According to Mr. Sagalow, 2014 was “a bullish year for Bitcoins.” Trading volume in increased 57% to over $23 billion. The number of Bitcoin transactions climbed to over 100,000 per day and there are currently 82,000 merchants accepting Bitcoins, including Microsoft, Dell, Dish Networks, Time and Expedia.com. The number is expected to grow to over 140,000 by the end of 2015.

Venture capitalists are also becoming more involved in the Bitcoin market, says Mr. Sagalow. They invested over $335 million in 18 different countries in 2014. In addition, Bitcoins are becoming more accepted as a means to payment for transactions, and the number of Bitcoin accounts (wallets) is expected to grow to 12 million by the end of 2015 – an increase of 4 million.

Mr. Sagalow says Coinbase was the first to announce a fully regulated Bitcoin commodity exchange listed in over 25 states, and regulators, led by NY State, are becoming friendlier to the Bitcoin industry.

The insurance industry, according to Mr. Sagalow, is also getting involved as the new risks associated with the theft of Bitcoin become exposed. In fact, he says a large global insurance company is planning to announce the first Bitcoin theft insurance policy.

For more on Innovations in Insurance with Ty Sagalow, visit the WRIN.tv On Demand Library

Bitcoin security company BitGo has secured a theft insurance policy attached to its proprietary multi-signature wallet protection service, a first for the digital currency industry that could pave the way for companies to provide greater assurances to customers that their bitcoins are safe.

According to an announcement Wednesday, A-rated insurer XL Group will provide comprehensive protection so that any paying BitGo enterprise customer is automatically eligible to insure theft claims up to $250,000 and to increase that coverage by paying a flat 1% fee.

BitGo CEO Will O’Brien said the process took nine months for XL’s examiners to vet BitGo’s “multi-sig” system for bitcoin wallets, which assigns multiple private keys, or passwords, to different entities and so makes it much harder for a hacker to take control of the wallet. Multi-sig systems can be described as a digital equivalent of the dual-key processes used to unlock safety deposit boxes, much like those used at Swiss private banks. In BitGo’s case, its software is marketed to firms such as bitcoin exchanges and digital-currency investment managers and pitched as way to give their retail customers both personal control over their assets and added security.

Unlike other policies secured by wallet providers, which cover the bitcoins themselves, BitGo’s policy from XL essentially insures the technology. Mr. O’Brien argued that this would create a “scalable platform” to help the wider bitcoin industry attract customers who’ve otherwise been leery of the security risks associated with the digital currency.

A string of bitcoin hacking attacks – notably, that which destroyed Tokyo-based exchange Mt. Gox last year and January’s breach at Slovenia-based Bitstamp — as well as associations with criminality, have helped foster an impression of insecurity around bitcoin in the public eye. But those events have also given impetus to BitGo, with the company seeking to establish a set of standards around its model for the industry.  After Bitstamp temporarily ceased operations in January to address the hack on its operational, or “hot,” wallet, it enlisted the help of BitGo to get back up and running with a multi-sig infrastructure.

In designing the XL insurance program, BitGo tapped the services of Ty Sagalow, a 30-year insurance veteran and former chief operating officer of AIG’s e-business risk insurance business who now operates his own consultancy, the Innovation Insurance Group.

Mr. Sagalow described a lengthy process of convincing XL to underwrite an operation in a bitcoin industry that “is not only new but also has a history that would be worrisome to the insurance industry.” But in the end, he said, XL realized the potential and reach of a deal that represents “a watershed event not only for the bitcoin industry but for the insurance industry.”

Other bitcoin service providers have sought to provide in-house assurances to customers of their security of their funds, some of which include promises of insurance.

San Francisco-based wallet and custodial services provider Xapo recently expanded its security operations to upgrade its own proprietary multi-sig process and so-called “deep-cold storage” of the private password keys used to unlock bitcoin transactions. Taking the idea of a “cold wallet” – where the keys are kept offline, away from the prying eyes of hackers – to another level, Xapo uses underground vaults in refurbished nuclear bunkers in Switzerland and other places to store keys on servers that will never touch the Internet and to create a system of transaction execution that leaves no trace of their use in an online setting.

On the strength of this security, Xapo offers its clients insurance. However, its policy is underwritten according to a “captive insurance” model, which limits its liability to the capital that the company itself commits to the coverage.

Other wallet, exchange and custodial services providers that employ sophisticated security protections, including Circle Internet Financial and Coinbase, offer their customers differing degrees of insurance as well. (Michael Casey)

BitGO were the first to pioneer the multi-signaturetransaction back in August, 2013. Now they’re pioneering in security again, with this week’s unveiling of a partnership with one of the largest underwriters in the world, XL Group and the Bitcoin Financial Group.

