Cryptocurrency In Small Bytes - Insuring the Blockchain: Risks of Blockchain-Based Business
Client Alert | 2 min read | 03.28.18
Businesses that deploy or rely upon blockchain may face unique risks. And just as businesses are considering the risks presented by blockchain operations, insurers similarly are sizing up the exposures.
A key question is whether there is some intrinsic difference in the risks posed by doing business through a decentralized blockchain system as opposed to a more traditional, centralized business model. While advocates of the technology contend that a blockchain model is more secure and reliable, there is no question that a blockchain is not infallible. Can the lack of control over each node of the blockchain enhance risk in unanticipated ways? Are limitations on how scalable blockchain can be, since every participating node in the network must process every transaction, fully understood? What are the implications in terms of business interruption and liability faced by a blockchain participant if a blockchain operation is locked down or disrupted, even temporarily?
Among other risks, exposures related to data security and privacy issues are at the top of the list. There is a risk of data theft or hacking, which could expose confidential data, even if the validity of the blockchain operation overall isn’t compromised. There also are concerns stemming from the fact that confidential business and personal information is being shared, needs to be encrypted or otherwise secured, and is being housed in multiple locations on a permanent basis. Does the blockchain’s means of operation meet regulatory requirements for handling confidential personal information? For instance, is the way a blockchain functions consistent with regulatory expectations that personal data will be destroyed when it is no longer necessary for business purposes? How does this regulatory expectation of destruction of personal data no longer needed for business purposes apply, given the permanence of transactions in a blockchain?
Apart from the risks that may be posed by blockchain technology per se, there are specific concerns posed by bitcoin and other cryptocurrencies. For instance, we are just beginning to get a glimpse of answers to questions such as whether cryptocurrencies are “money” or “funds,” and whether digital token public offerings or initial coin offerings (ICOs) are unregistered securities, subject to regulations governing equity market offerings. There may be substantial responsibilities and exposures posed depending on how the legal system answers these questions.
For early adopters of blockchain in innovating business operations, there are obvious risks. As use of blockchain technology grows, so does the need for insurance designed to address its risks.
Contacts
Insights
Client Alert | 4 min read | 09.12.25
SBA’s OHA Further Defines Extraordinary Action in SDVOSB Appeal
On September 4, 2025, the Small Business Administration’s (SBA) Office of Hearings and Appeals (OHA) granted an appeal challenging SBA’s determination that a service-disabled veteran did not control an entity applying for Service-Disabled Veteran-Owned Small Business (SDVOSB) status based on a minority owner’s ability to block certain actions in the matter of VSBC Appeal of: Blue Skye Foods, LLC, SBA No. VSBC-442-A.
Client Alert | 6 min read | 09.11.25
U.S. Department of Commerce Partially Relaxes Export Controls on Syria
Client Alert | 9 min read | 09.11.25
Client Alert | 1 min read | 09.10.25