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The twenty-first century is the era of digital money and digital assets. Technology has brought significant changes in almost every aspect of the financial system. Decentralized finance is a modern type of finance where a regulation central authority is absent between the transaction initiator and receiver. It is a system that can offer unmatched privacy and transparency over traditional financial setups. Apart from these features it also eradicates geographical barriers, all the people around the globe can access the decentralized financial services. Blockchain technology is the underlying factor and technology used for the successful implementation of decentralized financial applications and services.
Cryptocurrency projects are the best example of implementing blockchain technology and decentralized finance into a single system. Cryptoprojects are luring and possess high value. So protecting digital assets has become the top priority of those who invest money digitally.
Crypto insurance is a type of safety and security-ensuring process available in the crypto sphere. It can secure the crypto coins and protect them against the loss or theft of digital assets. In this article, we conduct a detailed analysis of crypto-insurance and how it can ensure the security of your crypto coins like Bitcoin, Ethereum, etc.
What is Crypto Insurance?
Digital money and currencies have a high probability of exposing to theft and scams. It is because most of them will be stored in an online manner, so any programmers can easily hack the security wallets if it is not secure enough. So protecting our digital currencies like crypto coins has become inevitable and necessary. Crypto insurance is a financial protection method implemented by the major exchanges to free their users from hacking and scams. Crypto insurance coverage is only applicable to users whose data and private keys are exposed to hacking and data breach issues.
Most of the crypto insurance service providers make their services exclusively available only to exchanges. Other issues and market fluctuations will not be covered under this scheme. It will only be covered when the exchange is exposed to hacking and failure of their systems and services. This option is developed and introduced in this sphere to enhance the security of the space and attract people who are reluctant only because of the high risk and potential data theft and hacking.
Criteria for Crypto Insurance Coverage
Every possible issue associated with crypto exchanges cannot be claimed through this option. To get insurance coverage and protection users and the market have to meet some criteria. They are,
- System defects and failures: All the data loss and incidents that led to the loss of private keys due to the technical issues related to the exchange system can be claimed under insurance coverage.
- Expose to Hacking: The losses caused by the hacking of exchange wallets and the compromise in their security system due to the external party hacking will be covered.
- Theft: All your funds will be covered in the crypto insurance if it is faced with any theft and unauthorized access in the crypto exchanges.
These three issues will only come under the coverage of crypto insurance. Apart from these above-mentioned factors, any other issues like market fluctuations, blockchain failures, hardware losses, and accidental involvement in fraudulent investment schemes will not be covered under this scheme.
Types of Crypto Insurance Policies
There are three different types of crypto insurance policies available right now. All three types differ in their functioning and nature. Exchange insurance, Wallet insurance, and Custody insurance are the three types.
1. Exchange Insurance
Protecting the assets in the crypto exchanges by enabling the provision of insurance schemes by the exchanges is exchange insurance. Hackers and cyber attackers mainly target these exchanges to steal financial data and digital assets. So to ensure the safety of exchanges, and protect the assets from the users, exchanges implement insurance measures.
2. Custody Insurance
It is a special insurance scheme that is exclusively designed to cater to the privacy needs of third-party custodians of the cryptocurrency. Custodians are third-party personnel who are responsible for the safety of cryptocurrencies on behalf of the users. It is a prime target of cyber attackers, so providing the required safety to the funds allocated in the possession of custodians will prevent possible private key theft and hacking.
3. Wallet Insurance
This insurance covers the fund loss related to digital wallets. It is more beneficial to those individuals who store their private keys and funds in digital wallets. This has become an inevitable one in the sector since a lot of people are arriving.
These are the three important types of crypto insurance available now. It all follows different kinds of policies and differs in some ways. Ensuring that the exchanges you choose have this insurance policy as part of their service will benefit you in the future. This can prevent data loss and financial complexities associated with crypto cybercrimes.
Why did Crypto Insurance become inevitable?
There are a lot of reasons available for this higher priority and higher significance of crypto insurance. The main reason is the increased number of cybercrimes and crimes associated with the crypto sphere. We can find innumerable amounts of cybercrimes that led to the data breach and loss of digital assets. Cryptocurrency is digital money, so most of the services related to it will also follow a digital format, digital items have a high probability to exposed to theft and hacking.
