An introduction to cryptocurrency and its risks.

AUTHOR: Philip Farrar, National Development Director, Risk Management Partners Ltd.

On 15 February 1971 the coins and notes we use today (as cash) were introduced into circulation in the UK for the first time as the UK went decimal.

If the head teacher of my primary school had said as she showed us the shiny new coins: ‘….and in about 50 years children you will have access to digital money that will be encrypted. You will not understand it, nor be able to see it, or touch it, but trust me, it’s the future…’ I think we would have all thought she was mad!

But in 2020 it’s here, and it’s called cryptocurrency!

As cash is almost made redundant and cheques are being phased out, with both replaced by chip and pin and contactless payments, not only are the means and process by which we pay for goods and services changing, so is the currency in which we have the option to trade.

Business is changing too. Since 2017, kik, the social media messenger platform has accepted cryptocurrencies as payment, and in 2019 Facebook launched its own cryptocurrency, Libra. In 2018 the first cashless bar opened in Manchester and the first cashless pub in Ipswich. They accept payments with a chip and PIN or contactless bank card or phone, or a cryptocurrency.

We have already had the first house purchase using cryptocurrency1 and some councils accept cryptocurrency payments for council taxes and fees. Many companies and organisations now use cryptocurrency for regular payments and charges.

Cryptocurrencies may not be new, but in-depth knowledge of their use (and associated risks) is still growing. It may become
more common in everyday transactions, but cryptocurrency culture is not commonly understood. Insurers and the insured both need to get to grips with cryptocurrencies to manage the risks wisely