All users of the hosted wallet service will now be covered up to $250,000 for covered theft claims. Users who require or would like more coverage than that can acquire it at the competitive rate of about 1% per year (in addition to regular monthly fees).

$250,000 Theft Insurance for All BitGO Customers

Insuring Bitcoin deposits has long been one of the holy grails of the industry. The very nature of digital money makes it somewhat more vulnerable to theft and natural disaster, and finding a suitable underwriter willing to cover a Bitcoin company was no easy task, according to BitGO CEO Will O’Brien. (We spoke to him on 23 February in preparation for this article.)

This was a huge effort. We engaged the former chief underwriting officer from AIG, Ty Sagalow – this is a guy who’s pioneered things like Y2K Insurance, cyber insurance, reputation insurance, and others. We partnered with him and his firm to structure these policies. […] We spoke with a number of different underwriters. XL Group was one of the ones who were most forward-thinking and innovative. […] It was a great challenge. It was something that really only somebody in BitGO’s position could accomplish, because we had the track record, we had the team, we had the operational scalability, we had the technical know-how. They vetted our company, they vetted our operations – they wanted to dig deep into Bitcoin technology, multi-sig technology. It was a lot of effort. It’s not something that is easily attainable. And that’s a value-add for our customers.

The insurance policy now secured by BitGO extends coverage to all account holders up to $250,000. It is important, for legal reasons, to stress that BitGO is not going into the insurance business – rather, they have summited the mountain that is attaining insurance in the wild west of Bitcoin economics. BitGO has long been a good option for Bitcoin start-ups who would rather focus more on their core business than wallet security.

When you think about the history of Bitcoin storage and Bitcoin transactional systems, in the early days, it was up to the users to set up their own security. If you’re using a desktop wallet, and there are a lot of them out there, you’ve got to make sure that your computer doesn’t have malware on it. If you’re using a hosted service, like an exchange or a web wallet, you’ve got to trust your private keys with that hosted service.

With the advent of multi-sig, it makes it such that there’s no one single point of failure if properly implemented. […] Now a hack can’t result in the loss or theft of funds – in theory. […] There are still customers out there, especially in the large enterprise/institutional space, who are saying, ‘That’s all great, I trust technology, I trust BitGO, but what about additional assurances can I have BitGO standing behind this technology that they’ve implemented?’

The Last Mile for Major Players

Companies that hold funds for their customers will especially be attracted to the protection this new feature of BitGO’s services will add. With the recent failures of the exchanges Bter and BitStamp, customer funds were in limbo. In the second case, BitStamp was able to pay back lost funds. However, in the case of Bter, over 7,000 Bitcoins went missing in the blink of an eye and nobody who lost funds will be re-compensated. Had they been using BitGO’s service, the theft might not have happened in the first place. If it still had, the exchange would have presumably been covered and able to return customer deposits while retaining trust.

For many companies still on the fence about whether to engage in the Bitcoin economy or not, having deposits insured was the last mile. A ripple effect may well take place as legacy firms can enter the world of Bitcoin with relative assurance that theft in the form of unauthorized transactions is a thing of the past.

O’Brien urges companies looking to build Bitcoin-integrated services into their business strategy to have a look at their API. For nominal fees, they’ll be sure that their deposits are as safe as they can be.

If you’re building a Bitcoin business today, there’s no reason you should be going and downloading the core Bitcoin libraries like bitcoind, trying to run it yourself, and trying to figure out where to store keys, when you have a service like BitGO, that is battle-tested. We’ve been at this for over two years, and as you scale up what you’re doing, your holdings, your operations, we can keep working with you to give you more and more confidence around the scalability and security of your platform.

BitGo, a leader in Bitcoin security, announced Tuesday it had secured first-of-its-kind insurance coverage for bitcoin theft through the Bitcoin Financial Group from the global, A-rated XL Group insurance companies. With this announcement, BitGo joins the list of industry leaders including Xapo and Coinbase that offer insurance for bitcoin stored using their services.

All of BitGo’s paying customers are eligible for protection under the XL policy for up to $250,000 in covered theft claims, just by signing up for BitGo services. Customers can increase the amount of protection available to them for an annual fee.

“We are proud to partner with XL Group and Innovation Insurance Group on this game-changing insurance product,” said Will O’Brien, CEO and co-founder of BitGo. “The entrance of an underwriter of XL Group’s size and reputation signals that the technologies and standards for Bitcoin security, like multi-sig, have reached a threshold of viability to take the industry to the next level. For our large enterprise customers, an insurance-backed guarantee is the final missing ingredient for peace of mind in a robust security software offering.”

