Crypto is changing the way the insurance industry operates, especially insurance within the decentralized finance space. Some companies are even decentralizing insurance funds with blockchain technology, meaning that anyone can purchase tokens that represent a piece of the insurance fund and potentially benefit from the value of the fund increasing, but why is crypto not insured?
Just like every other investment, losses from the value of your crypto decreasing are not insured. Losses from smart contract bugs and hackers, however, might be insured. To limit your risk as an investor, you have to use a cryptocurrency exchange and crypto wallet that are insured.
Traditional assets are commonly protected through the utilization of insurance, which will soften the blow should something happen to the individual’s investment. There are now multiple options for insurance, specific to the crypto ecosystem and projects contained in this ecosystem. Currently, only a few of cryptocurrency holdings are insured, which could be a dangerously low amount considering the prevalence of scams, hacks, and technical failures.
Four Questions People Ask About Crypto Insurance
• What is crypto insurance?
• Does crypto have insurance?
• Will insurance cover cryptocurrency claims?
• What about Individual crypto insurance?
Given the limited insurance coverage that exists today, you will likely want to brush up on cryptocurrency security measures and actions to take when your digital asset is stolen. Below I will explain the four questions people ask when looking to get insured with the best crypto insurance company.
What is crypto insurance?
This is an insurance for cryptocurrencies and digital assets like Bitcoin, Ethereum, NFTs, and more. Crypto insurance providers offer insurance policies on cryptocurrencies stored in wallets or exchanges via a standard insurance policy model.
They protect against losses related to cybersecurity breaches. Most cryptocurrency exchanges provide a minimum of some insurance to protect digital assets against losses from security breaches and theft.
Does crypto have insurance?
Yes. As far as we can tell, after years on the sidelines, the insurance industry is increasingly embracing the digital assets sector. Many crypto exchanges and custodians have for years been able to get insurance or shied away from getting it due to high premiums stemming from a lack of insurers willing to underwrite the industry’s risk. Some big exchanges have chosen to insure themselves instead, including Gemini, have announced they have insurance coverage.
Crypto firms typically look to insure against a loss of funds held by the exchanges on behalf of clients just in case of incidents like external thefts and employee thefts. They often get rid of directors' and officers' insurance that protects executives and also the companies from costs associated with investigations or litigation, and cybersecurity insurance against hacking and professional insurance cover to protect against claims of negligence.
Having insurance coverage also gives cryptocurrency firms and exchanges wider credibility. Unlike most industries, some of the popular crypto exchanges have publicly announced that they have hundreds of millions of dollars in digital asset insurance.
Will insurance cover cryptocurrency claims?
Yes, although it's not as simple as a one-word answer. Most cryptocurrency assets aren't currently covered by insurance, and that is because of the relative immaturity of the crypto market.
Regulatory uncertainty around the cryptocurrency industry and variety of high-profile, significant crypto thefts have made insurers reluctant to fully wade into the crypto world.
It is likely that as more people enter the crypto market and become exposed to the advantages of getting cryptocurrency insurance, we'll see more people coming towards these products as a way of protecting their investment.
Cyber hackers, of course, have seen the endless potential for moving vast amounts of crypto funds instantly as misappropriation is incredibly easy. Just like cash, one has to steal it, and there are obviously limitations on what quantity is taken. Besides that, cash can be traced or, as was the case with the vault theft from a Northern Ireland bank some years ago, reprinted with a brand-new design with the previous being rendered useless and no more legal.
As far as crypto is concerned, a potential thief just needs to hack into the key details of a crypto holder and digitally transfer however much they want straight into their anonymous account.
What about Individual crypto insurance?
Well, it seems that while some companies are evolving to provide private Individual crypto insurance, the degree and extent to which they are doing so differ immensely.
If a part of your cryptocurrency is held in a hardware wallet, then it’s secured from hackers. Insurance on hardware wallets isn’t necessary, as they can’t be hacked or get into like an exchange can.
The insurance industry is starting to implement blockchains into their business model to reduce costs for the companies’ bottom-line. Blockchain technology can help verify insurance claims and eliminate much of the overhead costs related to traditional insurance firms. And decentralized insurance like Etherisc lets users directly own a bit of its insurance fund to earn interest on their cryptocurrencies.
There is no getting away from it; crypto will change the way we understand and interact with money. It is going to have an effect on how we secure our financial future sooner than later.
As you can see, there are many various ways exchanges go about securing and insuring your funds. If a crypto brokerage insures your funds on its exchange, you'll trust that the exchange is secure. If it's not, no insurance firm would insure them, even if there were a security breach, you know that your funds are going to be reimbursed by the insurance firm.
Smart contract failures and exchange hacks are two of the most common causes for loss within the crypto sector, which is why cryptocurrency insurance provides cover for these eventualities. Decisions for the project are recorded on the blockchain and they are then put into practice by using smart contract technology.
Again, insurance cover is heavily dependent on the insurer, but be aware that the policy won’t cover direct hardware loss and damage and transfer of cryptocurrency to a 3rd party. Also, it won’t protect against failure or disruption of the blockchain underlying the asset.