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In contrast, the security of cryptocurrency exchanges or even hardware wallets is much more dynamic. An exchange that once had a stellar reputation of being unhackable could one day suffer from a hack, resulting in losses totaling hundreds of millions of dollars.
Even if a user is covered, it might be difficult to determine how to best recover lost funds. For example, does the insurance provider cover the loss in fiat currency, the same cryptocurrency that was stolen, or in another cryptocurrency altogether? All of these question marks mean that many potential insurers have been rather skeptical in how to provide proper bitcoin insurance coverage options.
Assessing the risk of cryptocurrency insurance has been difficult for insurers. In , the availability of cryptocurrency insurance presents a Catch for exchanges. Insurance firms have serious questions regarding the security of exchanges. Because risk is hard to calculate, the feasibility of decent coverage for exchanges is quite poor.
This issue is far from theoretical and has played out in a few different real-world scenarios. The good news for those investors who lost funds was that they were easily able to receive what was lost.
While the hack itself was bad, this was probably an ideal situation for investors. This hack was around 17x larger than the Bithumb hack. The question many investors have is how will an even smaller exchange react to a large hack? A cryptocurrency exchange that does have insurance could possibly mitigate fears of existing users and potential new users as well. As mentioned above, insurance might be a necessary expense for cryptocurrency exchanges. There are a number of companies that offer bitcoin insurance for individual investors as well.
Some of these options are well-established. Others are still in the works of implementing insurance policies or continuing to evaluate the correct costs for customers. Unfortunately, insurance premiums are far from cheap. For the vast majority of individual investors, these options are pretty much out of the question. Even for those institutional investors that do have the funds to spend, buying insurance from one of the above-mentioned providers might not be a viable option.
There are a few companies like Allianz that have talked about the possibility of expanding insurance services to cover individual hacks and crypto storage. Nonetheless, it appears that this part of the cryptocurrency insurance market is relatively underdeveloped. Even insurance policies for crypto-related businesses and ICOs are being formed on a case-by-case basis.
On one side, insurers show reluctance in accepting high risk. This has a lot to do with the unpredictability of when hacks will occur or what amount of funds could be stolen. Many exceptionally successful Bitcoin investors live in anonymity or use pseudonyms to avoid becoming targets. High-net-worth HNW individuals need specialized insurance coverage , due in part to the size of financial transactions they deal with regularly.
As mentioned earlier, Bitcoin wallet providers typically promote how secure their products are, but they are not without flaws. Law enforcement officials and victims of cryptocurrency thefts also say such crimes often go unreported , sometimes because those who experience them are not sure which channels to go through to mention the issue. Then, the criminals feel emboldened to continue their illegal deeds. Doing that could make the company realize the demand exists.
Also, be aware that the number of companies offering Bitcoin insurance will likely grow if the early adopters discover the move pays off for them. Skip to content BTC. Table of Contents Bitcoin Insurance Facts 1. Build a winning crypto portfolio.
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