Insuring Crypto Payments Is Hard, But Thankfully Change Is On The Horizon

You can insure about everything. But is it possible to insure cryptocurrency? There isn’t a clear ‘yes’ or ‘no’ answer, but it’s hard, but not impossible, to insure your cryptocurrencies or cryptocurrency transactions. You’ll find that many mainstream insurance companies don’t outright want to insure crypto payments. Still, if you dig a little deeper, you’ll see that insurers believe there is an ample opportunity here, although they prefer to keep quiet about it.

Bitcoin and other cryptocurrencies are increasingly becoming more relevant and mainstream. The price of major cryptocurrencies has surged to unprecedented levels never seen. For example, the price of Bitcoin has topped $61,000 in March this year, breaking all records, more info here. Bitcoin has become prevalent in the real economy, and many institutional investors and banks, including JP Morgan, are exploring the product. And insurance providers are no exception.  Christian Weishuber, a spokesman for Allianz, told Bloomberg that insurance providers are exploring coverage options in this area.

But they’re still cautious and treading lightly, much to the dismay of cryptocurrency investors and crypto exchanges.

The Problems With Crypto Insurance

Major insurance providers think the level of risk associated with the investment in the crypto market is still high and unpredictable. Therefore, unless the risk is manageable and cryptocurrency exchanges get better at securing assets and reduce hacking, we don’t think insurance providers will ever get on board.

But there should be some form of insurance for crypto payments, right? See, crypto exchanges don’t operate like traditional insurance companies. Said that as insurance providers are reluctant, the exchanges themselves are filling that void. As cryptocurrency wallets are still vulnerable to hacks leading to stolen coins, cryptocurrency exchanges have introduced their own insurance programs allowing investors to file a claim when a data hack occurs and recover their funds.  

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Unlike the cryptocurrency industry, which is largely unregulated, the insurance industry is highly regulated. Crypto exchanges aren’t obligated to insure their customers’ funds as compared to traditional banks and brokerages.

Besides, insuring cryptocurrency is highly risky. Once your coins from your wallet are stolen or lost, it’s next to impossible to recover them. Suppose you’re talking about homeowner’s insurance or renter’s insurance—well. In that case, they provide some protection against theft, but they include deductibles, and the coverage those policies provide for cash is paltry because the risk of coverage is very high.  However, it’s worth mentioning that cryptocurrency hacks rarely happen during payments or transactions, so there is no need for coverage here.

Then there is the problem of cryptocurrencies being a new phenomenon even though these digital assets have been in existence for about a decade. Most cryptocurrency users and investors lack high technological skills, and still, many people don’t understand or know how to use them. The price fluctuation is also a barrier for insurance, and there is a possibility of users complaining that their assets have been underinsured or over-insured.

As cryptocurrencies don’t require banks for financial transactions, there is no way to insure crypto payments. There is no such thing as refunds or chargebacks in the crypto sphere, and once the payment is made, it is permanent and irreversible. After introducing Smart Contracts, the digital currencies are transferred automatically as soon as a specific event takes place without the presence of any lawyers or legal contracts. This feature makes the system vulnerable to hacks as hackers can manipulate the code and exploit its weaknesses to make illegal transactions.

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Furthermore, inside jobs can also result in illegal transactions or lost funds, as seen in the infamous case of Mt Gox, where 650,000 Bitcoin or 99% of the bitcoins has been stolen due to an internal system manipulation.

For all these reasons, crypto companies want insurance coverage, despite the high costs.


This doesn’t mean that no crypto exchanges aren’t eligible for insurance. For example, Kingdom Trust got their insurance coverage with a drastic discount. They were eligible because of their working ethics and technology. They implemented “cold wallets” for storing crypto, and there is no online access to the assets. All of their assets were kept offline—a security practice we think many exchanges are willing to follow.

BitGo, a pioneer in digital assets and financial services, announced Lloyds has agreed to insure their cryptocurrencies and digital assets held in their BitGo Trust Co. to up to $100 million.

For companies, who don’t want to approach traditional insurance providers, their last resort is self-insurance. There are some benefits of self-insurance as there aren’t waiting times to approve policies. Trustology is offering to protect accounts to up to £85,000 or USS 118,000.  

Coinbase, one of the largest crypto exchanges, provides insurance coverage for the crypto its clients hold online in hot storage. Find out more here. We weren’t able to clarify the coverage it offers for the cryptocurrency its clients have offline in cold storage.  The insurance provides coverage against employee theft and security breach.  

Gemini Exchange offers insurance coverage to digital assets its clients hold on its hot wallet. The funds stored online are insured against employee theft, illegal funds transfers, hacking, and security breach.

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However, you’ll not get any insurance coverage if you lost your passwords or login credentials. But, the US dollars in your Coinbase and Gemini accounts are covered by FDIC insurance.

Last but not least, in the cryptocurrency space, it isn’t easy to verify whether the crypto exchange you’re dealing with provides insurance coverage, even if it says it has insurance. Whether your crypto exchange is insured by a third party or offers its own version of insurance, it should always be taken with a grain of salt. If you are looking for more information on crypt take a look at BrokerChoices.