The customized insurance product, exclusive to BitGo, was structured in collaboration with XL Group and Innovation Insurance Group, LLC. It is a robust cyber and professional liability policy that goes well beyond narrow crime policies previously adopted by some bitcoin vault providers. BitGo partnered with Ty Sagalow, president of Innovation Insurance Group LLC to develop and negotiate this unique product. This was an obvious choice, according to O’Brien. “Ty Sagalow has over thirty years of experience in launching innovative products in the insurance industry. He was instrumental in structuring this unique bitcoin insurance policy with XL Group.”

BitGo customers who opt-in to the program are protected from acts, errors or omissions of BitGo technology, processes and employees, including external hacking incidents and employee theft. Both hot wallets and cold storage are eligible for coverage in the policy.

This insurance coverage is unique because in the event of a covered loss, the policy would reimburse BitGo’s customers directly for the value of the lost or stolen bitcoin. This is similar to how the Federal Deposit Insurance Corporation (FDIC) operates; it reimburses bank depositors directly for the value of their deposits (up to $250,000) in the event a bank is unable to return those deposits.

“In collaborating with BitGo and Innovation Insurance Group, we tailored a first-of-its-kind insurance product to help protect the rapidly growing Bitcoin industry,” said John Coletti, Chief Underwriting Officer, Cyber and Technology Insurance, XL Group.

“BitGo’s multi-signature architecture delivers a significant level of security, realizing how seriously they take cyber security. We confidently developed a comprehensive insurance solution that offers BitGo and their customers another layer of protection,” he added. In addition, the policy provides BitGo unprecedented ability to work directly with its customers in the management and resolution of such incidents

Coinciding with the announcement, BitGo said it would be offering two additional major services to its customers — BitGo Enterprise™, the leading institutional bitcoin web wallet, and BitGo Platform API™, a highly scalable set of tools and services that allows any developer to rapidly deploy state-of-the-art operational infrastructure for their Bitcoin business. The bitcoin theft insurance provided by XL Group covers the risk of theft or loss of bitcoin secured with both services.

“This is a critical step in professionalizing the Bitcoin ecosystem. BitGo now offers the leading institutional multi-sig web wallet and platform API. By securing a comprehensive insurance policy from XL Group, BitGo has again set the bar for bitcoin security and customers can feel even more confidence and peace of mind about using the BitGo platform,” said O’Brien.

Also see 

Read Official Bitgo Press Release

Read CoinDesk Article

Read Bitcoin Magazine Article

Read CyptoCoins News Article

Read WSJ Article

Bitcoin security specialist BitGo has announced a new partnership with Innovation Insurance Group and XL Group that will enable it to offer $250,000 in theft insurance to customers who opt in to the program.

The coverage will protect BitGo‘s web wallet and platform API clients from errors resulting from its technology, processes or employee actions, as well as external hacking incidents and employee theft. Those who want to increase the value of their protection can also do so for a 1% annual fee.

Long associated with some of the more prominent evangelists behind multi-signature security, BitGo CEO Will O’Brien indicated that, for his team, the policy will help answer an outstanding customer concern, namely, what happens if the firm’s own technology is compromised?

O’Brien told CoinDesk:

“The last piece is what happens if that service provider, even if they’re holding only one key, is compromised. We see it in our enterprise customers that are building sizable bitcoin businesses, those that have auditors or fund administrators. We see that those types of customers are saying, ‘How can I get an extra guarantee from BitGo?’”

Insurance veteran

Perhaps most interesting for the industry at large is the involvement of Innovation Insurance Group CEO Ty Sagalow in the deal.

A 30-year veteran of the insurance industry and 25-year veteran of AIG eBusiness Risk Solutions, Sagalow is credited with developing foundational tech insurance policies, such as cyberinsurance and reputation insurance, as well as other innovative offerings like Y2K insurance.

Sagalow indicated it didn’t take him long to see a similarity between the now-nascent bitcoin industry and the tech sector in 1999, and that he believes that his partnership with BitGo will represent a similarly historic moment.

“I think this is a watershed event, not just for the bitcoin industry, but the insurance industry. A number of carriers are going to have to reevaluate the bitcoin community,” Sagalow said.

O’Brien went on to clarify that the offering does not mean BitGo is reselling insurance, but rather its policy is just another way the company is limiting the liability of its customers, bolstering its claims through backing by an outside party.

“BitGo is insured and our customers are getting this comprehensive and scalable service through BitGo,” O’Brien said.

Limited early offerings

O’Brien further sought to differentiate his company’s insurance from others in the bitcoin space that he criticized as being less comprehensive and more for publicity purposes.

