Cryptocurrency insurance providers spend a significant amount of time determining whether to insure a crypto enterprise, and nearly none of them offer coverage to individuals. With only exploits and hacks taken into account, $3.9 billion was stolen from cryptocurrency businesses, decentralized financial platforms and consumers in the past year, a staggering 22% increase from the year before. Some think that 2023 might even be worse.
The initial risk assessment of a cryptocurrency platform is a difficult procedure, according to Raymond Zenkich, head of Evertas, a cryptocurrency insurance company. Zenkich stated that underwriting, which is the process of analyzing and assessing risks associated with insuring an asset, is originally carried out based on a highly extensive application form that entails crunching 2,000 factors across 20 risk sectors.
“Key management — whether they are kept in cold, warm or hot wallets — is a big risk factor,” said Zenkich. “Furthermore, there are several degrees of hot and warm, each with a different risk profile, so it doesn’t end there.”
Bitrue, a cryptocurrency exchange, experienced a hot wallet hack on April 14; as a result, hackers stole digital assets valued at close to $23 million. According to the company, the compromised hot wallet contained less than 5% of the exchange’s total money, and the other wallets were unaffected. After evaluating the degree of storage risk, the company, according to Zenkich, will need to consider hundreds of business, technological and operational elements to determine the amount of premium to be charged.
That said, crypto insurance companies are typically reluctant to cover users who do not store assets on an exchange. According to Australian cryptocurrency exchange Independent Reserve CEO Adrian Przelozny, this is due to the fact that it would be extremely difficult for a consumer to convince a insurance provider that they genuinely lost the cryptocurrency and didn’t just steal it themselves.
Przelozny clarified that while the insurance provider focuses solely on insuring assets within the exchange platform, customers have the opportunity to directly engage with their insurer. They can choose to obtain full insurance coverage at a minimal expense during the registration process. The extensive insurance agreement, he continued, covers a wide range of occurrences, from hackers to thefts initiated by employees.
However, according to Simon Dixon, CEO of the online investing platform BnkToTheFuture, there are lessons that traditional insurance companies may take from their cryptocurrency counterparts to enhance their procedures. “With the usual growth difficulties our sector experiences, there is a chance to use Smart Contracts to enhance traditional insurance and make it more accessible to all. I look forward to watching this market expand,” he said.
Dixon’s sentiments may echo those of other players in the crypto space, such as Bit Digital Inc. (NASDAQ: BTBT), since insurance is a vital component in any business venture’s stability.
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