Imagining the next round of storytelling in the storage race – data insurance.
Envisioning the Next Chapter of the Storage Race The Emergence of Data InsuranceAuthor: Marshal Orange, PermaDAO
On May 11th this year, China Re successfully issued the first national insurance for infringement of data intellectual property rights. The definition given by China Re for this insurance is: “Based on the risk protection needs of enterprises for their own data intellectual property rights, it provides a series of risk protections such as intellectual property infringement risk for data that is legally owned, registered in the data intellectual property rights registration system or certification platform, and has obtained data intellectual property rights registration certificate or certification certificate.” Since then, various regions have been promoting the popularization and promotion of insurance for infringement of data intellectual property rights. Recently, Hangzhou High-tech Zone has also launched the first insurance for infringement of data intellectual property rights in the city. The insured party of a company in Hangzhou is its 2,276 quarterly updated data. If there is an infringement of data intellectual property rights, the company can obtain substantial compensation from the insurance company, which undoubtedly provides more users with data security protection.
But have you ever thought about whether insurance can also be combined with decentralized storage to introduce data security insurance for decentralized storage products, thus bringing about ecological growth?
Data security insurance for decentralized storage, in a nutshell, provides a data protection service for Web3 users. Users store data in decentralized storage projects, and users who have purchased data security insurance can alleviate their concerns about data security management, thereby encouraging more users to adopt decentralized storage. If data stored in decentralized storage is accidentally lost, damaged, or hacked, users have the right to claim compensation.
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Currently, the adoption rate of decentralized storage projects among C-end users is not high, not because decentralized storage products are not good enough. For example, in the Arweave ecosystem, Akord’s digital insurance vault has already provided secure, convenient, and privacy-controlled data storage and management services for individual users, enabling decentralized data storage to achieve bank-level security. But in fact, users still subconsciously distrust decentralized storage products. However, if we introduce the initiative of data security insurance specifically for decentralized storage, it directly responds to users’ stereotypes about decentralized storage, eliminates users’ increasing concerns about data security and privacy, and also allows more decentralized storage solution providers to further improve service quality, further enhancing the potential of the decentralized storage ecosystem.
In fact, the insurance industry started exploring applications in the blockchain field very early, as early as 2017, with the launch of the first decentralized insurance platform Etherisc on Ethereum. It provided a peer-to-peer insurance market where users could buy or sell general insurance policies, such as flight delays and hurricane losses, without traditional insurance companies. The turning point came in 2019 with the launch of the first insurance protocol Nexus Mutual, specifically built for the DeFi (decentralized finance) ecosystem. This is especially significant as many DeFi applications have experienced security incidents and accidents that have resulted in losses of billions of dollars. As a result, blockchain-based DeFi insurance has rapidly developed. It can mitigate the inherent risks of DeFi, rebuild market confidence for investors and institutions, and ensure that more Web3 users participate widely in DeFi.
So how does DeFi insurance work? DeFi insurance allows individuals and companies to protect their funds in DeFi from uncertain risks through decentralized provider pools. In this model, users purchase insurance by paying a certain amount of premium to obtain coverage. Insurance providers earn a portion of interest from the locked funds in the pool through the premiums paid, thus establishing a relationship between insurance and risk.
Users can purchase insurance to protect their funds lost on the platform based on their insurance needs by accessing the insurance products of DeFi asset insurance providers. The premium for DeFi insurance depends on various factors, including the type of insurance, provider, and term. Generally, popular DeFi insurances are focused on attacks on DeFi protocols, stablecoin price collapses, and exchange hacking. Additionally, some insurances can also cover specific smart contract vulnerabilities, slashing events, yield token losses, and more.
