An overview of encryption insurance: a huge business with an emerging valuation of billions of dollars

Source: The Green Light

Translation: First Class (First.VIP)_Maggie

Throughout the history of human economics, "insurance" has long existed. During the barter period, people promise to rebuild their homes for neighbors in the event of a natural disaster, and public granaries exist to protect the community from famine. In modern monetary economy, bank account insurance has been compliant in many countries.

The introduction of Bitcoin in 2009 changed the monetary economy, allowing individuals to have full ownership and responsibility for their assets. However, the absence of an insurance policy means that issues such as private key theft and phishing attacks can cause people to lose their digital assets. Now, the insurance industry is beginning to get involved in the field of cryptocurrency. First-class warehouse note: In September this year, Forbes released a document saying that cryptographic security incidents such as hackers caused losses of up to 480 million U.S. dollars in the first half of 2019. Now the cryptocurrency insurance market (hereinafter referred to as "encryption insurance") is Growing into a huge market worth billions of dollars.

Why do I need encryption insurance?

“The owner controls 100% of his assets” is the original intention of Nakamoto to launch Bitcoin. Asset custody seems to run counter to this idea, but from an investor's perspective, custody is important. Is the ability to transfer funds quickly and freely as important as ensuring that funds are protected?

The answer to this question may depend on individual trade-offs and the amount of money. For example, holding an uninsured cryptocurrency valued at $100 is very different from having a cryptocurrency valued at $10,000. Putting money in a cold wallet can be relatively safe, but it does not prevent all problems.

Another option – depositing money in a centralized cryptocurrency exchange is usually a bad choice. In the early days of the development of the cryptocurrency market, insurance policies were rarely mentioned. To a large extent, users do not know which exchanges hold policies, which insurance companies provide insurance, and how much insurance coverage. Whether in the past or the present, centralized exchanges are hacked very frequently. After the accident, the people who left the funds on the exchange had to question whether the exchange could make up for their losses. This ultimately led to exchanges and asset custodians to increase cryptocurrency insurance policies and provide users with details of insurance coverage. However, the transparency of encryption insurance is still generally lacking.

Encryption insurance is becoming more common in the currency world, but is it really helping users to mitigate the losses caused by hacking, private key theft and other problems? Next, let's list a few examples.

Encryption insurance adopter


In February 2019, cryptocurrency security company BitGo announced a $100 million insurance policy targeting cryptocurrencies and digital assets held in its commercial wallets and managed products. The insurance covers 10 insurers at Lloyd's of London. In March 2019, a smaller insurance company accused BitGo of using "ambiguous language" in its public statements, exaggerating its coverage.


Coinbase has had encryption insurance since 2013. In a April 2019 report, Coinbase said it holds a "$255 million hot wallet policy, provided by a group of top global insurance companies, including a US and UK insurance company, including Lloyd's of London. Some big insurance companies. The expression "the world's top insurance company group" is still vague. As explained in the report, insurers will locate losses in a “tower structure” in order to reduce risk. These insurance providers may change their positions frequently, which makes the policy difficult. 100% transparently and accurately cover the original insured funds.


In June 2019, digital asset custodian METACO announced that it would provide cryptographic insurance through Aon Insurance Company (Aon). According to Aon Insurance, these insurances cover all losses, from "natural disasters destroying private keys that are stored offline in cold" to "third-party intrusions to connect to the Internet's hot wallets." Insurance coverage includes more possibilities than most policies. However, the current insurance amount has not been announced, so it is difficult for users to know their exact insured status.


On November 14, Ledger, an encryption hosting and wallet provider, announced a $150 million increase in insurance for Ledger Vault users through Lloyd's of London, a news that could change the rules of the future encryption insurance market. Why? Although Ledger is an asset-managed platform that allows users to access and trade encrypted assets using their hardware wallet (Ledger Nano) while providing insurance for wallet users for free, it is a "one-stop" service.

First-class position: The goal of Ledger Vault is to bring two benefits to the institution/large investors – fund security and insurance coverage. It also provides integration with the Ledger hardware wallet, making it easier to get in.

According to an article by CoinDesk,

"Ledger's insurance policy covers theft of private keys by third parties when physical security management (HSM) of one of their data centers is physically compromised, as well as the customer's entire wallet usage process – such as in the company's security management system. The process of generating a private key, even including Ledger internal staff collusion to steal user funds."

But Ledger's new insurance policy does not include remote theft by hackers – the most common reason for losing user funds on centralized exchanges. The good news is that the Leger vault's security solution isolates the private key to prevent this type of hacking. However, similar to other policies, the policy focuses on institutional investors. This means that individual investors with a small amount of crypto assets may not be covered.

The future of encryption insurance

Encryption insurance coverage is growing, at least for cryptocurrency exchanges, bulk asset holders, and institutional investors. Coalition CEO Motta said,

"The encryption insurance market will grow faster than the 20% to 25% growth of large network security insurance."

Small individual investors don't have much choice for encryption insurance yet. In the near future, encryption insurance should cover everyone, but there are still some challenges.

For example, since the current policy is still listed in US dollars or other specific legal currency, but the price fluctuations of digital assets are so large, it is difficult to determine the details of the underwriting. In addition, many of the risks inherent in the cryptocurrency industry are known, but they may not be quantified. How often is the exchange hacked? What is the average loss of funds? Unknown factors like bugs in the code also exist. Insurance policies in any industry are based on predictable and even quantifiable risks. The entire cryptocurrency industry is a new industry, lacking predictability and therefore more difficult to insure. However, as time goes by, as the market matures and more coverage options, encryption insurance will hopefully become more practical and transparent.

The article is slightly modified for the reader's understanding. Please reprint the copyright information, thank you for reading.

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