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Emerging Payments

As Bitcoin Matures, Some Seek FDIC-Style Insurance

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"The fact that we can create this layer between the two different parties that have very different needs is a solution to a major pain point in the industry right now," he added.

Other products in development such as the Trezor, and a separate device developed by Butterfly Labs known as "BitSafe" try to achieve security for customers' bitcoins in an entirely different way. Rather than keeping bitcoins in an online wallet service or on one's own computer, they offer separate pieces of hardware not much bigger than a USB flash drive that offer an extra secure way to store and use bitcoins.

"On that piece of hardware you cannot install any software," says Wilson, of Reed Smith. "You can't do anything else on it. It's just designed to hold in an encrypted form your Bitcoin wallet. No one can install malware on it."

In the future, Wilson says, the options for protection may depend on whether regulators and the public view bitcoins as actual money. Since some view the currency instead as an investment vehicle, she says, with fluctuating prices attracting investors looking for risk, Wilson suggested a future model for backing accounts may be the current Securities Investor Protection Corp.

"If Bitcoin is money, then maybe FDIC-like insurance is necessary. But if Bitcoin is really an investment contract, maybe something like the SIPC would be more attainable and faster to implement," she says. "You can look at Bitcoin in different lights."

What may ultimately drive the development of insurance backing is the frequency of consumer losses through hacking or other events.

"So few people have wrapped their arms around Bitcoin, and fewer have wrapped their arms around a Bitcoin insurance program," says Santori. "But those who have had their wallets hacked or have had some other loss befall on them have definitely thought about it."

Bailey Reutzel contributed to this article.

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