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A Bitcoin for Your Thoughts

A while ago, my daughter returned home from a semester of studying abroad in Europe.

She gave me a bag of loose change accumulated during her travels to exchange for U.S. dollars. Planning to use those euros and pounds for my own future business trips to Europe, I sorted through them. One coin in particular — a bitcoin — caught my eye. Never having heard of nor seen such a coin before, I asked her about it. She took it back and told me that an overseas friend gave it to her as a token of their friendship and that people use bitcoins to pay for things on the Internet. That piqued my interest.

A quick Internet search revealed to me that bitcoins are in use as open-source peer-to-peer (P2P) “cryptocurrency.” Users can send bitcoins over the Internet without having to engage a financial institution or other intermediary.

Making its first appearance in 2009, the bitcoin has grown in popularity, though the concept is still foreign to many people. I did locate an article recapping one person’s experience earlier this year trying to live for a week using only bitcoins.

Bitcoin exchange rates can fluctuate significantly. In October 2011, one bitcoin cost $2, whereas in April of this year, it was worth more than $265. Today, according to one bitcoin exchange site, that very same bitcoin would be worth approximately $140. (My daughter’s physical bitcoin is a collectible, but it’s worth real digital bitcoins.)

Two recent bitcoin-related news stories caught my attention. The first was about a federal judge of the Eastern District of Texas who ruled that bitcoins are “a currency or a form of money” (specifically, securities as defined by the federal securities laws). The second was news of Germany recognizing the bitcoin as a legal unit of currency for both purchasing and taxing purposes.

If the use of bitcoin or other cryptocurrency continues to grow, what consequences might there be for commercial and/or personal insurance? That’s just one of the many emerging issues that ISO is monitoring for potential effects on our insurance programs, including our cyber liability program. If you’re a registered ISOnet® user, you can go to ISO’s Emerging Issues web portal, available on ISOnet, to see all of the topics and any recent developments.

I’d offer a bitcoin for your thoughts, but at the current exchange rate, I could go bankrupt quickly. Provide your views anyway — for free — if you’d like.

Shawn Dougherty

Shawn Dougherty is the assistant vice president of ISO's Specialty Commercial Lines Division. He is responsible for providing the overall direction, leadership, and client service for ISO's cyber liability (e-commerce), D&O (management protection), businessowners, crime and fidelity, financial institutions, employment-related practices liability, and professional liability (other than medical) insurance programs. He is also the ISO product manager for the Lloyd's Wordings Repository, an electronic database of policy wordings and clauses regularly used within the London market. Mr. Dougherty has worked at ISO since 1988.