Insurance against theft or loss of bitcoins

[remotemass]

Do you think in the future there will be insurances covering theft?
How would you prove the insurer you were not the "thief" yourself?

[hongus]

No there won't be insurance for bitcoins. Plain and simple. If someone were to be offering insurance, I could almost guarantee you they will collect your payments and disappear the moment a large sum of bitcoins goes missing.

[kangasbros]

Yeah, it is kind of impossible business. Insurances for houses or health make more sense. With bitcoins, it doesn't make sense for the insurer or for the guy who takes the insurance. Because the stealer can be always the same person who owned the bitcoins before theft.

[MJGrae]

On the contrary, yes there could. It would have to be a real stand up operation, though and would require the use of a "bank" type operation that I've been thinking over for a while now. Think of it this way, a company creates their own client and adds extra layers of security to it. I believe this has already been done before, see bit coin armory.

So now you have a company with their own bit coin client that is extra secure, they are know willing to bet that nobody will crack their methods of securing wallets and transactions so they begin selling insurance. That's basically the end of this story, either they're right and everyone is happy, or they're very wrong and everyone loses everything and the company pays out every last satoshi they have (assuming this is a legitimate and reputable business).

In order to aid with the payouts and keeping the company afloat, they could also introduce a feature on their client that sets aside bit coins and allows the company to take short term loans against it in return for interest. (Read: basically a savings account, but at any time you are in full control and only earn interest based on the needs of the company in terms of payouts)

Its not a perfectly thought out idea, but I think it could be possible with the right people and the right minds behind it

[n8rwJeTt8TrrLKPa55eU]

Do you think in the future there will be insurances covering theft?
How would you prove the insurer you were not the "thief" yourself?

I guess the closest analogy would be insuring your cash holdings.  A difficult proposition, for many reasons.

But even better than insurance, is outright theft prevention, which is the model Bitcoin will be providing once all its functionality is implemented.  Insurers/banks will offer joint custody services for your wallet through multisig transactions, so that both yourself and a reputable entity must authorize in order to spend your funds.  Thus, if wallet is stolen, the thief can't do anything.  This also removes the problem of the insurer itself running away with your money: they couldn't do anything with it because they don't have your signature.  And just to be on the safe side in case you don't completely trust the insurance entity, the joint custody could be set up as something requiring periodic explicit renewal by yourself, by setting up a delayed transaction (via nLockTime) on initiation which would automatically return the funds to you after, say, a 6-month period.

Bottom line is that, in the long term, the goal for Bitcoin is to make traditional FDIC-style banking/wallet insurance obsolete and unnecessary.

See here:
https://bitcointalk.org/index.php?topic=34152.0
https://bitcointalk.org/index.php?topic=34152.0

[Desolator]

There's no way this would work.  I could send all my BTC to wallet #2 and say they were stolen and they'd never know the difference.

[siesatsu]

I cant see that happening, anytime soon. Theres no way to prove they were actually stolen and insurance fraud would be rampant.

[MJGrae]

I cant see that happening, anytime soon. There's no way to prove they were actually stolen and insurance fraud would be rampant.

Unless the wallet client required a one-time code to be input which requires a user-specific physical offline component to generate. MMOs have been experimenting with this kind of security for a while now and I believe it's been working out relatively well.

See: WoW authenticator
https://us.battle.net/support/en/article/battle-net-authenticator-faq

Any transaction made with the proper code would have to have been made by the person with the authentication device. I don't believe the odds of these offline authenticators getting cracked are very high, but I could be wrong.

[hazek]

I cant see that happening, anytime soon. There's no way to prove they were actually stolen and insurance fraud would be rampant.

Unless the wallet client required a one-time code to be input which requires a user-specific physical offline component to generate. MMOs have been experimenting with this kind of security for a while now and I believe it's been working out relatively well.

See: WoW authenticator
https://us.battle.net/support/en/article/battle-net-authenticator-faq

Any transaction made with the proper code would have to have been made by the person with the authentication device. I don't believe the odds of these offline authenticators getting cracked are very high, but I could be wrong.

That is really interesting. Perhaps once hardware wallets are developed and for sale insurance on bitcoins might become viable.

[casascius]

I could see it totally working if it were done in a way where the funds were encumbered by more than one private key, and no individual had the ability to defect.  This way, theft would be totally controllable.

Look at the cryptographic escrow scheme I'm doing right now between mrb and Micon for their 10 BTC bet.

