What is Crypto Insurance? How does it Work?
Crypto Insurance is a policy which covers the losses that is related to cryptocurrency thievery. These policies are carried out at the exchange, wallet or personal level. All of the policies are unique and designed according to the holder’s specific needs. Because of the nature of cryptocurrency, the majority of the risks that these companies face are related to the online world. After all, cryptocurrency is a digital currency with no physical form, and all trading, investments, and payments are done online. Although, all the crypto insurance policies are based on the underlying asset’s evolving value, not the initial investment value. In this way, crypto traders and investors are not protected against market volatility and potential loss.
How does it work?
Crypto insurance functions the same as any other type of insurance does. The contract definition is largely the same as home or car insurance. Here are some key terms and their meanings:
Holders: Holders are known as the buyers of the contract. Crypto business and crypto investors are the holders of crypto insurance policies. Providers: Insurance providers gives coverage. Crypto insurance providers offer compensation to the holders for their losses related to cybercrime. Coverage: Coverage is the money that is to be paid by the contract provider to the holder for realized damages. It is the compensation that is received in instances of cybersecurity breaches or cyberattacks. Premiums: Premiums are the costs of the policies in question. Crypto insurance premiums vary according to holder, degree and amount of risk. Deductible: This is the amount of loss that is not covered by the policy. The policy deductible is the percentage of the contract’s aggregate coverage.
Why is Crypto Insurance important?
Most cryptocurrency companies are startups, and as such, they have a lot on their minds when it comes to expanding their business. The cryptocurrency market has grown aggressively. And because of that, it has become a necessity for consumers to have their safety. The crypto market’s volatility and instability pose a significant risk. Given that we are discussing an industry that has brought much novelty, cryptocurrency companies remain a bit of a mystery to the business world, including the insurance industry. Despite the fact that these businesses have been around for a while, insurance carriers are still hesitant to provide them with the necessary coverage due to their very unique risk exposure.
1. Rise of Cybercrime
The expansion of the crypto market capitalization has undoubtedly increased the presence of cybercrime. Using only crypto bridges, hackers generated $1.4 billion in digital assets in the first seven months of 2022. This is a staggering figure that has harmed thousands of investors. As a result, the most significant risk for cryptocurrency companies is a cyberattack. Because cryptocurrency can be extremely difficult to track once funds are transferred, cybercriminals target cryptocurrency companies. Even if a company has strong cybersecurity measures in place, hackers are always looking for new ways to attack, and their tactics are becoming more sophisticated. Hackers frequently use social engineering to gain access to your network. They pose as a legitimate and trustworthy source and dupe one of your employees into granting them access to their accounts or your internal system. Social engineering attacks pose a significant risk to your online security, and the only way to avoid them is to educate your employees on how to spot them. When hackers gain access to your systems, there is nothing they can do but steal your coins. It may take days to discover the breach, by which time the damage will have been done. Cybercriminals may also decide to hostage your data. For example, they could take your credentials or confidential client information and demand a cryptocurrency ransom payment to return the data to you.
2. Crypto Lender Insolvency
Besides hacks, 2022 brought insolvency proceedings for a number of cryptocurrency vendors. Celsius was one of the largest which filed for bankruptcy. During the dramatic cryptocurrency selloff, the crypto lender’s value fell from $25 billion to $167. Ultimately, Celsius became bankrupt and was unable to honour client holdings and deposits. While the above listed risks are not unique to cryptocurrency companies, their risk profile is because of their industry. When we combine this with the general uncertainty of the blockchain industry, we can see why insurance companies are still hesitant to insure these companies. However, some insurers are willing to accept some risk from crypto companies in exchange for adequate crypto currency insurance policies. Let’s take a look at the policies that all cryptocurrency businesses should consider purchasing. Also Read: 20 Best Multi-Cryptocurrency Wallets
What Businesses need Crypto currency Insurance?
Every Business requires insurance to protect its assets and financial interests from any mishappening that could jeopardize its future, and the same goes for crypto companies. Here are some examples of some blockchain and crypto companies include:
Performing crypto custody (guarding third-party assets). Providing a payment remittance platform. Cryptocurrency trading. Managing cryptocurrency assets.
If your business resides within one of these categories or blockchain-related areas, then you should consider looking for the right crypto currency insurance.
