Now You Can Insure Your Bitcoins

Bitcoin theft is a growing problem. As the cryptocurrency has vaulted into the mainstream, and risen in value, so too have the number of thefts—including one on live TV—which have resulted in tens of millions of dollars in losses, and little recourse for the victims. This isn’t to say that Bitcoin per se isn’t secure; the network itself has yet to be compromised. But the same level of trust clearly can’t be extended to its users.

That’s why UK-based company Elliptic (formerly BitPrice) thinks it can make some money helping people keep their bitcoins safe. They've developed a service called the Vault, which is intended to store and insure bitcoins. If the service performs as advertised, it will greatly reduce the apparent risks in holding large quantities of the cryptocurrency.

Elliptic co-founder Tom Robinson explained how the Bitcoin Vault works in an email conversation with me. “There are two levels of security,” Robinson wrote. “First, the private key is encrypted using very high-grade encryption and secondly the private key is kept in multiple secure facilities and is never held on any internet-connected device.” They call the technique “deep cold storage.” The protection also includes physical security that can only be bypassed by a quorum of the company’s directors.

The most important benefit of Elliptic’s Vault service may well be the insurance component—possibly the first of its kind. The insurance is supposed to act as protection just in case there is a “storage failure” that somehow leads to the theft of bitcoins being stored. It’s pretty straightforward, costing 0.17 percent per month of the liability limit—which is the maximum amount, chosen by the customer, Elliptic will pay out if there’s a claim. So, for example, if you’ve got 100 bitcoins, and picked a £100,000 ($164,760) liability limit, the monthly charges would be about 0.351 bitcoins (based on the rate of one bitcoin to about £475, or $780). The insurance is also backed by a Lloyd’s of London underwriter.

“Our storage is extremely secure,” Robinson said, “And we hope there'll never be any need to make a [insurance] claim.” If it sounds odd for a company claiming to safely store bitcoins to offer theft insurance on top of that, consider this: cash sitting in the majority of banks in the US is insured by the FDIC (up to $250,000 for each account), something Bitcoin is not yet eligible for. It’s also worth pointing out that traditional money, even when electronically transferred, is considerably easier to track than stolen bitcoins, despite the tireless efforts of some Reddit users. And unlike, say, US dollars, Bitcoin requires the consent of both parties (the thief included) to reverse a transaction.

Robinson didn’t want to get into specifics about how many customers Elliptic has, or how many bitcoins the company can safely store and insure—although he said the latter has more to do with insurance technicalities than physical or virtual storage limits. Whatever those details, however, it's an interesting proposition.

Right now, most Bitcoin theft isn’t any more sophisticated than other sorts of cyber crime, and attackers rely on the same toolkit of exploiting operating system flaws, phishing schemes, and planting malware. But even if you're confident in your own digital security capabilities, the concept of just-in-case backup insurance is surely attractive if you don't want to end up as the next heist victim.