Digital protection: insurance on crypto to safeguard the assets

Insurance on crypto represents a fundamental safety net to protect digital investments from theft, hacking, and technical failures. In a rapidly evolving sector, knowing the available coverages is crucial, let’s look at them in this article. 

How crypto insurance protects against theft and hacking in the digital world

As anticipated, in the increasingly complex landscape of criptovalute, the protection of digital assets has become a priority for individuals, companies, and institutional investors.

Insurance on crypto, a sector still in development, offers solutions to protect these assets from losses due to theft, hacking, technical issues, and smart contract failures.

But how does this type of insurance actually work and why is it becoming increasingly important?

Insurance on cryptocurrencies is a service designed to cover the unique risks related to the management and storage of digital assets. 

While traditional insurance policies fail to offer adequate coverage for criptovalute, this new form of insurance provides essential protection in case of loss or security breach.

Imagine owning a significant amount of Bitcoin or Ethereum and being the victim of a hacker attack that manages to steal your funds. Without insurance coverage, the risk is to permanently lose your investments.

Insurance on cryptocurrencies serves to mitigate these risks, returning the lost funds as a result of thefts, security breaches, or technological failures. 

However, the operating methods and details of the coverage vary depending on the policy and the company providing the service.

How insurance works: the key steps 

The insurance on cryptocurrencies follows a structured process to offer coverage. 

The key steps include:

Risk assessment. The insurance company analyzes various factors, including the value of the digital assets owned, the security measures adopted, and the compliance with regulations by the insured.

Creation of a personalized plan. Based on the evaluation, a tailor-made insurance plan is created. This plan establishes the terms of coverage, indicating what is covered (for example, thefts or breaches of exchanges).

Calculation of premiums. The premiums, that is the payments made by the insured, are calculated taking into account market conditions, past risks, and the value of the assets to protect.

Signing of the agreement. Once the conditions are accepted, both parties sign a contract that specifies the terms of the policy. The insured commits to paying the premiums, while the insurance company commits to covering the losses in case of a claim.

Richiesta di Risarcimento. In the event of a loss, the insured submits a claim to the company. After verifying the information provided, the insurance company proceeds to compensate the established amount.

The various types of assicurazione

There are also different types of insurance policies for cryptocurrencies, each designed to cover specific risks. Here are some of the main categories:

Insurance on exchanges. This coverage protects cryptocurrency exchanges from losses due to hacking, fraud, or technical failures. It is one of the most requested policies, given that exchanges are often targets of cyber attacks.

Assicurazione sulla custodia. Designed to protect projects that safeguard digital assets on behalf of clients. It ensures coverage for losses resulting from theft or technical failures.

Insurance on smart contracts. Covers smart contract developers against code errors or malfunctions that could cause financial losses. It is one of the most relevant coverages in the context of decentralized finance (DeFi).

Insurance for decentralized finance (DeFi). It is an automated coverage that uses smart contracts to eliminate the need for human intervention in the claims decision process. This type of policy is rapidly growing, given the popularity of DeFi protocols.

Insurance against crimes. Covers losses caused by criminal activities, such as internal fraud, theft, or employee dishonesty, involving cryptocurrencies.

Insurance for directors and officers. Protects company executives from personal liabilities arising from decisions or actions related to the use of cryptocurrencies.

Transit and storage insurance. Covers damages during the transport of equipment for cryptocurrency mining or other cryptographic hardware and offers protection for assets stored both online and offline.

Traditional insurance vs. crypto insurance

Unlike traditional insurance, which primarily protects physical assets and liabilities, crypto insurance is focused on the protection of digital assets. 

Which, as we know, are subject to unique risks such as market volatility, hacking, and the loss of private keys. One of the main differences between the two types of insurance concerns the maturity of the sector. 

In fact, while traditional insurance has established procedures, crypto insurance is still in development phase.

For example, in 2023-2024, the penetration rate of traditional insurance is estimated to be around 6.5%, according to Swiss Re. However, according to the crypto insurer Evertas, only 1% of the crypto market is insured.

In any case, with the continuous growth of the cryptocurrency sector, an increase in demand for insurance for digital assets is expected. Crypto insurance is still in an early stage, but its potential for expansion is significant. 

As more institutional investors enter the market, the need to protect high-value assets will become increasingly pressing.

The large insurance companies could soon enter the market to offer tailor-made coverage, expanding the options available for customers. 

However, for the crypto insurance sector, there are still significant challenges, such as regulatory uncertainty, asset volatility, and the need to implement robust security measures.

Technological innovations, such as artificial intelligence, could help improve risk assessment and fraud detection, contributing to strengthening the reliability of the sector.