Insuring the crypto industry requires extensive evaluation and analysis due to the complex landscape and high risks involved. Last year, a staggering $3.9 billion was stolen from crypto users, companies, and decentralized finance platforms, marking a 22% increase from the previous year. Raymond Zenkich, president of Evertas, a cryptocurrency insurance firm, explains that underwriting a crypto platform involves assessing over 2,000 variables across 20 risk areas. One of the key factors is the management of private keys and how they are stored, be it in hot, warm, or cold wallets.
Crypto insurance providers generally avoid providing insurance to individuals who don’t hold assets on an exchange, such as self-custody or other means. The main reason behind this is the inherent difficulty of proving whether an individual truly lost their crypto or simply misappropriating it themselves. However, one alternative has emerged in recent years — a fund managed internally by cryptocurrency exchange Binance known as the Secure Asset Fund for Users (SAFU). This fund, established in July 2018, aims to protect users’ interests in case of vulnerabilities or other deficiencies in Binance’s security systems.
Industry experts believe that there are lessons to be learned from the traditional insurance sector with regard to implementing blockchain technology and smart contracts. Such an approach could make insurance more accessible to all and promote the growth of the sector, though it will not be without growing pains.
On the flipside, insuring individuals who don’t hold their assets on an exchange would prove troublesome. As Adrian Przelozny, CEO of Australian crypto exchange Independent Reserve, points out, it would be extremely hard for a customer to prove to the insurance provider they actually lost the crypto and didn’t steal it themselves.
Ultimately, the assessment and analysis of risks required to insure a crypto platform is a demanding and complex undertaking. Given the rising stakes, it’s imperative that insurance providers adopt new approaches to tackling the unique challenges posed by the rapidly evolving world of digital currencies.
Source: Cointelegraph
