According to research published by Bloomberg, cryptocurrency insurance is ready to become a "significant potential." In an interview with the news publication, an Allianz spokesman stated that the company was looking into product and coverage options in the cryptocurrency space because cryptocurrencies were "becoming more relevant, important, and prevalent in the real economy."
Insurance for the Cryptocurrency Ecosystem
According to publicly accessible statistics, even Coinbase, North America's biggest cryptocurrency exchange, has just 2 percent of its coins insured with Lloyd's of London, despite being the largest. These coins are kept in a temperature-controlled environment (or are connected to the Internet). The other individuals are not linked to the Internet, and nothing is known about their insurance coverage.
When you consider the fragility of the bitcoin ecosystem, it becomes necessary to have cryptocurrency insurance policies in place. Due to the increasing value of bitcoin and other cryptocurrencies, there has been a rash of large-scale thefts from online wallets and exchanges. For example, in January 2018, a bitcoin valued at $500 million was stolen from the Japanese cryptocurrency market Coincheck, according to reports. Because of the cumulative effect of these breaches, a fragile environment has emerged, which the mainstream financial ecosystem has either ignored or refused to take seriously.
BitGo
Consider the story of BitGo, a blockchain security business, as an illustration of the dangers associated with bitcoin insurance. When the corporation claimed to have obtained insurance for coins kept in its possession from XL Group in 2015, the public noticed. However, after a breach at Bitfinex, a cryptocurrency exchange that was also a client, which resulted in the loss of more than $70 million in bitcoin, the company momentarily withdrew and then reposted a blog post announcing the news.
Insurers face several unique issues due to the rise of Bitcoin and cryptocurrencies. In most cases, insurance rates are calculated using historical data. Such information is not available for cryptocurrencies. Increased value volatility, with three-figure price fluctuations not unusual, may also impact premiums since it decreases the total number of coins being covered, hence increasing the cost of insurance. Insurance companies interested in offering services to the cryptocurrency business may find themselves in a difficult position due to regulatory ambiguity and a lack of monitoring at bitcoin exchanges.
Lloyd's
To be sure, insurance firms have been keeping an eye on bitcoin for quite some time. The insurance company Lloyd's published a study in 2015 outlining the risks associated with bitcoin trading. Specifically, the adoption of established security standards for cold (offline) and hot (online) bitcoin storage will "significantly aid risk management and insurance providing," according to the business. It also cited server-side security, cold storage, and multi-signature wallets as potential techniques for mitigating future industry risk from assaults on the network.
Source of Income
However, difficulties inside the bitcoin ecosystem may also allow the insurance business to generate more money. The majority of insurance solutions targeted towards the sector are customized policies built to meet the customer's specific demands. According to a Bloomberg study, startups and enterprises engaged in the bitcoin market generally choose theft coverage, including cyber insurance and criminal insurance. Hackers, on the other hand, are not permitted. According to the study, startups may be required to pay as much as 5 percent of their coverage limits due to this. According to the Insurance Journal, yearly rates for theft coverage might go as high as $10 million. In the case of high sums, the coverage is divided among dozens of underwriters for values ranging from $5 million to $15 million to guarantee that no one insurer is held liable in a hacking incident of this magnitude.
Everything You Need to Know About Cryptocurrencies
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