The introduction of decentralized storage insurance benefits both users and project parties:
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From the perspective of users: Web3 data storage insurance usually covers data leakage and hacker attacks. Users will feel more confident storing their data in decentralized storage networks without worrying about data theft or misuse. For certain important business or government confidential files, users may still prefer storing them on private physical drives; however, for personal privacy data such as photos and audio/video content worth cherishing a lifetime (which can accumulate to a significant amount), it may not be as convenient to constantly update the data if relying solely on physical drives. Besides the need to purchase expensive hard drives, users also have to worry about drive lifespan, quality, and other issues. But if you store your data in decentralized storage networks like Arweave and then purchase data insurance, you won’t have to worry about all those concerns. You only need to regularly check your data status, and if your data is lost or abnormal, you will receive a hefty insurance compensation. Although it may seem like a good thing, none of us want that to happen. At the same time, the introduction of data storage insurance is also a Web3 initiative to raise awareness of data security among the public, encouraging users to take more measures to enhance their data protection, such as using stronger passwords and enabling multi-factor authentication.
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From the perspective of project parties (ecosystem): Projects providing Web3 data storage insurance will undoubtedly bring exponential growth in data storage to their respective ecosystems. To attract more users, the competition among decentralized storage projects is no longer just about storage space and price; it has evolved into a competition for data security. This may disrupt the current landscape of decentralized storage, and Filecoin, which carries the risk of data loss, could potentially lose its leading position as a result. The competition will also greatly encourage these projects to continuously improve their data security and backup mechanisms since any mistakes would result in paying a hefty insurance amount. In order to reduce data loss and risks, decentralized storage projects may further enhance their data redundancy, backup, and recovery mechanisms to ensure data availabili…
DeFi insurance can provide valuable insights for decentralized data insurance, especially from the perspective of consumer psychology. The success of a project largely depends on gaining the trust of users. DeFi insurance has truly increased the sense of security in the dark forest, allowing users to find trust in the decentralized ecosystem filled with uncertainty. This is also crucial for decentralized storage projects, as consumers need to believe that their data can be safely protected on decentralized networks. At this point, insurance is necessary to promise users that their data will not be lost, misused, or leaked.
Arweave naturally fits the combination of data storage and insurance. It already achieves permanent and secure data storage technically and can construct a data guarantee market for data storage insurance through smart contracts. However, the promotion of decentralized data storage insurance seems to be not so easy. After all, there have been no commercially viable use cases of data storage insurance in Web3 until now, indicating that introducing data storage insurance may also trigger some new challenges, such as:
1. Premium and coverage: Insurance providers need to use complex mathematical models and risk assessment standards different from Web2 to determine pricing for premiums and coverage, ensuring sustainability while taking on risks. At the same time, the premium for data storage insurance may increase the usage cost of decentralized storage for users again, which may affect the willingness of small businesses and individual users to pay. Although the security of data that needs to be insured cannot be evaluated in monetary terms, storage costs generally remain high in the short term.
2. Market acceptance: Introducing decentralized data storage insurance requires widespread acceptance in the market. Users and businesses may need time to adapt to this new insurance model, including their awareness of risks and demand for data security. After all, user education takes time. In addition, developing data storage insurance products suitable for different use cases may require a detailed analysis of industry demands, pain points, and risks.
3. Legal and regulatory challenges: Decentralization belongs to the global scale. Although the execution of insurance can be done through smart contracts, the rights and obligations of insurance still need to be defined by laws. However, different countries and regions have different laws and regulatory requirements for data storage and data protection, making it potentially complex to determine the responsibilities and compensation scope of data storage insurance. Consensus needs to be reached on the definition of data damage in decentralized networks to prevent compensation and accountability processes from becoming obstacles due to information asymmetry between users and project parties.
In summary, the introduction of Web3 data storage insurance signifies another milestone for decentralized storage. It has the potential to increase user trust in decentralized storage and provide additional security for data. However, data security insurance is a complex decision that involves multiple aspects such as technology, law, policy, and user education. It also requires cooperation between providers, insurance companies, and regulatory agencies to ensure effectiveness and compliance. Both users and providers need to have a deeper understanding and transparency in terms of premiums, data privacy, and policy regulations to clarify their rights and responsibilities.
The global traditional insurance market is still massive. We have witnessed the rise of DeFi insurance, making decentralized insurance a small yet promising sector in the blockchain industry. In the unknown Web3 dark forest, Web3 data storage insurance can greatly enhance user trust in decentralized storage. The development of decentralized storage data insurance certainly requires collaborative efforts in technology, law, regulation, and business. We also look forward to more innovative use cases of decentralized storage insurance, empowering the future of decentralized storage!
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