I came up with a keypair scheme that involves 3 parties, but I could have done it with any number.  Any funds they send to their escrowed address requires 2 of 3 to agree on who gets the funds (I'm the third party).

[MJGrae]

I could see it totally working if it were done in a way where the funds were encumbered by more than one private key, and no individual had the ability to defect.  This way, theft would be totally controllable.

Look at the cryptographic escrow scheme I'm doing right now between mrb and Micon for their 10 BTC bet.

I came up with a keypair scheme that involves 3 parties, but I could have done it with any number.  Any funds they send to their escrowed address requires 2 of 3 to agree on who gets the funds (I'm the third party).

I'm actually really interested in learning more about this, I did a quick read of your post on mrb and Micon's thread, but will have to come back to it later when I have more time. So far it seems really cool.

[caveden]

Even if one figures out a safe way to implement such insurance, aren't there more efficient ways to protect your coins? Insurance is never for free!

For example, suppose you have a multisig scheme with a "bank". You configure your account not to let you withdraw more than a certain limit per day. Trying to change this config to anything larger would generate notification alerts and would only be valid, say, 48h after.

Under this config, all that an eventual thief could steal from you is your maximum daily amount, which shouldn't be much larger than an insurance's deductible anyway.

Add to this a hardware wallet as the sole means of accessing your keys, and the thief would only be able to steal from you by physically stealing the hardware wallet and by forcing you to give him its encryption password.

The only way you could potentially "lose everything" is if the thief actually holds you hostage for the time necessary to change your configuration and transfer all the money out of your account. Perhaps to counter this, you could list a number of trusted people who would be authorized to freeze your account in case you "disappear". Or make just this particular risk (kidnapping) insurable - don't they exist already, insurances against kidnappings?

[Spekulatius]

I was wondering too, why no one put this into action!

IMO what scares most people is the difficulty of keeping your coins safe (I guess 95% of all potential users wouldnt even bother to read the "secure your wallet page" on bitcoin.it/wiki).

The easiest way would be to have an easy to use, no sweat interface, like the one on blockchain.info or even simpler, with a 100% funds insurance for a small fee.

I bet some online wallet provider is already working on it. IMO thats gonna be the next BIG thing in Bitcoin.

[furrycoat]

People would simply steal their own coins and claim they were hacked, or ripped off. It would never work.

[MJGrae]

People would simply steal their own coins and claim they were hacked, or ripped off. It would never work.

Like people do with the regular insurance industry now? Because that whole industry just doesn't work, right?

[franky1]

insurance for coins.. i see alot of fraudulent claims happening

EG set up 2 addresses, send funds to yourself and claim the receiving address is a scammer (show a shady website you designed and the 2nd address listed on it and u want to claim a loss of income.)
EG put a load of coins in the address and then claim that you lost the private key due to a computer wipe/virus. (showing the windows directory time stamp (after using properties plus to change the info) to show its a recent install and u want to claim a loss of income.)
EG u set up 2 aliases on BTCJAM the second alias requests a loan. you then loan yourself the money and claim they did not repay. (showing stats, blah blah as proof. and you want to claim a theft)

followed by a scam thread where the insurer does not always pay out due to obvious false claims.
EG "Insurer A wont pay me, he thinks i falsified evidence to get free coins, what a scam"
EG "Insurer A asked for evidence which i dont have and wont pay out, what a scam"
EG "Insurer A wont pay me" (never subscribed to the service just want to call them a scam)

if you want to be a hoarder. dont trust second parties to look after your stash
here is a big secret to insurance. LOOK AFTER YOUR OWN MONEY and you never have to worry about insurance.

now instead of thinking up idea's how to stir the community pot of cash amungst itself. how about thinking up idea's to expand outside the community and get new legit businesses onboard. instead of new ways to sway money between peter and paul within the community.

