against.” Insurers can provide cryptocurrency-related coverage in Ohio but the state doesn’t track who offers it. Texas, by contrast, says that established insurers offer several coverage options that include cryptocurrency, though most treat it like a commercial crime and only if the theft occurs from cold storage (offline).
Given the broad lack of regulation, more comprehensive coverage may come from cryptocurrency companies themselves. Examples include bitFyer, Coinbase, and BitGo. BitGo’s operational director, Rodrigo Vicuna, has stated that business clients be able to purchase theft insurance AND lost key coverage to assist with situations such as the Quadriga Fintech event. BitGo also offers a $100 million insurance at no charge for its currencies kept in cold storage.