One of the biggest barriers to entry in crypto has been a lack of security. With hacks, scams, and fraud providing ever-present threats, plenty of people are rightly worried about keeping their digital assets secure. In fiat currency and physical assets, it’s normal to take out insurance to protect our personal and business interests. Now, crypto insurance is becoming a more readily available product, with plenty of providers popping up and some of the biggest insurance brands in the world launching crypto insurance services too.
In this article, we discuss what crypto insurance is, the benefits of having it, and much more.
What is Crypto Insurance?
Crypto insurance is a specialized type of insurance designed to protect against the unique risks associated with digital assets, such as cryptocurrencies. Given the increasing value and use of cryptocurrencies, crypto insurance aims to provide a safety net against losses from theft, hacking, fraud, and other unforeseen events.
Types of Insurance for Cryptocurrency
Custodial Crypto Insurance
Custodial insurance covers the digital assets held by a custodian, a third-party service provider that securely stores cryptocurrencies for clients. This type of insurance protects against risks like hacking, internal theft, and loss due to technical failures.
Crypto Exchange Insurance
Exchange insurance is designed for cryptocurrency exchanges and platforms where users can buy, sell, and trade digital assets. This insurance covers losses due to hacking incidents, fraud, and sometimes operational errors, ensuring that users' funds are safeguarded against such events.
Smart Contract Insurance
Smart contract insurance provides coverage for the failure or malfunction of a smart contract—a type of self-executing contract with the terms directly written into code. This type of insurance can protect against coding errors, bugs, and vulnerabilities that could lead to financial losses.
Crypto Wallet Insurance
Any serious crypto investor should consider having crypto wallet insurance, even if you have a wallet with institutional-grade security. Typically, it will cover losses from hacking, unauthorized access, and sometimes even mistakes made by the wallet owner, such as lost private keys.
Insurance for Crypto Mining Operations
Crypto mining can be an expensive operation, whether you have a single rig or a warehouse full of equipment. Mining insurance protects your valuable equipment from damage, theft, and operational failures. It also includes cyber liability coverage, shielding your operations from hacking, and other cyber threats.
Sometimes, you can also add business interruption coverage to compensate for income lost during downtime caused by insured events.
6 Reasons Why Cryptocurrency Insurance is Important
Crypto insurance is crucial because it provides a layer of security and confidence in an industry perceived as high-risk due to its susceptibility to hacking, fraud, and regulatory uncertainties. Without insurance, individuals and businesses face the potential for significant financial losses, which can deter broader adoption and investment in cryptocurrencies.
1. Protection Against Hacking and Theft
Cryptocurrencies are often targeted by hackers due to their high value and relatively new technology. Hacks can lead to significant financial losses, as seen in high-profile cases like the Mt. Gox and Coincheck breaches. Insurance provides a financial safety net for these incidents, ensuring that investors and companies can recover some or all of their lost assets.
2. Mitigation of Fraud and Scams
The crypto industry is still maturing, which makes it vulnerable to various forms of fraud, including Ponzi schemes, phishing attacks, and fraudulent ICOs (Initial Coin Offerings). Having insurance can help mitigate the impact of these fraudulent activities by compensating victims and maintaining trust in the market.
3. Regulatory Uncertainties
Cryptocurrencies operate in a regulatory gray area in many countries. Sudden regulatory changes can impact the market and the operations of businesses within the space. Insurance can provide some stability and confidence, allowing businesses to operate with a level of assurance against unforeseen regulatory changes.
4. Encouraging Broader Adoption
The perception of high risk in the crypto market can deter potential investors and businesses from participating. Insurance helps to lower these barriers by providing a layer of security. When you reduce the potential for financial loss, insurance encourages more people to invest in and use cryptocurrencies, aiding in the overall growth and acceptance of the market.
5. Improved Security Practices
Insurers often require stringent security measures as part of their coverage terms. This pushes companies to adopt better security practices, which benefits the entire ecosystem by reducing the likelihood of breaches and losses.
6. Financial Stability for Businesses
For businesses involved in the crypto space, having insurance means they can continue operations even after significant losses, ensuring business continuity and protecting their reputation. This stability is crucial for the long-term viability of crypto businesses, as it helps them navigate volatile market conditions more effectively.
How Cryptocurrency Insurance Works
Policies and Coverage Details
Crypto insurance policies vary widely in terms of coverage and specifics. Commonly, they include protection against theft, hacking, fraud, and sometimes loss due to technical errors or natural disasters. Furthermore, depending on the crypto insurance company you use, policies can be tailored to meet the specific needs of custodians, exchanges, smart contracts, and wallets.
The Claims Process for Crypto Insurance
The claims process for crypto insurance tends to be similar to traditional insurance processes, so you need to ensure you can capture all the information and data your insurance provider will ask for. A blockchain insurance company won’t just pay out on your word. You’ll need to furnish evidence for your claim.
However, in many cases, blockchain technology makes this process a whole lot easier. Insurance claims are usually thought of as time-consuming, paperwork-heavy, and labor-intensive, but blockchain insurance simplifies this thanks to its basic data and coding tenets.
The reason blockchain and insurance go well together is because the blockchain is a single source of truth that cannot be disputed. The blockchain helps with particular steps involved in any insurance claim process, including:
- Incident Reporting: Notifying the insurance provider about the loss or breach.
- Investigation: The insurer conducts a thorough investigation to verify the claim and determine the extent of the loss.
- Assessment: Evaluating the claim based on the policy coverage and terms.
- Payout: If the claim is valid, the insurer compensates the policyholder according to the coverage limits and terms.
As always, policyholders should thoroughly understand the terms, exclusions, and limitations of their crypto insurance policies. It's also crucial to ensure that the insurance provider has a solid reputation and experience in the cryptocurrency industry.
Who Are the Best Crypto Insurance Companies?
When looking for the best crypto insurance companies, it's essential to consider various factors such as coverage types, reputation, and specialization. Here are some of the top crypto insurance providers in 2024:
Best for Decentralization
Nexus Mutual is a decentralized insurance fund on the Ethereum blockchain, using smart contracts to pool and distribute insurance claims.
Best for Theft and Loss
Evertas specializes in insurance for blockchain and cryptocurrency users, covering online hacks, private key loss, and technological errors.
Best for Crypto Wallet Insurance
Coincover provides insurance for crypto wallets, smart contracts, and exchanges, with comprehensive security against breaches.
Best for Crypto Exchange Insurance
Aon is a traditional insurer offering risk solutions for blockchain ventures, including crypto exchanges, protecting against security breaches.
Best for All-Round Crypto and Bitcoin Insurance
Known for its variety of insurance options, Etherisc is a decentralized protocol for various insurance products, including flight delay and crypto wallet insurance.
Cryptocurrency Insurance For Future-proofing Your Investments
Most people don’t give a second thought to insuring their home, car, collectibles, and valuables, and it’s about time digital assets were given that same security too. If you’re holding crypto or digital assets with a value that you don’t want to risk losing, then you should definitely look into your crypto insurance options.
With the constant threat of hacks and scams, it just takes one lapse in concentration to lose all of your digital assets and crypto portfolio. So, take a bit of time to think and consider if you’d rather have that peace of mind.
