Quadriga CX Fiasco Highlights the Need for Crypto Insurance
A startup by the name of BitGo Inc. could be the answer to the menace of losing private keys of cold-storage crypto wallets, reports Bloomberg, February 19, 2019.
Can too Much Safety Be Fatal?
The recent fiasco surrounding the death of the CEO of Canadian cryptocurrency exchange Quadriga CX has rekindled questions regarding the safety of crypto holdings. The dramatic turn of events in the story has proved to be a cautionary tale for the cryptoverse at large and has forced people to wonder whether the excess of safety is always a good idea.
However, a startup with the backing of prominent companies such as Goldman Sachs, might just be the piece to solve the puzzle of cold storage wallets that have occupied the center stage in the Quadriga debacle.
According to the Bloomberg report, BitGo Inc. offers custodian solutions on more than $2 billion in digital assets. The firm stated that it has obtained a policy worth $100 million through Lloyd’s insurance marketplace which would provide protection against the loss of private keys of cold wallets, among other things.
For the uninitiated, cold wallets differ from online crypto wallets (hot wallets) and exchanges as they can be accessed offline with the help of private keys held safely by the user. However, the downside of this is that if the private keys are lost then it is near impossible to ever recover them – something any Quadriga CX user can vouch for.
The insurance policy offered by BitGo Inc. covers hacks, insider theft by company employees, and loss of private keys needed to unlock the funds. However, it’s worth noting that the insurance coverage only extends to the funds that are under complete BitGo control.
BitGo boasts of financial backing from some of the major players in the nascent crypto and the traditional finance industry, which include the likes of DRW Holdings, Galaxy Digital Ventures, and Goldman Sachs.
The insurance service provided by BitGo differs from the services provided by crypto exchange platforms like Coinbase Inc. in that in the latter’s insurance policies usually only cover so-called hot wallets that are primarily used for immediate trading of customer holdings and require an internet connection to function.
Nicholas Edwards, who heads an insurance consortium that participated in providing BitGo’s coverage through Lloyd’s said:
“The size of the limits, the breadth of the coverage that BitGo has bought is the first of its kind.”