Things to remember before doing Crypto currency Insurance
Here are some things that you should keep in mind before going through with crypto currency insurance.
Volatility: The price fluctuations of cryptocurrencies are greater than those of other assets like stocks and real estate, even the larger ones. This volatility is inherent to cryptocurrency investments and is not protected by insurance for cryptocurrencies. Lost wallet: You cannot file an insurance claim if you lose your key and the cryptocurrency in your wallet is permanently lost. In the world of cryptocurrencies, this is a very frequent occurrence, so it doesn’t make sense for crypto insurance to directly cover it. Some crypto insurance companies cover wallets so long as the keys are still inside. Phishing scams: Crypto insurance companies don’t feel compelled to make up for your losses when you click on dubious emails or let someone dubious use your wallet. Phishing scams are ineffective unless the victims are given a responsibility.
Best Cryptocurrency Exchanges
They are various crypto insurance companies that make the process of crypto currency insurance simple. However, you need to invest in crypto via a credible platform. We have compiled some of the best ones for you.
1. Coinbase
With a simple onboarding procedure that eases users into trading, the Coinbase platform does a great job of lowering the entry barrier for investing in cryptocurrencies. The platform’s interface makes it easy to navigate and manage cryptocurrency at the same time. Additionally, Coinbase offers a wide selection of readily available and thorough educational resources. Through the Coinbase Earn program, which teaches users how to trade particular cryptocurrencies and rewards them with free cryptocurrency, users are encouraged to use these resources. And they have a crypto Insurance program.
2. Binance.US
By trading volume, Binance is the biggest cryptocurrency exchange in the world. Its American partner, Binance.US, shares many of the benefits of Binance. A competitive maker/taker fee structure with a 0.1% cap is one of its best features. As your trading volume rises, this fee gradually decreases from its low starting point. Additionally, Binance.US provides discounts for buying and selling other coins using Build and Build (BNB), one of the most well-liked utility tokens in the world. The exchange offers more than 140 cryptocurrencies, all of which can be purchased with USD, saving users who prefer to buy cryptocurrencies directly money on conversion fees.
3. BlockFi
While the majority of cryptocurrency exchanges reward high trading volume with bonuses and discounts, BlockFi has opted to focus on developing financial products for more cautious investors. The exchange’s BlockFi Interest Account, which provides monthly compounding interest to crypto investors who store their assets in the account, is its main selling point. Additionally, the platform enables users to use their own bitcoin as security for a loan. BlockFi offers innovative financial products as well as a cost-effective fee structure and robust cybersecurity. The exchange does not charge transaction fees for trading on its exchange, but it does charge spread fees and withdrawal fees.
4. Bisq
Formerly known as Bitsquare, Bisq brings to a decentralised setting the clear, user-friendly interface and extensive coin support of centralised exchanges. The project is funded by personal savings and contributions from the platform’s user base. The platform is created using open-source software, making its design accessible to the public. Bisq does not require users to provide personal information in order to trade on the platform, nor does it require a third party to carry out cryptocurrency transactions. It’s a great substitute for Bitcoin supporters seeking access to a wide range of alternate currencies, including Cardano, XRP, and Dogecoin. In fact, supporting so many digital assets – and fiat money – on decentralised exchanges is unusual.
5. Gemini
Gemini is a cryptocurrency exchange that has a solid track record and a positive user experience. The platform offers tools for high-performance traders, supports more than 100 cryptocurrencies for buying, selling, and storing, and boasts industry-leading security. The fees on Gemini are generally higher than those on other exchanges. The platform’s features make for a solid overall package, but none of them was compelling enough to propel Gemini to the top of our rankings. Also Read: How to Mine Ethereum?
6. Crypto.com
The majority of reliable crypto exchanges have strong cybersecurity infrastructure, but Crypto.com really stands out in this area. The exchange is ranked first among the top 100 exchanges by cybersecurity rating according to the Cybersecurity Ranking and Certification Platform. It also has a great crypto insurance program. Crypto.com uses a variety of security measures to protect users’ crypto assets on its trading platform, including regular software peer-review, offline cold storage for all crypto, and a regulated custodian bank account for fiat money. Along with a password, biometrics, email, phone, and authenticator verification, it also uses multi-factor identification.
