Insurers and consumers alike are seeing the emergence of cryptocurrency in their daily lives. As increasing numbers of companies worldwide begin using bitcoin and other digital assets for a host of investment, operational, and transactional purposes, it raises an important question: How is cryptocurrency defined for the purposes of insurance coverage?
What is cryptocurrency? A Primer
As a commonly adopted definition, cryptocurrency is a software object with units or “tokens” that can be transferred securely and verifiably from one owner to another. Transactions are recorded in a public, widely distributed database (a “blockchain”). Cryptocurrencies have been designed to serve as currencies, but, as detailed in the cases below, they don’t yet fulfil the central functions of money. (A “fiat currency” is any money declared by a government to be legal tender). However, many argue that Bitcoin is a homogeneous, virtual good that is entirely identical across all the online markets in which it is sold.
In the crypto industry, platforms are careful to distinguish cryptocurrency from traditional currency. Moreover, cryptocurrency is not backed by the government, and the IRS has gone so far as to designate it as property. In 2014, the IRS issued Notice 2014-21, 2014-16 I.R.B. 938, explaining that virtual currency is treated as property for Federal income tax purposes and providing examples of how longstanding tax principles applicable to transactions involving property apply to virtual currency. In short, a uniform approach to how to designate cryptocurrency is still evolving.
Recent Holdings Involving “Crypto” Designation
For being such a popular subject, few courts have taken on the issue of definitively defining cryptocurrency for coverage purposes. In fact, the current leading case on the subject Kimmelman v. Wayne Ins. Group, No. 18 CV 1041, 2018 WL 11417314 (Ohio Com.Pl. Sep. 25, 2018), has remained the only known case on the issue in…
