The meteoric rise of blockchain technology has introduced real-world use cases for crypto assets to multiple industries, with the finance sector being at the forefront. The growing acceptance of this technology has, however, brought in more than just investors and consumers. Cybercriminals and scammers are also making their way into the ecosystem, trying to pull a fast one whenever possible and make a quick money at the expense of others.
Cyberattacks leading to loss of funds are commonplace in recent days and a major cause of concern for users. Adding to the list of concerns is ignorance in using the nascent crypto technology inadvertently leading to loss of access to funds, in many cases permanently due to mismanagement of keys or erroneous transfers. All these factors make the loss of funds an imminent threat to enterprises and individuals interacting with crypto assets.
What Is Cryptocurrency Insurance?
Cryptocurrency insurance refers to the policies that cover crypto asset losses occurring from situations like cyberattacks, internal process errors, and software bugs. Cryptocurrency platforms store and manage large amounts of digital assets, most of which belong to their users. Even though such platforms maintain stringent security protocols with adequate testing to minimize threats, there are always unforeseen risks that could play spoilsport, causing losses to the tune of millions if not billions of dollars.
Crypto insurance mitigates the fallout in the event such risks materialize by providing adequate coverage to make up for lost funds, enabling the platforms to conduct business as usual. The insurance cover ensures that the losses to users as well as the platform are minimal to none.
How Cryptocurrency Insurance Began
Insurance policies started off by offering protection for crypto assets stolen through means that breach enterprise security. The options were limited considering factors like the newness of this asset class and its high levels of volatility. Asset loss outside security issues was often not covered.
However, the ever-growing popularity of cryptocurrency is changing that. Newer insurance providers are now covering all kinds of events that can cause enterprise funds to vanish into thin air, like internal misappropriation of funds, storage device loss, and mismanagement of private keys. Due to the multitude of ways that cryptocurrency can end up becoming irrecoverable to its users, like the enterprises that interact with them, there is a huge need for insurance providers to offer protection to those dealing with such assets.
The Need for Enterprise Cryptocurrency Insurance
Insurance is required for any asset at the risk of being stolen or lost, more so with cryptocurrency. The ever-increasing rate of theft and scams prevalent in this segment, coupled with hard-to-use technology, are making insurance a necessity. The nature of losses observed by highly popular cryptocurrency enterprises like exchanges and custodians makes it a top priority to opt to cover their assets under management.
Cryptocurrency insurance decreases the liabilities of both platforms and clients at the time of unforeseen events that jeopardize stored funds. Insurance not only ensures that clients’ funds are protected and covered but also frees enterprises from facing repercussions that ensue after such situations.
Countries noticing the rise of cryptocurrency usage are beginning to impose regulations that mandate the need for crypto assets in the custody of platforms to be insured, which helps in reducing or preventing damages in dire events and protecting all parties involved. The importance of insuring these assets is also being acknowledged beyond the cryptocurrency community. Let’s look at how cryptocurrency insurance benefits enterprises.
Safeguarding Client Interests — Better Business
Many countries now legally mandate institutional investors to store their crypto assets on approved platforms where the deposits are covered by crypto insurance. Besides, every major business in the sector voluntarily prefers to opt for insurance coverage for all crypto assets in custody, protecting themselves as well as their clients to a great extent. Even a majority of the crypto community members would rather hold their funds on an insured platform over other alternate options.
Reducing Enterprise Liabilities
Hot wallet hacks, misappropriation of funds from enterprise cold storage, and software bugs are common ways that enterprise funds fall into the wrong hands. Such incidents cause irreparable damage to their reputation. More serious ramifications include dealing with lawsuits filed by the clients. Cryptocurrency insurance offers coverage on the funds that enterprises hold, drastically reducing the liabilities brought about by events that cause asset loss.
Choose the Right Cryptocurrency Insurance for Your Enterprise
The role of cryptocurrency insurance in enterprises is understated. Platforms victimized by attacks can crumble when not insured. Huge losses and legal liabilities are sufficient to cripple businesses. Many enterprises have shut down after such incidents, while those that were able to weather the storm and continue operating are often the ones with adequate insurance coverage in place that help them offset financial obligations to the clients.
Therefore, getting insured is crucial for the longevity of enterprises dealing with digital assets. While choosing the right insurance, enterprises need to assess their needs based on the services they render. Doing so makes it easy to analyze the kind of events that are likely to put at risk the enterprise’s funds, apart from the more common ways like attacks that exploit software bugs.
Most cryptocurrency insurance providers may not offer coverage for all the bases that make enterprises vulnerable. In such a scenario, mixing and matching coverage using different policies or providers may be a feasible option to ensure all-around protection.
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by Liminal
