What is crypto insurance, how does it work, and do you need it?
From cyber attacks to rug pulls, the cryptocurrency world remains a rather exposed industry and therefore, investors are increasingly looking at ways to protect their assets from being stolen. While there are several methods to do this, one particular way to get your money back even if an unfortunate incident takes place is through crypto insurance, which promises the protection the investors seek.
In this week’s column, we delve 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 losses associated with crypto scams and cyber attacks. Most exchanges like Coinbase, Binance, etc., already have some insurance to protect the digital assets they hold for their customers.
Best of Express Premium
“Like any other valuable physical assets, there is no reason that digital assets should not be insured. However, in a digital world, there are possibilities of cybersecurity breaches, but with adequate precautions such as crypto insurance, one can protect themselves from such incidents. They provide owners with a certain degree of insurance to protect digital assets from breaches and theft,” Rajan Navani, Managing Director at JetSynthesys says.
Cryptocurrency isn’t a legal tender. So, crypto insurance is different from that you can avail for your stocks, bonds or any other bank insurance. In short, it is not protected the same way other deposits might be.
Notably, crypto insurances can only cover hacks or crypto thefts. It is designed to cover institutional losses. But can’t insure you if you fall trapped in a Ponzi scheme which promises high returns with no risks. “The crypto insurance policy doesn’t cover direct hardware loss and damage and cryptocurrency transfer to a third party. Additionally, it won’t be able to protect against the disruption of the blockchain underlying the asset,” Rajan tells indianexpress.com.
Need for crypto insurance
Cybercriminals are now taking advantage of the ongoing craze around cryptocurrencies to trick potential victims and steal their digital money. In fact, a report by Chainalysis revealed that hackers have exploited vulnerabilities within crypto platforms, mooching off over $3.2 billion worth of cryptocurrency from victims in 2021.
The need for crypto insurance is due to the rising hacks that have created a sense of fear among investors. Over 46,000 people reported losing over $1 billion in cryptocurrency scams and hack since the start of 2021, the Federal Trade Commission (FTC) said in a report released in June.
The report further reveals that nearly half the people who reported losing digital currencies in a scam said it started with an ad, post or a message on a social media platform.
In August 2021, hackers pulled off one of the biggest ever cryptocurrency heists stealing $613 million in digital coins from token-swapping platform Poly Network. This is one such case, several such instances have been seen in the last several years. The rising trend has given birth to a fairly nascent service — crypto insurance.
Buying a crypto insurance
As the industry is beginning to recognise the need for individual crypto coverage as well. Companies like Coincover are providing insurances covering losses beyond which exchange might typically include.
The company has an individual protection plan that ranges from $10 to $750, covering crypto assets against hacking, phishing, malware, device theft, trojan software and brute force attacks. “Coincover has insured its theft prevention technology. This means that if someone steals your funds using an attack our tech 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 directly target consumers. These insurances are bought by crypto companies and exchanges instead. The coverage ranges from any cyber crime or theft, and custodial wallet insurance.
According to Rajan, other insurers haven’t yet entered the crypto insurance market but they likely will as the insurance industry continues to heat up. “Cryptocurrency has the potential to become mainstream, and with that, we can see some regulatory frameworks coming in. A developed framework would attract more insurers to provide crypto-insurance,” Rajan notes.
Future of crypto insurance in India
The cryptocurrency insurance market in India is poised to become a significant opportunity keeping in mind that there is a long way ahead for the crypto market to become completely stabilised.
“We can expect large exchanges to create insurance funds and fill the crypto insurance market gap. Like in anything else where you regularly pay small amounts of money to protect yourself from a huge loss at one given point in time, crypto insurance will see mass adoption provided the risk vs reward equation is well-calibrated,” Rajan adds.