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You are here: Home / News / ICOS: RISKS AND INSURANCE

February 15, 2018

ICOS: RISKS AND INSURANCE

Should Insurance Firms Pay More Attention to ICOs?

Last year, China made a decision to outlaw Initial Coin Offerings (ICOs) in the country. China’s main reason for this was the increase in cases of pyramid schemes masquerading as ICOs in the country. The government also considered the ICO structure of raising funds illegally.

What are ICOs and why are some governments (some) against them?

ICO (Initial Coin Offering) refers to a situation where a new cryptocurrency network offers presale of its own coins in exchange for other altcoins. The cryptocurrency uses the raised funds to develop its own platform. Investors, on the other hand, hold onto the new tokens until their value increases.
Here are reasons why some governments are against ICOs and how insurers are stepping in to solve the issues involved.

Scam ICOs

Lack of proper knowledge about the cryptocurrency industry has pushed millions of people to invest in ICOs that turned out to be scams. The ICOs promise revolutionary technologies on their cryptocurrency network to attract investors’ attention. In most cases, scam ICOs offer little more than a white paper. They then hype their networks to raise funds and later flee with investors’ money.

ICOs are seen as a threat

Governments like the Chinese government approach foreign investments into the country cautiously. Some governments have very strict financial rules and tend to create structures suitable for their people.

Risk for Investors

ICOs sometimes fail. Many ICOs have failed to attract enough attention to become valuable and pay back their financiers. Only ICOs with a highly innovative network have succeeded. Most of the less-known ICOs fail to raise enough money to develop their platform.

ICOs turn to insurance: Is it Interesting?

The insurance industry has already identified key areas in the cryptocurrency industry where their services are needed. Insurance against theft, for example, is one of the major issues in the industry they can cover. Next on their list is ICOs. To help legitimize ICOs and protect both the new cryptocurrency network and its financiers its, insurance groups are fast partnering with ICO founders.

The result of insurance firms covering ICOs

  • “ICO reputation will improve-the stained reputation of ICOs is likely to improve if insurers accept to cover investors, https://www.coindesk.com/pboc-advisor-china-right-ban-icos/.
  • Government focus on banning ICOs will reduce-if ICOs become legitimate, there will be less scrutiny and threats from governments.
  • Investors will be more informed on where to invest. Every ICO will want to take insurance coverage in order to look genuine and attract more financiers.
  • ICO security will improve-investors will become confident in ICOs as they beef up their security measures to attract the best insurance platforms.
  • Insurers will act as regulators-it’s possible that insurance companies will play the role of regulators by guiding investors where to invest. Over time, scam-ICOs will reduce.
    Important points:
  • Many insurance firms are still not confident in ICOs.
  • However, insurers who back promising ICOs stand to win and benefit their partners in a big way.
  • Covering ICOs with great potential may revolutionize the cryptocurrency industry.

Bitcoin thefts

Unfortunately, just like anyone else, hackers and thieves also want to have Bitcoins but for free. Set aside jokes, Bitcoin thefts are a major problem nowadays, however, as a Bitcoin owner you may avoid those through a number of methods. For instance, you should never share your wallet’s private address with anyone, you should use hardware wallets rather than online wallets. As a matter of fact, not only Bitcoin owners are at the risk of Bitcoin thefts but so are the miners.
Bitcoin theft incidents.

A rather well-known cloud mining marketplace called NiceHash, in December 2017, has become a victim of a hack during which the thieves managed to steal 4,736.42 Bitcoins, which at the time were worth more than $75 million. The main problem of similar thefts is that blockchain technology ensures its users with anonymity. In other words, the technology makes it impossible to find out whose wallet belongs to whom in order to trace the people who steal the cryptocurrencies. Unfortunately, NiceHash is not the only company that suffered from similar hacks. Even earlier, in 2016, Hong Kong based exchange called Bitfinex has lost 120,000 BTC (back at the time 1 BTC was worth around $650). This theft resulted in a fall of Bitcoin price from around $650 to $550, due to public panic all over the Bitcoin platforms.

The issue behind the thefts and potential solutions

The list of similar accidents can go on but as a Bitcoin user or miner, you always have to avoid from storing your cryptocurrencies online and pay a lot of attention to its safety. Please note that similar accidents happen usually because the platforms or the online as well as software wallets those platforms offer are not secure enough and just like any other online platform can be easily hacked. In other words, these unpleasant theft incidents are not because of Bitcoin is a bad cryptocurrency but because of people and companies not storing their coins optimally enough. The good news is that the number of insurance companies that start considering to provide services for ensuring Bitcoins are increasing with the popularity growth of this digital money. Currently, there already are some such insurance companies, however, even before making a deal with the insurance companies you have to make sure that those are reputable, reliable and are not scams themselves.

Summary
The current structure of cryptocurrencies puts off many insurance companies from insuring ICOs. However, some companies are increasingly making bold moves on ensuring promising ICOs. This will likely determine the next phase of the industry. Do you want to gain an in depth understanding of ICOs? Check out this article to learn about ICOs.

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Filed Under: Bitcoin, Bitcoin Insurance Publications and Interviews, News Tagged With: bitcoin risk

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Ty Sagalow head shotTy Sagalow's unique background in legal, underwriting, policy drafting and claims – and his designation as a “qualified insurance expert” by the United States District Court for the Southern District of California – offers attorneys an unparalleled resource in D&O, E&O and Cyber insurance coverage disputes. He was also named "Most Helpful Expert" in a recent $8.7M coverage decision.

Mr. Sagalow served as Chief Underwriting Officer and General Counsel for AIG Executive Liability (formerly National Union Fire Insurance Company of Pittsburgh, PA), the world’s largest carrier of Directors and Officers Liability and Professional Liability Insurance. As General Counsel, Mr. Sagalow personally wrote or led teams that wrote all the D&O policies and many of the professional liability policies that AIG produced between 1988 and 2000 – policies which continue to serve as the foundational wording for the D&O and professional liability policies in the market today. As AIG Executive Liability’s Chief Underwriting Officer, Mr. Sagalow was charged with all underwriting interpretations and decisions for AIG D&O/E&O policies. In 2009, Mr. Sagalow headed up the team that rewrote all D&O policies for Zurich North America.

Ty is a cum laude graduate of Georgetown University Law Center and holds a LLM from New York University School of Law.

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Combining his talents as a network security insurance expert and an insurance product development expert, Ty Sagalow is the leading expert on the unique risk and insurance needs of the bitcoin industry.

With the successful sale of BitSecure(tm), the first bitcoin theft insurance policy in February of 2015, he is the first to create a sustainable, robust insurance policy to cover the theft of bitcoins and other virtual currency backed by an A-Rated, global “top 10” Property and Casualty insurance company.

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Innovation Insurance Group is an insurance consulting firm and insurance brokerage founded by 30-year insurance executive, Ty R. Sagalow, former Chief Underwriting Officer, General Counsel and Chief Innovation Officer at AIG, and former Chief Innovation Officer at Zurich, NA and Tower Group. IIG focuses on three core practice groups: product development, expert witness services (primarily in the Management and Professional Liability areas), and bitcoin industry brokerage services.

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