How It Works And Why Investors Should Take Note

How It Works And Why Investors Should Take Note

An insurance policy is a document that legally binds a policyholder and a provider, which secures the holder against the unknown. Homes, cars, crops, and personal health are a few items we generally get insured. For instance, think of your vehicle being damaged due to an unpredictable event. What do you do? If you have insurance, you claim it. Similarly, we have recently seen many crypto exchanges fall prey to hacks and scams, losing millions of value. In 2021 alone, the crypto industry lost nearly $14 billion due to hacks. 

Even though there are many ways through which exchanges can protect their users’ funds, one of the potential paths is crypto insurance. These contracts offer investors and traders a layer of insulation against some threats. 

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What is crypto insurance? 

Crypto insurance protects against losses associated with cybersecurity breaches such as hacks or thefts. 

These situations might impact the exchange and users to a great extent. So, the primary goal of crypto insurance is to cover the loss of tokens. Each of the policies may be carried out at the exchange, wallet, or personal level. 

You can pay a premium to secure your wallet, and if you are a victim of any violations, you can claim it. Since it is a relatively new concept, not many people know it, and only a few exchanges provide it today. 

However, several top crypto exchanges have already begun to opt for insurance plans to safeguard the funds of their investors. 

The crypto industry has grown manifold over the years. We have come a long way from being a speculative currency to transforming into a store of value. 

It has even extended into gaming, fitness, and other sectors, prompting several users to hold different cryptocurrencies in their portfolios. This mammoth increase in adoption reinforces the need for crypto insurance. 

It has prompted some prominent insurers to take baby steps into this segment. Lloyds of London was the first issuer of the crypto-insurance, which offers liability type of crypto insurance with reasonable limits. 

ALSO READ: How Crypto SIP Can Help Investors Achieve Long-Term Goals

What is not covered as part of crypto insurance? 

Although crypto insurance covers hacks of millions of value, it does not cover the following:

For individuals:

> Since volatility is a common phenomenon across the crypto market, insurance does not cover it. 

> Remembering the private key is crucial to claim your funds, but the funds are gone if you lose your password. 

> The insurance doesn’t cover the lost money through phishing scams. 

For exchanges:

> It would not cover direct hardware loss and loss while transferring crypto transfer to a third party. 

> It does not protect against disruption or any failure of the blockchain underlying the asset. 

Where can you buy personal crypto insurance?

Since this is a relatively emerging market, most crypto assets are not covered by insurance. As the large chunk of the crypto insurance market is more likely to be held by the exchanges which trade in cryptos, you can buy insurance from them. 

You can check with your platform to see if you are covered as a crypto purchaser while using the platform for investing or trading. 

Is crypto insurance necessary? 

With the expansion of the crypto market, there has also been a rise in cybercrimes. Keeping in mind the prevalence of hacking and the impact of crypto volatility on wallets, lenders, and exchanges, crypto insurance becomes vital. 

Since there is a good amount of clarity around the taxation part of cryptocurrencies, more exchanges are likely to opt for crypto insurance to better protect the funds and their users in the coming days. However, it will always be up to you to buy and keep your holdings in exchanges that follow such a crucial safety feature. Individuals should not forget to do their own research before choosing one. 

(The author is the CEO and co-founder of Mudrex, a global crypto investing company.)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.