With magnificent appreciation over the years, cryptocurrencies have come a long way and added great value in a short time. This makes the crypto market an environment rich with opportunities for canny investors. In fact, many investors have already made the crypto market their home and realized significant gains by investing in different coins.
However, the crypto market is also fraught with many challenges for investors. Since cryptocurrencies are not traditionally operated currencies, have no direct ties to fungible money, are not regulated to a large degree, and rely on decentralized blockchain technology, there are quite a few elements of risk involved that can give investors pause and even act as a deterrent for potential investors.
The solution to many of these worries is crypto insurance. While the concept is similar to traditional insurance, there are many fundamental differences due to the unique nature of the crypto market. However, crypto insurance cover for investors can lead to increased peace of mind as it can offer protection from specific risks and act as a hedge against loss in certain situations.
Of course, before you invest in the crypto market, you need to know all about crypto-insurance, exactly what it is and is not, and why you need it for financial protection and peace of mind. This guide will help you understand these key concepts.
What is Crypto Insurance?
In essence, crypto insurance cover for investors is designed to protect their financial assets from losses incurred due to institutional events. This can cover a wide gamut of possible events, such as cyber-attacks, hacks, leaks, and scams.
Many crypto exchanges have already implemented some form of crypto insurance as an integral part of their investment platforms to protect the assets of investors and give them peace of mind. Apart from that, investors can also opt to purchase third-party crypto insurance coverage from dedicated providers.
However, before you consider crypto-insurance, it is essential to understand what it is not. For that, you need to understand the kind of events it provides coverage for.
Crypto insurance is different from standard insurance in many ways, especially because cryptocurrencies are not considered legal tender, the crypto market is extremely volatile, and there are quite a few inherent risks associated with the market. For this reason, crypto insurance coverage cannot provide the same level of protection that other traditional forms of insurance can.
Therefore, crypto insurance is mainly meant to cover institutional events. If your coin exchange and investment platform suffer from a hack or a scam involving crypto theft, you, as an investor on that platform, will come under the purview of crypto insurance. This is the extent of the coverage, however. Anything non-institutional is typically not covered under this kind of insurance.
For example, if you personally fall victim to a scam or scheme and send crypto to a third party, those transactions will not come under the umbrella of your crypto-insurance, and you will be unable to recoup any losses thus incurred. Similarly, any loss resulting from damaged hardware or from any disruption or outage of the underlying blockchain technology cannot be covered by crypto insurance.
Therefore, in short, crypto insurance only applies to institutional losses occurring from a finite set of events. Now that you know the exact scope of the coverage, we can discuss why you need it and what scenarios it can provide cover for.
Why you need Crypto Insurance
You need to understand the major risks and threats prevalent in the crypto market to fully grasp the significance of crypto insurance. Since the factors that affect crypto investments are distinct from those that affect other forms of investments like stocks and bonds, crypto insurance is usually designed as a unique product that can hedge against common crypto risks like scams, hacking, and market volatility.
Scams are a common vehicle of crypto theft that investors routinely worry about. Over a billion dollars were lost by crypto holders between January 2021 and March 2022 alone, solely as a result of carefully conducted scams. This is an order of magnitude higher than the money lost through scams involving any other payment method in the same time period.
There are many ways nefarious actors can perpetrate scams, with most of the discovered scams resulting from malicious ads and social media posts. Scammers can also use underhanded tactics to sniff out the private keys of crypto investors, thereby taking hold of their wallets and the funds within.
The right crypto insurance cover can be a successful hedge against scams and protect your investment if you fall victim to one.
Without question, crypto theft through hacking is the single biggest threat to the crypto market in terms of pure numbers. If you look around, you will find hundreds of stories of hackers getting inside the secure systems of both small and large crypto exchanges and stealing massive funds.
Recent examples include the 2021 hack of Poly Network, which enabled hackers to steal funds to the tune of 610 million dollars, followed closely by the 2022 hacking incident involving the Ronin project, where hackers stole about 540 million dollars. Similar stories, like the closing down of various small crypto exchanges due to massive theft via hacking or the 200 million dollars stolen from KuCoin by hackers, have also made the news in the last couple of years.
Since crypto wallets operate with a private key, it is often impossible to directly recover stolen funds. In such cases, it is a good idea to have crypto insurance coverage. Since theft by hacking is an institutional issue, crypto insurance coverage usually protects the assets of investors in such large, public-facing cases of blatant theft.
Finally, market volatility is also a factor that many crypto investors worry about. The value of major coins has risen and fallen drastically over the years, with the primary example being Bitcoin, the most popular cryptocurrency to date.
While many insurance platforms offer cover for businesses, there are quite a few independent providers that have started offering crypto exchange coverage for individual investors for the risks discussed above. Similarly, crypto insurance coverage is now integrated into several of the largest and most popular crypto exchange platforms.
For investors, crypto insurance is instrumental as it can offer protection against many of the established risks in the market. As a wise investor, it is a good idea for you to research your options and purchase crypto insurance coverage for your assets if you want the gains that can come from this rapidly emerging market with full peace of mind.