“If you look back at the history of insurance in bitcoin, a lot of this has been a marketing stunt,” he said. “Insurance that is protecting against crime, specifically the on-site theft of private keys by employees, it’s such a narrow definition of insurance. It’s more than likely never going to be the incident that causes the breach, theft or loss.”

The CEO went on to suggest that while such policies were appropriate for “bitcoin’s formative years”, his company’s offering would better meet the industry’s needs.

Sagalow added that the policy includes both new and customized elements of past insurance policies, including some parts of technology professional liability insurance, which protects against programming errors, and business interruption insurance.

“Whether you’re stealing a private key or social security number, you’re still stealing an electronic file. Bitcoin theft is fundamentally a cyber risk – there are elements of crime, there are elements of professional liability – so it’s a series of types of coverages put together in a new format and applied to a whole new industry,” Sagalow explained.

Bitcoin’s image problem

Though optimistic that the partnership will send a wider message, Sagalow attested to the ongoing challenges bitcoin is facing in the insurance industry.

For example, Sagalow explained that to many insurance professionals, bitcoin is still synonymous with online black markets such as Silk Road.

“When I started talking to underwriters and carriers, a number of them said ‘Isn’t that the industry that’s involved in drugs and murder for hire, is that the industry you want us to start insuring?’” he said.

Still, Sagalow indicated that he believes “the greatest risk is not taking one”, a factor that lead him to embrace the challenge of insuring a company in the industry on behalf of XL Group.

He further applauded the bitcoin industry for the steps it has taken to distance itself from such illicit activities, comparing it favorably to the gambling industry in Nevada.

“I think of the casino industry,” he continued. “In the 1950s and 1960s, the Nevada casinos were owned by the mob, but that wasn’t a permanent situation, eventually companies took over that industry. That happened in bitcoin, not in decades, but in a matter of months.”

Slow beginnings

Less quick was the time it took BitGo to obtain a partnership in the insurance space, as O’Brien indicated BitGo has been speaking to underwriters and industry analysts about the prospect since late 2013.

O’Brien painted this as a necessity, especially as more financial professionals enter the bitcoin space. “They are more expecting of guarantees and sophistication around these platforms. It’s not good enough just to have good code, and that we saw from a demand side and from a supply side,” he added.

Sagalow also admitted to a steep learning curve but also to “drinking the lemonade” of the bitcoin industry during his research, even starting a new venture, Bitcoin Insurance Agency, that will seek to support more bitcoin businesses.

Still, Sagalow cautioned that this won’t mean that every bitcoin company is insurable, adding that BitGo was a “logical first entry” given its security focus. However, he did express optimism that the partnership will at least create a conversation, and potentially, an opportunity akin to those that have proved successful in past tech fields.

Sagalow concluded:

“We’re hoping that this is just the beginning of a new version of cyberinsurance.”

Also see: 

Read Official Bitgo Press Release

Read CoinDesk Article

Read Bitcoin Magazine Article

Read CyptoCoins News Article

Read WSJ News Article

FEBRUARY 25, 2015, NEW YORK.  BitCoin Financial Group, LLC announced the first successful design and purchase of a true Bitcoin Theft Insurance Policy. BitSecure™, a proprietary insurance policy designed by the Company was created for BitGo, Inc., the leader in Bitcoin security platform and a pioneer of multi-sig technology. Bitcoin Financial Group worked closely with the insurance carrier providing the coverage, a well known Global A-Rated insurer . The policy provides a robust cyber and professional liability insurance that goes well beyond narrow crime policies previously adopted by some bitcoin vault providers. BitGo customers who opt-in to the program are protected from any act, error, or omission of BitGo technology, processes, and employees, including external hacking incidents and employee theft. Both hot wallets and cold storage are eligible for coverage in the policy. In the event of a covered loss, the policy would reimburse BitGo’s customer, as a direct loss payee, for the full value of the stolen insured bitcoins, subject to the full terms of the policy. In addition, the policy provides BitGo unprecedented ability to work directly with it customers in the management and resolution of such incidents.

“In collaborating with BitGo and Innovation Insurance Group, we tailored a first-of-its-kind insurance product to help protect the rapidly growing bitcoin industry,” said John Coletti, Chief Underwriting Officer, Cyber and Technology Insurance, XL Group.  

“We have seen early attempts at insurance in the bitcoin market, such as those based on a captive model funded with cash reserves or “crime” policies that solely cover employee theft of cold storage keys,” said Ty Sagalow. “While this was suitable for Bitcoin’s formative years, it does not scale to the requirements of today’s ecosystem. BitGo’s multi-signature technology alters the threat profile to the point that a properly balanced insurance product can for the first time be brought to market at a price in line with typical cyber risk.”

