Cryptocurrency Insurance. Over the years, $1.3 billion dollars in cryptocurrency has been reported stolen or missing from numerous exchanges. It is said that an average of $2.7 million dollars in cryptocurrency assets are stolen every day, starting from 2018, which is seen as the start of what we call the "crypto boom."
Cryptocurrencies are stolen despite robust security rolled out and actively improved by many major wallets and exchanges. That's why in addition to security, those in the cryptocurrency business, i.e., exchanges, wallets, and crypto traders, are advised to invest in cryptocurrency insurance.
Cryptocurrency is an easy and very attractive target for criminals, mainly because it is easy to misappropriate. Compared to cash, stealing cash has its limitations, and there is an amount beyond which you cannot get away with; on the other hand, cryptocurrencies can be worth billions and stored on a thumb drive.
The theft of fiat currency by hacking the banking system also leaves a detectable trail, which investigators can follow to arrest the perpetrators. On the other hand, cryptocurrency theft only requires that a target's private key details are stolen, allowing a thief to transfer all available cryptocurrency to their own anonymous account.
Then you also need to factor in that many if not all cryptocurrency storage solutions and exchanges are holding substantial amounts of valuable crypto.
Today, in addition to hacking into accounts, wallets, and exchanges, criminals have resorted to more violent forms of stealing crypto. A perfect and relatively recent example of this is thieves breaking into the home of cryptocurrency trader Danny Aston's home in Oxfordshire and forcing him to transfer Bitcoin to them.
Like in any other industry, cryptocurrency insurance can be used to minimize risk, making it so important.
Cryptocurrency insurance protects cryptocurrency like Bitcoin, Ethereum etc... held in online wallets against capital losses from theft or other malicious hacks.
Below are some answers to commonly asked cryptocurrency insurance questions:
- How Much Does Cryptocurrency Insurance Cost?
- Can You Insure Against Cryptocurrency Risks?
- How Do You Buy Cryptocurrency Insurance?
- What Type Of Cryptocurrency Insurance Policy Do I Need?
How Much Does Cryptocurrency Insurance Cost?
Providers of cryptocurrency insurance typically charge annual premiums equal to between one and five percent (1%-5%) of the covered assets.
So to use 1% as an example - if you had $100,000 in cryptocurrency - your annual premium would be $1000 to insure your account Keep in mind this cost is dynamic as the value of cryptocurrencies fluctuates.
Faced with limited carriers offering cryptocurrency insurance and higher premiums, some crypto investors are self-insuring or taking the risks of being uninsured.
Can You Insure Against Cryptocurrency Risks?
Many firms in the cryptocurrency industry are known to make bold claims, especially about their digital assets' security. However, an insurance policy can add more weight to those claims. A cryptocurrency insurance policy can be regarded as being an external seal of approval. Sure, any firm can talk about having the best security, but an insurance policy in place mainly demonstrates that the insurer is comfortable with the company's measures.
Today, getting cryptocurrency insurance isn't exactly easy. It is an emerging area, and insurers are cautious when a business seeks insurance. They (insurance companies) will want reassurances that the risks are managed and mitigation measures are in place, with a robust level of security.
Insurers also consider various risk factors when deciding if they are comfortable insuring a cryptocurrency firm. The factors may include but not be limited to the business's experience and expertise in managing cryptocurrency, online and physical security protocols, and asset segregation.
Insurers will also examine traditional financial crime-related issues like anti-money laundering, and the firm's Know Your Customer (KYC) procedures.
Cryptocurrency is a relatively new industry, and businesses need to be prepared for a comprehensive examination by the insurer. Before approaching insurers, businesses in the cryptocurrency industry need to make sure that they have a robust system and take the required safety precautions on behalf of their clients.
Cryptocurrency insurers may also turn away firms whose proposals they don't believe are insurable. Though in most cases, insurance companies will work with businesses to improve the existing model to make them insurable while better articulating their service policies.
All of which makes ensuring that your business is insured possible, regardless of its industry with the right cryptocurrency insurance.
How Do You Buy Cryptocurrency Insurance?
If you are looking for cryptocurrency insurance, there are a few things you need to keep in mind:
Always read the fine print - Regardless of what the policy might say, you need to read the fine print. You need to know how much of the assets are covered by the insurer. In the perfect world, you'll want the policy to cover all assets, but that rarely ever happens.
Share Keys - The general rule of thumb is to spread your investments across multiple wallets and then share private keys only with trusted custodians, which reduces the risk of theft.
What Protection Is Offered? - You need to ask the insurance provider if there is a deductible applied to a claim and how the amount is calculated if there is a theft, i.e., are cryptocurrencies calculated by way of their present value? Knowing this will tell you how much the cryptocurrency insurance is covering and how much of your business (if any) isn't insured.
What Type Of Cryptocurrency Insurance Policy Do I Need?
Businesses in the cryptocurrency industry need to choose the right type of insurance while needing to demonstrate that risk is well managed. Because this is such a new area of risk, many still don't understand the type of cryptocurrency insurance coverage available and what they need.
Generally speaking, we'd say that two types of cover are relevant for businesses in the cryptocurrency space, i.e., crime and specie damage. Even though there is a crossover between both types of cryptocurrency insurance coverage, there are also a couple of crucial differences.
Crime insurance has been available for most 'traditional' financial firms for years and offers much broader cover. On the other hand, the crime policy covers damage, loss, theft, and destruction of property or digital assets either in transit/transmission or premises. It will cover both external and internal fraud, including electronic theft, like hot wallet protection.
Specie coverage will mainly focus on theft or digital assets' destruction while they are stored at an otherwise secure location. It will cover insider theft or maybe an employee destroying private key data accidentally. However, it will not cover hacking.
The differences between both cryptocurrency insurance policies have led many businesses to believe that specie policy is sufficient for cold storage since it is offline. That said, it still leaves businesses exposed to many other types of risks.
Cryptocurrency Insurance - The Bottom Line
Cryptocurrency insurance is imperative for all businesses in the cryptocurrency niche. While it is challenging to get for many businesses, owing to the inherent high risks involved, doing business without it is an even bigger risk.
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