Is Bitcoin and Other Cryptocurrency Mining Insurable?

Since the introduction of Bitcoin in 2009 and cryptocurrencies in general, the use of digital currencies has continued to grow. Early adopters utilized personal computers to complete the necessary steps that would result in new digital “coins”. Commercial deployment of specialized mining servers and introduction of mining farms followed shortly after.

The Y2K crisis in the late 1990s was likely the insurance industry’s first large-scale introduction to the risks of insuring technology. The insurance industry normally relies on historical actuarial data that details frequency and severity of loss. The rapidly changing nature of crypto mining technology makes actuarial data unreliable.

Therefore, while Bitcoin and other cryptocurrencies have been mined for over 10 years, a large portion of the insurance industry is still not comfortable underwriting this type of risk.

As an example, Old Mutual, a Cape Town, South Africa based insurance carrier, released a statement that it is opting out of insuring crypto mining equipment due to the absence of regulation and the industry’s fondness of using a modified electronic infrastructure that operates 24/7, making it highly prone to overheating and other malfunctions. Old Mutual went on to say that even doing a comprehensive inventory of the insured equipment is difficult, because the value of the highly modified computer equipment is typically inflated and almost impossible to verify as it is usually imported from obscure suppliers in the Far East.

The words “crypto mining equipment general liability coverage” or “Bitcoin mining equipment insurance” yield few search results, indicating that there is no widespread specialized coverage for crypto or Bitcoin equipment. However, crypto mining equipment would readily fall under the description or definition of computer hardware or datacenter server equipment, terms that insurance carriers have experience with.

While replacement with like, kind, and quality (LKQ) is normally quite straightforward, the current volatility and non-standard supply chain make valuation very difficult. In addition, recovery of hardware that simply exhibits signs of loss, like contamination, is also not as clearly understood. 

The Need for a Quick Solution on Cryptocurrency Mining Equipment

No different than other losses involving time-sensitive equipment, replacement hardware with a five-month lead time presents a challenging solution when business income loss is measured in minutes. Every 10 minutes, around the clock, a new Bitcoin block is added to the blockchain. While the hardware infrastructure is not regulated, there are industry standards for the electronic circuitry within the Bitcoin servers. Restoring equipment back to those industry standards is the foundation of a successful recovery. Meeting published cleanliness and functional requirements instill confidence that a loss can be settled and the equipment owner made whole.

Examples of Bitcoin Mining Insurance Losses

The loss examples above can be summarized as follows:

1. The great Texas freeze - Bitcoin mining servers that require decontamination to remove the matted debris off the electronic circuitry. Thereafter, testing and repair to restore full functionality.
2. Environmental impact - Equipment that requires decontamination before it can be powered on for testing.

More examples can be found in our whitepaper.

Post Loss Insurance Considerations for Crypto Mining Equipment 

Following a fire to a data center, office building or a bitcoin mining farm, computer equipment is often covered in soot and claimed as damage. Physically the hardware was unharmed, although corrosive contaminants settled on sensitive electronic circuitry. Along with construction/environmental debris, corrosive and conductive contaminants cause circuitry to overheat and bridge between electronic components.

Due to the 5 month lead time and demand for bitcoin mining equipment, replacement may not be the best option. This is why professional decontamination services are highly sought-after. It restores the Bitcoin servers to the same cleanliness levels they met when first manufactured, and allows owners to resume production with minimal downtime. The post decontamination cleanliness is almost always better than what existed in those servers prior to loss.

 For More Information, Read Our Whitepaper: Is Bitcoin Mining Insurable? 

We've published a white paper on this very topic to provide more information and clarity on underwriting and post-loss considerations for an industry that is growing far quicker than most expected.

In this 20-page paper we discuss:

• Crypto Insurance for Mining Equipment
• What is cryptocurrency and what are the anticipated applications in the coming years?
• The cryptocurrency mining process
• Where mining is taking place today, the equipment being used, and expected life expectancies
• The impacts of crypto mining on existing electrical infrastructure
• Factors that contribute to hardware failures and post-loss considerations