PUBLISHED ON: July 29, 2019
Insurance coverage for blockchain-related risks can be divided into several categories. The first and most familiar is risk associated with cryptocurrencies like bitcoin. The type of applicable coverage depends largely on how the cryptocurrency is being used and stored. To date, the most commonly triggered risk has been associated with loss due to exchange hacks. According to a recent report by industry trade publication The Block Crypto1, the total amount stolen from cryptocurrency exchanges exceeds $1.3 billion in value as of April 1, 2019. Of that amount, “approximately 61% of the thefts were in 2018 alone.”
In practice, cryptocurrency is stolen via theft of private keys, which are kept either in “hot wallets” or “cold storage.” A hot wallet provides storage that can be accessed from a network. Cold storage is offline, and inaccessible by other computers via the internet. While cold storage is more resistant to theft by hacking, it is less convenient and remains susceptible to loss or damage from a variety of perils. Cryptocurrency is built on an append-only database structure, which can be changed only by adding new data. There is no “help desk,” and transactions cannot be reversed.