Insurance for Bitcoin Companies

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Carl Niedbala

COO & Co-Founder

The Space

Bitcoin use has been exploding lately, with recent (September 2013) numbers suggesting that over 66,000 bitcoin transactions occur each day!  More and more e-commerce platforms and vendors accept Bitcoin as payment each day to the point where the market cap is currently $1.6B and only expected to grow.

Needless to say, the bitcoin space is a bit of a gold rush in the startup world.  We’re seeing the emergence of many new players in the space that are giving birth to new ways of conducting business with bitcoin.  You’d certainly not be far off to suggest that we’ll soon see a “PayPal of bitcoin” emerge from this gold rush.

Insurance for Bitcoin Companies

While building the next juggernaut like PayPal is every entrepreneur’s dream, it’s important to remember some of the challenges PayPal faced (or still faces) and understand how insurance can mitigate these challenges.

1. Legality, part 1

When it commenced operations, PayPal instantly broke at least a couple dozen banking and finance laws in just as many states.  When you’re dealing with a highly regulated industry like banking and finance, this just comes with the territory.  Bitcoin-centric companies are in a similar situation today, but the waters are even more murky. These companies don’t necessarily fall under the domain of finance and banking laws the way that traditional institutions do.  So what does that lead to? Class action lawsuits, battles with state and federal regulators, and eventually new legislation on both the state and federal level.  The bottom line is this: the lawyers are going to make a killing off bitcoin companies fighting for survival, and with the right insurance products in place, some of these costs can be covered.

2. Legality, part II

Beyond pressure from federal and state governmental bodies, bitcoin companies can certainly expect pressure from their customers.  Just like any company, bitcoin companies can expect some of their customers to be dissatisfied with their services and company policies.  Unlike most companies, however, bitcoin companies process thousands of transactions per day rather than maybe a couple hundred; if you can expect a certain percentage of customers to complain on average, bitcoin entrepreneurs by default have more headaches to deal with.  These headaches usually surface through class action lawsuits, which have already been stacking up in the space.

Again, this means tons of legal fees paid out by your company.  And unlike the legal fees in part 1, most of these can be covered by a good insurance package (particularly an E&O policy).  A good policy will cover the legal fees associated with defending the claim, settlements, financial damage to the company, and maybe even lost income from dealing with the claim.  Yearly insurance premiums are certainly more attractive than footing the bill every time one of your customers decides to sue you.

3. Security Breaches

Cyber-crime related to bitcoin sites is just the new-school version of good ol’ fashioned bank robbery.  Some of the claims addressed in part II will be certainly be brought by users who have had their accounts drained by hackers, or even worse, by one of your own employee’s mistakes.  In fact, you may be surprised to learn that almost half of all corporate data breaches occur from employees simply losing their laptop or other similar device.  Companies can (and should) have extensive security protocols in place, but the fact is that both crime and accidents just happen.

With a cyber crime policy, your company is covered under both security breach scenarios.  Furthermore, a good insurance policy can actually be used as a weapon by your sales force!  People feel much more comfortable knowing that the company with which they keep their bitcoin is fully insured.  At Founder Shield, we’ve even worked with bitcoin companies to set up policies that can be “passed through” to their users, essentially allowing the company to act like an FDIC-insured entity.


These are just a few ways in which the proper package of insurance policies can mitigate the huge risks that bitcoin companies face.  Feel free to reach out to us to learn more!


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