Everything You Need To Know About Cryptocurrency Insurance

With each passing month, cryptocurrency is gaining acceptance as a major investment opportunity for millions of people around the world. However, investing in cryptocurrency comes with its own share of the risk. It is therefore preferable to take out insurance.

Crypto-insurance may not be as straightforward as other forms of insurance, such as those that cover risks to life, health or valuables. In addition, insurers have not been very open about the highly risky crypto market, for obvious reasons such as difficulties with the technical intricacies of blockchain and the lack of insurance-specific definitions of key components around digital assets.

Yet the tide is changing; some big names in the insurance world are gradually entering the digital currency insurance game.

Advertising

Advertising

Why is crypto insurance necessary?

Photo: Lent by Kanchanara / @ kanchanara / Unsplash

Crypto insurance is like any other insurance – its main purpose is to provide coverage against the loss of tokens. However, this guarantees a single insurance scheme, as cryptocurrency is not a legal tender and the factors that affect it are different from other payment or investment systems such as bonds, shares and bank deposits. .

The main factors that use blockchain, especially digital currencies, include assets, hacks and fraud.

Volatility

Cryptocurrency is extremely volatile. Fluctuations in the cryptocurrency market can be drastic in a single day or over several months for any reason – from government decisions to a tweet from an influencer like Elon Musk. For example, the value of one Bitcoin, the oldest and most valuable of all cryptocurrencies, was just over $ 67,000 on November 8, 2021. On June 14, 2022, it traded at just over $ 67,000. over $ 22,000, a decrease of approx. 67%. in seven months.

This requirement is mainly due to the fact that cryptocurrency is very new in the markets and most of the major economies in the world face a dilemma in terms of its absolute acceptance.

However, this is only part of the concerns investors have about securing the money they have included in crypto.

Piracy

One of the biggest threats to the crypto world comes in the form of hacking. There have been many cases of hackers infiltrating cryptocurrency exchanges and stealing digital devices worth millions.

In 2020, hackers stole $ 200 million worth of cryptocurrency from a Singapore-based cryptocurrency exchange, KuCoin. The largest recorded hacking incident occurred in August 2021, when $ 610 million disappeared from the DeFi Poly Network website. However, most of this amount was returned by the hacker in the same month.

The second largest hack took place on March 23, 2022, in which $ 540 million in cryptocurrency was stolen from the Ronin blockchain project.

In addition, the hack has led to the collapse of stock exchanges like Mt Gox in Japan.

And unlike stolen real currency, which can be controlled by freezing the thief’s accounts, stolen cryptocurrencies come with another obstacle to law enforcement: it is impossible to get stolen tokens from a hacker without a private key. This is exactly what happened when an 18-year-old hacker in October 2021 stole assets worth $ 16 million from the cryptocurrency platform Indexed Finance and disappeared. Even though he knows who he is, nothing concrete could be done.

Fup

A June 3, 2022 report from the US Federal Trade Commission (FTC) showed that over 46,000 people said they lost over $ 1 billion in crypto due to fraud between January 1, 2021 and March 31, 2022. more than any other payment method. , noted the FTC. . The U.S. government also found that 70% of scams involved Bitcoin, and more than half of all scams originated from malicious advertising, social media posts or messages.

Losing or forgetting the private key, which is a secret number that resembles a password, can also be a major problem for investors. Since the private key can not be recovered, it means forgetting that money in an account may never be realized. Private keys can also be stolen by hackers if they are found on a device or service, such as a wallet that may be connected to the Internet.

And these serious problems exist, while cryptocurrencies have not yet become a common means of payment. Therefore, there is a sustained demand for cryptocurrency insurance, forcing some leading insurers to take their first steps into this segment of the policy market.

Insurance policy
Photo: Lent by Vlad Deep / @ vladdeep / Unsplash

Major exchanges like Coinbase and Gemini have invested millions of dollars in insuring digital assets. Many of them have also purchased a director’s and civil servants’ insurance policy to indemnify civil servants for litigation or investigative costs.

In May 2022, the British start-up Superscript, which is a licensed broker under Lloyd’s, launched Daylight – protection against crypto loss insurance.

In a statement, Superscript said the Daylight insurance policy is designed to secure tokenization platforms, miners, custodians, blockchain developers and non-fungible token (NFT) platforms.

The company added that the first coverage under Daylight will be technology liability and cyber insurance, indicating the serious threats that hacks and scams pose to the blockchain.

The exhibitor further stated that the initial covers protect companies from a number of risks, including ransomware attacks, cyber-business interruptions, and professional negligence. Coverage for directors and officials, guardians and minors will be created.

An interesting policy was introduced by Lloyd’s in February 2020 through its syndicate Atrium in conjunction with Coincover. This made Lloyd’s one of the first major insurance players to launch a crypto insurance program and is one of the few to directly indemnify customers.

Lloyd’s insurance coverage is designed to insure cryptocurrency in online wallets and starts from £ 1,000 ($ 1,212 as of June 16, 2022).

“This is a new type of liability insurance with a dynamic limit that rises or falls based on changes in the price of cryptocurrencies. This means that the insured will always be compensated for the underlying value of their assets under management, even if this fluctuates during the insurance period, ”Said Lloyd’s in its statement announcing the policy.

But while there are few players in the market who insure against the loss of cryptocurrency, most existing policies are aimed at companies that require crypto and not customers.

(Main and featured photos: Kanchanara / @ kanchanara / Unsplash)

Leave a Comment