Bitcoin vault offering insurance is 'world's first'
http://www.bbc.co.uk/news/technology-25680016
10 January 2014 Last updated at 16:06 GMT
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Bitcoins stored online have been subject to several raids by hackers
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Elliptic co-founder Tom Robinson says the service addresses a "deep concern" among Bitcoin users
Bitcoin vault offering insurance is 'world's first'
By Joe MillerTechnology reporter
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A Bitcoin storage service that insures deposits of the digital currency against loss and theft has launched in London.
Elliptic Vault uses "deep cold storage", where private encrypted keys to bitcoins are stored on offline servers and in a secure location.
The facility's founders say they are the "first in the world" to offer insurance for Bitcoin owners.
Stolen bitcoins cannot be recovered as all transactions are irreversible.
Online wallets used to store bitcoins have been subject to a number of cyber-attacks and some users have also suffered from accidental loss.
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How Bitcoin works
Bitcoin is often referred to as a new kind of currency.
But it may be best to think of its units being virtual tokens rather than physical coins or notes.
However, like all currencies its value is determined by how much people are willing to exchange it for.
To process Bitcoin transactions, a procedure called "mining" must take place, which involves a computer solving a difficult mathematical problem with a 64-digit solution.
For each problem solved, one block of bitcoins is processed. In addition the miner is rewarded with new bitcoins.
This provides an incentive for people to provide computer processing power to solve the problems.
To compensate for the growing power of computer chips, the difficulty of the puzzles is adjusted to ensure a steady stream of about 3,600 new bitcoins a day.
There are currently about 11 million bitcoins in existence.
To receive a bitcoin a user must have a Bitcoin address - a string of 27-34 letters and numbers - which acts as a kind of virtual postbox to and from which the bitcoins are sent.
Since there is no registry of these addresses, people can use them to protect their anonymity when making a transaction.
These addresses are in turn stored in Bitcoin wallets which are used to manage savings.
They operate like privately run bank accounts - with the proviso that if the data is lost, so are the bitcoins owned.
James Howells lost about £4.6m when he threw away his hard drive, forgetting that he had bitcoins stored on it.
Unlike money stored in a conventional bank, bitcoins are not insured and there is no way of retrieving them once they are gone.
'Obvious step'
"One of the main concerns people have with Bitcoin is that it's quite difficult to store securely," Elliptic co-founder Tom Robinson told the BBC.
"Offering people insurance seemed an obvious step."
But convincing an insurance firm to trust the nascent currency was not an easy task.
"It was very difficult to find an insurer," said Mr Robinson, an Oxford graduate with a PhD in physics who started the company with two friends.
"The industry is very conservative and they did not understand Bitcoin.
"They were also influenced by the negative publicity Bitcoin received, although this has improved since Silk Road [an online marketplace] was taken down and stopped dominating the Bitcoin agenda."
Layers of security
The company is underwritten by Lloyd's of London, which will give people "more faith in the Bitcoin system", according to Emily Spaven, managing editor of CoinDesk, a digital currency news site.
Insurance payouts will be calculated using the Bitcoin to US dollar exchange rate at the time a claim is made.
Elliptic's focus is on storing bitcoins as securely as possible, using what Mr Robinson calls "deep cold storage" techniques.
Bitcoin keys are encrypted and stored offline. There are multiple copies, protected by layers of cryptographic and physical security.
The copies are accessible only via a quorum of Elliptic's directors.
Illicit financing
Elliptic's launch comes as Bitcoin has been making news around the world, with governments deciding how to legislate for the currency.
Singapore has become one of the first countries to issue guidance on taxation for Bitcoin businesses, although it also said it was monitoring transactions to detect illicit financing by criminals and terrorists.
Bitcoin was less fortunate in China, where the largest online marketplace, Alibaba Group's Taobao, said it would ban virtual currencies.
In December, the country's central bank ordered financial institutions to halt Bitcoin-related services and products.
There was a breakthrough for the currency in the US, however, where Overstock.com became one of the first major online retailers to accept Bitcoin on Thursday.
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