An estimated 562 million people in the world now own crypto. As it becomes more integrated with our everyday finance, the need to safeguard digital assets is becoming critical. A developing sector in the crypto landscape, crypto insurance is aimed at protecting digital asset investors and institutions from the unique risks that these assets present.
What Is Crypto Insurance?
Crypto insurance refers to specialized policies designed to cover losses related to digital assets. These policies are designed to protect against risks like exchange hacks, cyber attacks, fraud, and with some even the loss of private keys. Unlike traditional insurance, crypto insurance has a unique challenge in that it must address the decentralized and often unregulated aspect of cryptocurrencies.
Why Is It Important?
Digital assets have long been a target for cybercriminals. Several recent high-profile incidents, like the recent BitGo exchange hack and numerous wallet hacks, have resulted in hundreds of millions of dollars in losses. After a $40M hack in 2019, the exchange Binance established the Secure Asset Fund for Users, SAFU, to enhance user protection. Events like these only serve to underscore the necessity for comprehensive, high-quality insurance solutions that are powerful enough to instill confidence in both crypto users and investors.
Current Landscape
Despite the rising use of digital assets and the growing demand, insurance options remain pretty limited. Traditional insurance companies are approaching digital assets with a more cautious stance, citing the volatile nature of cryptocurrency prices and the lack of historical data for future decision making.
However, a handful of companies are pioneering the space:
- Coincover: Offers protection against theft and loss for digital wallets.
- Canopius: Provides tailored coverage against unauthorized access, cyberattacks, and transaction errors.
- Munich Re: Introduced staking risk insurance to shield investors from losses due to network rule violations.
Alongside the general growth in blockchain and digital currency markets, the crypto insurance market is expected to grow considerably as well. Some believe that by 2025 it will have reached an estimated 3.11 billion, heavily driven by fraud prevention and increased security measures.
Looking Ahead
While not a lot of options currently exist for crypto insurance, the future of the industry as a whole is very bright. In an industry historically driven by Innovation and collaboration will surely lead to valuable products. Emerging models like the decentralized insurance platforms leverage blockchain technology and enable things like peer-to-peer coverage to increase transparency while reducing costs. More comprehensive and accessible crypto insurance products are expected to evolve even further as regulatory frameworks evolve.
Best Practices for Crypto Holders
Here are some best practices and proactive steps that individuals can take to protect their digital assets now:
- Use Reputable Platforms: Do your research and choose exchanges that are widely used and have strong security measures. If possible, see if they provide insurance coverage. At OutBanked, we are proponents of cold wallet storage when possible.
- Secure Private Keys: Store your private keys offline in cold storage hardware wallets as the safest way to prevent unauthorized access.
- Stay Informed: Continue to research and stay aware of upcoming developments with crypto security products and offerings.
- Consider Insurance Options: Assess your investment profile and risk tolerance and contact some of the insurance companies from this article or research online to find ones that suit your needs.