[MJGrae]

insurance for coins.. i see alot of fraudulent claims happening

EG set up 2 addresses, send funds to yourself and claim the receiving address is a scammer (show a shady website you designed and the 2nd address listed on it and u want to claim a loss of income.)
EG put a load of coins in the address and then claim that you lost the private key due to a computer wipe/virus. (showing the windows directory time stamp (after using properties plus to change the info) to show its a recent install and u want to claim a loss of income.)
EG u set up 2 aliases on BTCJAM the second alias requests a loan. you then loan yourself the money and claim they did not repay. (showing stats, blah blah as proof. and you want to claim a theft)

These are all subject to what the terms of the insurance are. If the insurance is strictly "insured against malicious attack and seizure of funds" then the first two are null and void, if you go buy what I suggested earlier with an offline private key item. I.E a physical stick that doesn't connect to the internet that you need in order to generate a temporary key. That way, if the algorithms were to ever be compromised the insurer would know. The insurance agreement would have to be that only funds which are NOT sent out using your private key (and therefore unauthorized, also not including if you lost your keygen and somebody found it and used it). Investment insurance against lending is an entirely different thing, and I don't see THAT happening unless the lending goes through the insurer who approves the lendee.

followed by a scam thread where the insurer does not always pay out due to obvious false claims.
EG "Insurer A wont pay me, he thinks i falsified evidence to get free coins, what a scam"
EG "Insurer A asked for evidence which i dont have and wont pay out, what a scam"
EG "Insurer A wont pay me" (never subscribed to the service just want to call them a scam)

Yeah, there's really no way around this unless the insurer is genuinely a stand up person and has enough business behind them that HAVE had their loses reimbursed for legitimate claims.

if you want to be a hoarder. dont trust second parties to look after your stash
here is a big secret to insurance. LOOK AFTER YOUR OWN MONEY and you never have to worry about insurance.

now instead of thinking up idea's how to stir the community pot of cash amungst itself. how about thinking up idea's to expand outside the community and get new legit businesses onboard. instead of new ways to sway money between peter and paul within the community.

You don't seem to understand the implications of having a bona-fide insurance program behind insuring your coins. Because no matter what, people WILL get to your wallet, I firmly believe that. People are pretty smart when they have malicious intent.

Instead, think of the implications having a safety net for your wallet would have in terms of people adopting bitcoin. I'm sure one of the main reasons people are opposed to bitcoin is because of the security implications, and the hoops you have to jump through to "secure" your wallet. By calming people's fears in this part of the game, it would knock down a major barrier to entry in the form of people's own security concerns/hesitations.

[franky1]

well creating fear by telling new people their stash is not safe in their own hands and they require an insurance is not good for bitcoin either. people know they cant hold bitcoins in their hand and have to rely on computers. but telling them they cant rely on their own computer or paper wallet... thats just silly.

the whole point of bitcoin is that no other entity owns or controls your funds. by using the insurance company idea's you have suggested you are saying for people to input their stash into a insurer controlled 'bank' and if anything goes missing they will repay it. plus ontop you have to pay them a monthly premium to keep your coins safe.

i have a mega load of coins now.. i have no fear of funds being stolen. and i wouldnt pay a third party to look after them for me. but good luck.

teach people about paper wallets and data backup

[MJGrae]

well creating fear by telling new people their stash is not safe in their own hands and they require an insurance is not good for bitcoin either. people know they cant hold bitcoins in their hand and have to rely on computers. but telling them they cant rely on their own computer or paper wallet... thats just silly.

the whole point of bitcoin is that no other entity owns or controls your funds. by using the insurance company idea's you have suggested you are saying for people to input their stash into a insurer controlled 'bank' and if anything goes missing they will repay it. plus ontop you have to pay them a monthly premium to keep your coins safe.

i have a mega load of coins now.. i have no fear of funds being stolen. and i wouldnt pay a third party to look after them for me. but good luck.

teach people about paper wallets and data backup

We aren't creating fear, the fear is already there. People are free to do as they'd like, but I know people that would willingly pay in order to ensure they won't be worth nothing tomorrow. Also, it wouldn't be putting their coins into a "bank" it would be using a client developed by someone else, which people already willingly do without the added benefit of having the insurance. And you're right, paper wallets and data backup are a great, pretty secure way to keep your funds.

However, they are no different than shoving your dollars under the mattress and hoping nobody gets ahold of them there. Not everybody likes that notion.

[casascius]

And you're right, paper wallets and data backup are a great, pretty secure way to keep your funds.

However, they are no different than shoving your dollars under the mattress and hoping nobody gets ahold of them there. Not everybody likes that notion.

Cue an ad for BIP38 (Password-Protected Paper Wallets).

If I were to create password-protected paper wallets, and put copies in two separate safety deposit boxes at two different banks, and then memorize the passphrase as well as share it with one or two trusted individuals, that's a whole lot better than shoving cash under the mattress.