Crypto is a unique asset, contrasting in many ways to conventional assets. Similarly, insuring these unique digital assets differs from traditional ones. Notedly, cryptocurrency insurance offers protection against the loss of these assets.
For context, crypto losses could be due to security breaches on a crypto custodian or trading platform, or crypto asset theft. So insuring your crypto will help to restore your assets in any of these instances.
Traditional insurance does not cover crypto assets, but cryptocurrency insurance mirrors the conventional insurance principles. In this piece, we’ll explore the mechanics behind cryptocurrency insurance.
Cryptocurrency Insurance Functionality
Similar to conventional insurance, there is an insurer (the organization or company), providing the coverage, and a policyholder (the crypto assets owner employing the insurer’s services).
In addition, there is a premium: a periodic payment the policyholder makes to the insurer for the coverage. Notably, the premium enters a fund pool from which policyholders are reimbursed in the event of a loss.
Meanwhile, cryptocurrency insurance policies do not cover all crypto platforms. It is noteworthy that only those crypto organizations with insurance would protect policyholders. Moreover, the protection only covers the loss of assets following breaches of the company’s network (exchange insurance).
Furthermore, cryptocurrency insurance is unique to each policyholder. It depends on factors like the value of owned crypto assets, trading patterns and a premium calculated with other points considered.
Next, the unique agreement is signed by both parties and the policyholder starts to pay the premium at set dates. In the event of a loss, the insurance investigates the situation and pays the policyholder when all the criteria align.
Other forms of insurance cover crypto projects, smart contracts, crypto miners and developers, etc. While the concept is relatively new, more insurance policies would evolve to incorporate the many aspects of cryptocurrency.
Potential Benefits
Reimbursement for stolen or lost assets is a benefit of crypto insurance. Also, crypto insurance mitigates potential losses (risk management) and provides confidence in investing and storing cryptocurrencies.
Notably, cryptocurrency insurance ensures compliance with regulatory guidelines as insurance policies only apply in exchanges which comply with regional regulations. Meanwhile, crypto insurance will encourage mainstream acceptance of these digital assets.
The Concept Is Evolving
As crypto adoption increases, crypto insurance acquires more potential and will increase. Though volatility and regulatory uncertainty plague crypto, the growing adoption outweighs these challenges.
Then more technology like AI and industry regulatory compliance will drive more onboarding of crypto insurance.