A month ago I wrote a story in an attempt to gauge the insurance industry’s awareness and potential appetite for cryptographic digital currency.
“Tell me if it’s even worth getting into this,” I told reliable sources. “Tell me if I’ll be wasting my time, but it would seem to me a currency living only in the virtual world has got to have some innate cyber risk.”
It was a good topic, I was assured. Cryptocurrency was at the very least water-cooler conversation among underwriters and several sources said clients had approached them to figure out how to address accepting digital currency—most commonly referred to as Bitcoin since it is the largest form of this currency.
READ: Insurance industry ponders risks of Bitcoin, digital currency
Then came the collapse of Mt. Gox, once the largest Bitcoin exchange. Turns out the Tokyo-based company was hacked and 850,000 Bitcoins…well…they vanished. The currency has no central bank and no government authority. Users, like the creators of Bitcoin, are basically anonymous (unless the guys sitting outside Mt. Gox’s headquarters with signs reading, “Mt Gox: Where is our money?” gave their names to reporters).
It’s as if the hackers were masked bandits who broke in Mt. Gox and stole half a million dollars in cash from a drawer. They might as well have.
By the way, this is the second time Mt. Gox was hacked. Only the latest theft has resulted in the company filing for bankruptcy.
Digital currency has taken another big hit. Critics get to say, “I told you so.”
“If you invest your money in virtual currency, don’t be surprised when it virtually disappears,” joked Bill Maher on HBO’s Real Time with Bill Maher. “Who could have predicted this? Virtually everyone.”
Elliptic Vault, a London storage facility of private encrypted keys to Bitcoins, said early this year it was the first to insure against loss and theft. Its co-founder admitted an insurer was not easy to find since the insurance industry was prejudiced by negative publicity.
There’s no reason for that to change. After Mt. Gox I’m assuming the insurance industry’s awareness has certainly increased—for all the wrong reasons for Bitcoin users and advocates.
What I learned doing the Bitcoin story was that the insurance industry has no idea what to do with it. And for good reason.
How can insurers step up with solutions when the brains behind the creation of a new, digital currency do not have the brains to invest in cybersecurity?
The currency is going to need to be regulated before it can be taken seriously by the insurance industry. Joe Nocera of the New York Times wrote however angry we get at the banking industry, “we still trust banks to safeguard our money, and we still trust government to back our currency.” Regulation is a dirty word to supporters of and holders of Bitcoin.
This may be filed under “Bitcoin Growing Pains” and the currency may enjoy and wonderful life. But be aware you assume all of the risk, Bitcoiners, as insurers watch from the sidelines. On February 27 one of you sued Mt. Gox in an attempt to recoup losses from the hacking.
Good luck with that.
