US cryptocurrency exchange, Coinbase, revealed details of their insurance coverage for their hot wallet crypto holdings. The details were published in an official blog post by Coinbase Chief Information Security Officer, Philip Martin.
The exchange has had the $255 million insurance coverage with esteemed Lloyd’s of London syndicates since November 2013.
“The data is clear that, today, the most likely consumer loss scenario for any cryptocurrency company is hot wallet loss due to hacking,” said Martin. “We secured our first policy to address that risk at the end of 2013 and have maintained a commitment to educating and growing the cryptocurrency insurance market ever since then”.
Because of this risk, coverage for hot wallet exposures is considerably more costly than the cover for cold storage alone. Furthermore, hot wallet cover is provided by the crime insurance market, which is not the same as cold storage coverage, which is covered by Specie insurance.
“Importantly, that means that a Specie policy would not be responsive to a loss of funds that occurred due to an on-blockchain failure (e.g. a vulnerable smart contract multisig implementation),” noted Martin.
Coinbase holds less than two percent of its customers’ assets in hot wallets. The remaining 98 percent is as far away from third-party attacks as possible, in cold storage, where the private keys are offline.
Insurance Demand For Crypto Assets Has Increased.
Martin says that the number of insurers who have invested their time in understanding cryptocurrency risks has increased over the past few years, but the demand for insurance has increased “even faster”.
“We need more participants in this market. Coinbase is an active participant in educating the insurance marketplace to bring more insurers and more capital into the market,” Martin said. “Policies are generally written to exchanges or custodians, not directly to the owners of cryptocurrency. We need a world where the ultimate owners of cryptocurrency are able to directly insure their assets stored with trustworthy, well-reviewed, transparent service providers”.
In February this year, we wrote about cryptocurrency security company, BitGo who announced insurance protection for cryptocurrencies and digital assets underwritten by Lloyd’s. Custodial assets are insured up to $100 million. Clients are covered against third-party hacks, the theft of private keys, insider theft and physical loss or damage of private keys.
Image: Burdun Iliya / Shutterstock.com