From cyberattacks to rug draws, the world of cryptocurrency remains a rather exposed industry and as a result, investors are increasingly looking for ways to protect their assets from theft. While there are several methods to do this, one particular way to get your money back even if an unfortunate incident occurs is through crypto insurance, which promises the protection investors seek.
In this week’s column, we dive into the world of crypto insurance and explain the types of insurance available for your digital assets.
Crypto insurance is a policy designed to protect investors against any loss associated with crypto scams and cyber attacks. Most exchanges like Coinbase, Binance, etc., already have insurance to protect the digital assets they hold for their customers.
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“Like any other valuable physical asset, there is no reason why digital assets should not be insured. However, in a digital world, there are opportunities for cybersecurity breaches, but with adequate precautions such as the “crypto insurance, one can protect oneself from such incidents. They provide owners with some degree of insurance to protect digital assets against breaches and theft,” said Rajan Navani, CEO of JetSynthesys.
Cryptocurrency is not legal tender. So, crypto insurance is different from what you can get for your stocks, bonds, or any other bank insurance. In short, it is not protected in the same way that other repositories might be.
Notably, crypto insurance can only cover crypto hacks or thefts. It is intended to cover institutional losses. But I can’t assure you if you get trapped in a Ponzi scheme that promises high returns without risk. “The crypto insurance policy does not cover direct property loss and damage and the transfer of cryptocurrency to a third party. Also, it will not be able to protect against disruption of the blockchain underlying the asset” , Rajan told indianexpress.com.
Need crypto insurance
Cybercriminals are now taking advantage of the continued craze around cryptocurrencies to trick potential victims and steal their digital money. In fact, a report by Chainalysis found that hackers exploited vulnerabilities in crypto platforms, embezzling over $3.2 billion worth of cryptocurrency from victims in 2021.
The need for crypto insurance is due to the increase in hacks which have created a sense of fear among investors. More than 46,000 people reported having lost more than $1 billion in cryptocurrency scams and hacks since the start of 2021, the Federal Trade Commission (FTC) said in a report released in June.
The report further reveals that almost half of people who said they lost digital currency in a scam said it started with an advertisement, post or message on a social media platform.
In August 2021, hackers pulled off one of the biggest cryptocurrency heists of all time stealing $613 million in digital coins from the Poly Network token exchange. This is one of those cases, several such cases have been observed in recent years. The upward trend has spawned a fairly nascent service – crypto insurance.
Buy crypto insurance
As the industry is also starting to recognize the need for individual crypto coverage. Companies like Coincover provide insurance covering losses beyond which the exchange can usually include.
The company has an individual protection plan ranging from $10 to $750, covering crypto assets against hacking, phishing, malware, device theft, Trojans, and brute force attacks. “Coincover has secured its theft prevention technology. This means that if someone steals your funds using an attack that our technology is designed to prevent, we could compensate you,” the company said in a blog post.
It should be noted that most crypto insurance providers that exist today do not target consumers directly. These insurances are bought by crypto companies and exchanges instead. Coverage ranges from cybercrime or theft to custodial wallet insurance.
According to Rajan, other insurers have yet to enter the crypto insurance market, but they likely will as the insurance industry continues to heat up. “Cryptocurrency has the potential to go mainstream, and with that, we may see some regulatory frameworks coming. A developed framework would attract more insurers to provide crypto-insurance,” Rajan notes.
The future of crypto insurance in India
The cryptocurrency insurance market in India is poised to become a significant opportunity bearing in mind that there is still a long way to go for the crypto market to fully stabilize.
“We can expect major exchanges to create insurance funds and fill the void in the crypto insurance market. As in anything else where you regularly pay small sums of money to protect yourself from a huge loss at some point, crypto insurance will see massive adoption provided the risk/reward equation is calibrated well,” Rajan adds.