Non-Fungible Tokens Insurance (NFTs)

Currently Non-fungible tokens insurance policies do not exist as of early 2021. The insurance industry should catch up and create products, and then the costs will become apparent.

Also referred to as non-fungible tokens (NFTs), they are a new class of digital assets. The use of NFTs allows for fungible items to be exchanged or substituted for other similar items.

For instance, the US dollar is a fungible fiat currency since the one-dollar bill can just as easily be exchanged for another $1 bill. Also, cryptocurrencies are fungible because a single Ethereum or Bitcoin can be exchanged for another.

Non-fungible tokens or assets are part of the blockchain, but they aren't designed to be equal. Take a movie ticket, for instance; it is non-fungible, and hence a non-fungible token. Also, a movie ticket isn't going to allow you entry to watch the movie all the time or any time. It is for a specific movie and at a specific time. That's where ownership NFTs offer blockchain security and ease of use, but only for a specific asset with a certain value.

Today non-fungible tokens are varied, but people are continuing to adopt them, similar to how cryptocurrencies like Bitcoin experienced a surge in adoption. Dozens of businesses are finding novel uses of these NFT tokens like in virtual worlds, domain names, art marketplaces, decentralized finance, and tokens for collectibles.

However, are businesses prepared for the inherent risks and the unforeseen risks associated with the use of NFT tokens? How can a business seek insurance that protects against the use of fraudulent NFTs or various other potential risks yet fully known?

Since NFTs increase in value or hold value because of their uniqueness, insurance companies may need to find a way to correctly ascertain the value and weigh it against potential risk to offer a policy.

As of this writing, there is no insurer company offering non-fungible tokens insurance either for individuals, freelancers like artists, or businesses.

As mentioned earlier, there are no non-fungible tokens insurance policies for NFTs at the moment. However, seeing as how their popularity is growing, it is hard not for insurance underwriters to figure out a way to offer insurance to what could soon be a trillion-dollar industry.

In fact, it could be as big as the cryptocurrency industry but with the potential of growing even bigger with numerous big-name celebrities, artists, and sports personalities jumping on the bandwagon.

While insurance policies for NFTs aren't available, it is possible to get some type of insurance to cover your assets. If you create digital NFTs for a living or hold them as a collector, you could perceivably be able to find an insurance company that offers some coverage against maybe theft.

Similar to how businesses that use cryptocurrencies need to focus on the wording of their policies, NFT holders and users will need to do the same. However, those with NFTs will need to demonstrate to insurance companies that the risks are well managed.

Since this is such a major area of risk, many NFT owners may still not fully understand what type of coverage they need.

Generally, there are going to be two types of non-fungible tokens insurance coverages for businesses and individuals, i.e., against damage of the NFTs or crime. While there is some crossover between the two, there are quite a few crucial differences.

Insurance against, let's say, theft of your NFTs may be a lot like the type of cover provided to financial firms for decades. The crime policy, too, could cover loss, damage, theft, and maybe even the destruction of your NFT. It could also cover fraud, like someone possibly getting a hold of your NFT using various means.

The coverage against damage will cover such things as an employee damaging the NFT or it being damaged by your computer, or maybe something that attacks the blockchain. Again, this is where the technology's ambiguity and what could go wrong leaves even insurers and us to speculate.

The non-fungible token insurance policy you choose will depend on how NFTs are handled, i.e., a creator, a distributor, or a collector. Reading the policy's terms should give you a fairly good idea of what it will offer.