Over the past three years alone, virtual currencies and other tokens that collectively fall under the umbrella term of blockchain-based asset classes have experienced significant growth and the attention of institutional investors as well as amateurs. As the crypto market grows, so does the need to address one of its biggest challenges: risk management. Thus, one of the promising directions that will help to reduce the risks associated with the crypto asset and which, as a rule, can be thief, hacking, fraud, or other unexpected situations – is the insurance of digital assets.
Can Crypto Asset Insurance be considered as one of the factors influencing the crypto asset market expansion?
Crypto asset insurance is intended for protecting digital assets like BTC, ETH or other coins from dangers of one type or another. People had problems with the concept of insuring virtual property and related it to cryptocurrencies and other similar phenomena which are extremely decentralized and differ from the common banking system. However, falls in 2013 and early 2014, particularly the Mt. Gox breach, rekindled the realisation that exchanges and wallets are easy targets. These events have encouraged the appearance of insurance products designed specifically for the crypto market.
With the markets in mind, other than the aforementioned pure-play providers of crypto asset insurance, there are three categories of insurance firms relevant for this continuity plan.
Now, there is a range of insurance solutions for the investors in the spheres of digital currencies, which are oriented on the specific risks in the given market. The main categories include:
Exchange Insurance
Probably the most well-known type of crypto asset insurance protects cryptocurrency exchanges against theft, hacking, or even internal fraud. Given that exchange platforms are the core of the crypto commerce, they inevitably attract cybercriminals. These platforms assist to safeguard the funds of the users in case of a breach or an attack. However, this type of insurance does not always ensure full reimbursement. As there might be some provisions or limitations that cover providers put in place that they may include limitations or emptions on kind of attack.
Wallet Insurance
Wallet insurance shields an individual or business that has their cryptographic forms of money. This is being put away in their on the web or disconnected wallet. Regardless if it is a hot wallet – wallets that are connected to the internet. Or cold wallets – wallets that are completely offline. The user lose their funds to hackers, negligence or even hardware malfunction. Wallet insurance seeks to offer indemnification for losses under such a situation, and therefore, every policyholder must know this cover.
Theft and Fraud Insurance
This form of insurance protects against loss of tangible and intangible assets by the action of fraudsters, hackers among other related vices. This insurance is quite beneficial especially to those who deal with cryptocurrencies since they undertake big transactions repeatedly. This is because once one has been involved in an operation using cryptocurrencies such as Bitcoin, thecoins are not refundable. Insurance is a social device which provides cover against such misfortunes.
Custodial Insurance
Custodial insurance refers to the insurance cover for third parties who manage clients’ digital assets through specialized firms. Or institutions like crypto hedge funds, or institutional investors. These companies play the role of safeguarding the client’s assets. And hence; custodial insurance helps provide a cover to the assets, in the event of a break-in, mismanagement or negligence from the side of the custodian firm.
Risk and Opportunities of crypto asset insurance
Cryptographically secured financial instruments provide a new premium service that, despite its increasing importance, is not without its issues. A major challenge in the experience is a lack of homogeneity of the crypto market. In which different actors have different aims. Some of the differences included the facts that, unlike conventional financial products. The unpredictable value of the forms of cryptocurrencies impacts on the evaluation of insured assets. The insurers also have concerns involving risks estimation because users are anonymous, and the decentralized structures of cryptocurrencies.
Moreover, some of the carriers still do not fully underwrite the policy due to ambiguous legal status of cryptocurrencies. Until players in the global governing and financial regulation domain come up with concrete policies regarding this. The new market space, many insurance-banking corporations could remain shy away from it.
Cryptocurrency Insurance and the Future of Crypto Asset
Thus, the greater development of the crypto market, the more the technological community will need insurance and reinsurance products. In order to meet this growing demand, insurers are likely to offer more specific policies. That are formulates according to the dangers come with digital currencies. Another factor that will help define the further evolution of crypto asset. Insurance will be the clarification of the requirements by the authorities, as it will give insurers the directions that have to be followed to create stable and efficient products.
Thus, insurance of crypto assets is a promising product, which, although it is still in a state of active development, allows trying to reduce these risks affecting investors and users of digital assets. Investment in the industry will keep on rising in the future as people will require insurance to cover the risks involved in investment in the virtual economy.