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rypto insurance may not be as straightforward as other types of insurance, such as covering risks related to life, health, or valuable objects. Furthermore, insurance companies have not been very open about the precarious crypto market for obvious reasons such as the difficulty in understanding blockchain's technical complexities and the lack of insurance-specific definitions of key digital asset components.

However, the tide is turning; some major insurance companies are gradually entering the game of insuring digital currencies.

Why is crypto insurance required?

Crypto insurance is similar to any other insurance policy in that its primary goal is to provide protection against token loss. However, it necessitates a distinct insurance scheme because cryptocurrency is not legal tender and the factors influencing it differ from those affecting other payment or investment systems such as bonds, stocks, and bank deposits.

Volatility, hacking, and scams are major factors affecting the blockchain, particularly digital currencies.

Volatility

The cryptocurrency market is highly volatile. It can experience dramatic fluctuations in a single day or over several months for various reasons, ranging from government decisions to a tweet by an influential figure such as Elon Musk. For example, on November 8, 2021, the value of one Bitcoin, the oldest and most valuable cryptocurrency, was slightly more than USD 67,000. By 14 June 2022, it was trading at slightly more than USD 22,000, a drop of approximately 67 percent in seven months.

This volatility is primarily due to the fact that cryptocurrency is relatively new to markets, and most of the world's largest economies are divided on whether it should be fully accepted. However, this is only one of the investors' concerns about securing the money they have invested in cryptocurrency.

Hacking

Hacking is one of the most serious threats to the market. Numerous reports have been of hackers infiltrating cryptocurrency exchanges and stealing millions of dollars in digital currency.

In 2020, hackers stole USD 200 million in cryptocurrency from KuCoin, a Singapore-based cryptocurrency exchange. The largest known hacking incident occurred in August 2021, when USD 610 million was stolen from DeFi site Poly Network. The majority of that sum, however, was returned by the hacker the following month.

The second largest hack occurred on March 23, 2022, when USD 540 million in cryptocurrency was stolen from blockchain project Ronin.

Furthermore, hacking has resulted in the demise of exchanges such as Japan's Mt Gox.

In addition, unlike the stolen real currency, which can be controlled by blocking the thief's accounts, stolen cryptocurrencies present another legal impediment: obtaining stolen tokens from a hacker without a private key is impossible. This happened in October 2021, when an 18-year-old stole USD 16 million from the cryptocurrency platform Indexed Finance and vanished. Despite knowing who he is, nothing could be done concretely.

Scamming

According to a report released on 3 June, 2022 by the US Federal Trade Commission (FTC), over 46,000 people reported losing over USD 1 billion in cryptocurrency to scams between 1 January 2021 and 31 March 2022. According to the FTC, this was higher than any other payment method. The US government also discovered that Bitcoin was used in 70% of the scams and that malicious ads, posts, or social media messages were used in over half of the total scams.

For investors, losing or forgetting the private key, which is a secret number similar to a password, can also be a major issue. Because the private key is irrecoverable, losing it means that funds in an account may never be realized. Hackers can also steal private keys if stored on any device or service connected to the internet, such as a custodial wallet.

And these serious issues exist, although cryptocurrencies have yet to become a mainstream payment method. As a result, there is a consistent demand for cryptocurrency insurance, prompting some well-known insurers to make their first forays into this segment of the policy market.

What role does cryptocurrency insurance play?

Major exchanges such as Coinbase and Gemini have invested millions of dollars in digital asset insurance. Many of them also have insurance policies in place to protect directors and officers from the costs of litigation or investigations.

Daylight, insurance protection against crypto losses — was launched in May 2022 by UK start-up Superscript, which is Lloyd's licensed broker.

Superscript stated in a statement that the Daylight insurance policy is intended to protect tokenization platforms, miners, custodians, blockchain developers, and non-fungible tokens (NFT) platforms. Daylight's first covers will be technology liability and cyber insurance, indicating the risks of hacking and scams on the blockchain.

Lloyd's launched an intriguing policy in February 2020 through its syndicate Atrium in collaboration with Coincover. It made Lloyd's one of the first major insurance companies to launch a cryptocurrency insurance scheme and one of the few to indemnify customers directly.

Lloyd's insurance policy is designed to protect cryptocurrency stored in online wallets and begins at GBP 1,000. (USD 1,212, as of 16 June 2022).

"It is a new type of liability insurance policy with a dynamic limit that rises and falls in tandem with the price of crypto assets." This means that the insured will always be reimbursed for the underlying value of their managed asset, even if it fluctuates during the policy period," Llyod's said in a statement announcing the policy.

However, while there are few players in the market insuring against cryptocurrency loss, the majority of existing policies target businesses that deal in cryptocurrency rather than customers.

Source:
https://www.lifestyleasia.com/ind/money/everything-to-know-about-cryptocurrency-insurance/ 

Posted 
Jul 25, 2022
 in 
Digital Lifestyle
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