Bitcoin, ethereum, cardano: These are just three of more than 18,000 different cryptocurrencies in the world.1 These digital assets are means of exchange created and used by private individuals or groups. Transactions are verified and records are maintained by decentralized systems using cryptography (blockchain) rather than by a centralized authority such as the Federal Reserve System.
Benefits of using cryptocurrency include government independence (not a fiat currency) and strong data security. However, the drawbacks include illiquidity and value volatility. Due to the ambiguity that surrounds these cryptocurrencies, many countries have had a lukewarm reaction to these forms of currency entering their economic environments. Some countries, such as China, have gone so far as to ban them.2
Cryptocurrency and digital finance exchanges are nothing new, beginning with mobile payment technologies going back to the late 1990s and early 2000s. However, it wasn’t until the late 2000s that bitcoin became the first publicly used means of exchange to combine decentralized control, user anonymity, record-keeping via a blockchain, and built-in scarcity.3 Today, cryptocurrency demand is stronger than ever, and the insurance industry is taking notice. In response, new insurance solutions are emerging.