So securing digital funds with insurance coverage has to be a much-needed service. Poly Network had to go through a cyberattack which led to the loss of 600million us dollars in 2021. It is a big example of how prone digital assets are to the threats. So bringing insurance coverage to the digital funds is not a choice it is a necessary action to perform.
Increased participation in the crypto sphere is another factor that could necessitate insurance policies in the crypto arena. A lot of people’s attention is shifting to the direction of cryptocurrency and considering it as an additional source of income. So a secure environment has to be maintained to prevent all the malpractices in the field. Implementing insurance policies will attract more people to it. That could enhance the system and the entire decentralized finance system.
Is cryptocurrency insurance too costly?
Cryptocurrency insurance is comparatively a costly service since the risk associated with this field is very high. Crypto transactions don’t have regulatory authority’s oversight and security measurements, so it will become a hard task for insurers to measure the intensity of the risk. According to the available data, 2.5% of the investment will be charged as the insurance cost. So it is quite an expensive service, but there is no logic for not opting for this service and exposing it to theft and hacking. Ensuring the safety of your assets should be the top-end priority.
Crypto insurance- a safeguard to protect your digital assets
Crypto insurance is exclusively designed to protect investors and institutions as exchanges crypto coins from theft and hacking. It provides coverage against theft and hacking. The crypto sector is a common target of hackers, so covering all the assets under an insurance scheme will enhance the credibility of the system and people can recover their assets even if it is exposed to major issues like hacking and theft.
The enhanced trust and security assurance we get from this scheme is another application of crypto insurance. Users will have a feeling that their assets are secure and will not be lost under any circumstances. So participation in the field will be improved. Trust will build in the minds of users and it will benefit the entire system and its services.
Ensuring safety from internal threats and conflicts is a major service of crypto insurance. All the complexities that arise from internal organization will be covered as part of the insurance plan. In this section, technological system compromise, and employee fraud can lead to financial loss, all these things will be covered under the scheme.
So crypto insurance provides all kinds of support to the users to ensure their safety and make the environment a better place than before. Insurance will not single-handedly prevent the crimes associated with this system. It is merely a reimbursement solution for a problematic scenario. The crypto sphere will not be a secure place until all kinds of cybercrimes and security issues are resolved.
How to get crypto insurance?
Getting crypto insurance has now become necessary to sustain in the field and prevent all the possible financial losses that might happen in the future. Obtaining the insurance plan should be based on personal preferences and needs. Consider the risk profile, value of their digital assets, and trading activity before tailoring the suited insurance plan for the investment. Research the insurance providers and analyze their service distribution and privacy policies. There are a lot of crypto insurance providers available right now, go for the best available option that connects with your needs.
The insurance process acquisition should be done via several steps. Assessment of the risk by the insurers is the first step, the insurers cross-check the value of your assets, security measurements, activity in the trading platform, etc, and determine the risk associated with it. After that insurers tailor the policy structure based on the needs and risk assessment valuation. Then the premium amount calculation is the next step, they will calculate this amount based on the market trends, asset value, coverage limits, security services, etc. Underwriting is the next step that needs to be followed, it is the determining stage of whether the risks involved in it can be insured under the coverage.
Then the applicants have to review the policy details. The review should be conducted by prioritizing the factors like restrictions and exclusions included in the policy structure, coverage limits mentioned in the policy, etc. After that stick to the safety measures and instructions set by the insurers, and compromise on anything will have a chance to backfire in the future. After the insurance has been signed and sealed, you have to be familiar with the process involved in it. Communication with the insurers about the process involved in it will be beneficial along the journey.
Conclusion
The cryptocurrency field is a high-risk sector since it follows a digital structure in its transactions and services. The cyber threats involved in the digital financial system make crypto services one of the most risk-involved spheres. So taking extra care about the crypto investment would be ideal and recommended. Taking crypto insurance is a smart move, it can cover your loss when it happens due to technical issues and privacy breaches. Crypto insurance is always an additional protection, enabling this service will provide you with better safety and trust in the sector.