Read Official Bitgo Press Release

Read CoinDesk Article

Read Bitcoin Magazine Article

Read CyptoCoins News Article

Read WSJ News Article

Bitgo CEO YouTube on BitSecure Product

This was the insurance industry’s first introduction to the hazards of insuring technology. To reduce that exposure, we had to figure out a way to motivate our corporate policyholders to take reasonable steps to manage their Y2k problem. Since one of the central purposes of an insurance policy is to motivate specific risk reducing behavior, such as wearing a seat beat, the question became how to apply that rule to motivate risk reduction behavior in connection with the impending “date configuration” problem.

So we created “Y2k insurance”, and made it available only to those companies who took the right steps to reduce their exposure.

Well, the Y2k crisis came and went and the insurance industry was relatively unscathed. Whether the introduction of a new insurance product helped, we will never know. What we do know, is that the Y2k experience inspired the insurance industry to contemplate other technology risks we might insure. This being the year 2000, the answer to this question was immediately clear: The Internet. Many of us realized that the Internet presented a permanent change in the sociological and economic system; that life would never be the same. But how does one insure a new technology and a completely new way of conducting business? It was a scary thing to contemplate. Fundamental to the insurance business is an analysis of historical actuarial information about frequency and severity of loss. We have decades of data on automobile accidents, broken down in every way imaginable. But how do you determine the right premium for a risk that has never before existed?

For most carriers, the answer was “you don’t”. But for a very special few, a different response emerged. A response that arose from a different culture—a risk taking culture. A culture of innovation. “Cyber Insurance” was thus born. It took a while, but eventually we became comfortable with underwriting the frequency and severity of potential cyber attacks against our policy holders’ computer systems. Today, 15 years later, cyber insurance is a robust $1.3 billion industry with over 45 carriers providing some type of cyber insurance. And, despite the almost daily reports of cyber attacks, the industry is somehow making enough money to stick around.

Bitcoins

Once again the insurance industry is faced with a new risk in the technology space. Once again the global economy is being transformed with a new way of conducting transactions. And, once again, the insurance industry is faced with a dilemma: Do we ignore this new risk or face it head on? There are over 8 million bitcoin “wallets” in existence today, and this is expected increase to 12 million by the end of year. The total value of bitcoins worldwide, expressed in terms of US dollars is around 4 billion dollars. There are over 100,000 bitcoin transactions happening every day. Over 80,000 companies, from Microsoft to Dell to Expedia.com accept bitcoins as a form of payment for their goods and services.

But how do you insure bitcoins? More specifically, how do you insure the theft of the electronic private keys that are used to access bitcoins? A smart insurer realizes that such a task is an exercise in both the familiar and the foreign. A private key is, after all, an electronic file. In many ways, the policies and procedures used in the network security space to protect any computer system holding any file are the same as those used to protect an electronic private key file. Equally true is the fact that a good portion of private keys are stored in “cold storage”, meaning that they are not held it a computer which has access to the Internet. Some are actually stored in a bank vault. Storing valuables in a bank vault is also a well-understood risk and insurable. Finally, many companies who would be interested in purchasing Bitcoin Theft Insurance are themselves technology providers. Insurance for technology companies has existed for some time.

However that’s where the analogy ends and things begin to become difficult. First, the “cyber” insurance policies provided today actually do not insure the intrinsic value of the electronic file stolen. The policies do not cover the “value” of a social security number, for example. Furthermore, best practices in the securing of private keys in “hot storage” (computers connected to the Internet), rely upon the multisig, or multiple signature, technology, something with which insurance underwriters are generally unfamiliar. At best, underwriting the theft of bitcoins requires coordination of multiple underwriting departments within an insurance company. More likely, it means creating new underwriting techniques and protocols.

Will the insurance industry be able to respond to the call? The insurance industry historically has not been known for innovation. So, how will we respond when it is faced with a new and potentially important risk, for which there is no historical actuarial data? Do we run away or do we embrace a new need and a new opportunity as we did 15 years ago? Only time will tell.

However, in February 2015 one company successfully designed the first true Bitcoin Theft Insurance policy along with a global “A” rated insurance carrier for the benefit of BitGo, Inc., a leader of multi-sig technology. Will this policy be the first and only of its kind? So, like cyber insurance of 15 years ago, will we be only the first of hundreds of thousands of “Bitcoin theft” policies. Only time will tell.

Ty R. Sagalow
CEO & Co-Founder
BitCoin Financial Group, LLC

 View/Download Original Article