The increasingly urgent need for crypto-native insurance

The insurance industry has long provided important support for major leaps in innovation. It is no coincidence that the modern insurance industry has emerged in parallel with the Industrial Revolution.Indeed, it is already convincing debate The invention of fire and property insurance – in response to the Great Fire of London – lubricated the capital investment gears that drove the Industrial Revolution, which is likely why it started in London. Through the first and every technological revolution that followed, insurance provided a safety net for innovators and investors, and acted as an external, objective verifier of risk — thus becoming the encouragement and incentives needed to confidently test and break down barriers. Safe source.

Today, we are in the midst of a new digital financial revolution, and the case for this new technology is clear and compelling.recent White House Executive Order Further emphasising this point on “ensuring the responsible development of digital assets,” is a watershed moment for the industry, elevating discussions around the technology’s importance to the national stage and acknowledging its importance to U.S. strategy, interests, and global competitiveness sex.

Lack of crypto insurance

However, considering that the current crypto insurance capacity is estimated to be around $6 billion — a drop in the bucket for an asset class with a market cap of around $2 trillion — it’s clear that the insurance industry has failed to keep up and play its significant role .

The specific reasons for this apparent lack of insurance protection for digital assets are quote At the House Financial Services Committee hearing on market conditions in December. If this situation persists, it may hinder future growth and adoption.

Why have traditional insurers avoided entering this space despite the obvious need and opportunity?

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Traditional insurers face several fundamental hurdles in dealing with the new categories of risk posed by cryptocurrencies. Fundamental of these is a lack of understanding of this often counterintuitive technology. Even where technical understanding exists, challenges such as correctly classifying new and nuanced risk types (for example, those associated with hot, cold, and warm wallets and how myriad technical, business, and operational factors affect these risk types) remain. The problem is further exacerbated by rapid changes in the industry, perhaps best exemplified by the emergence of new and occasionally confusing categories of risk, such as non-fungible tokens (NFTs), seemingly overnight.

Of course, many insurers are still licking the trauma of their eagerness to write cybersecurity policies in the early internet age, without fully understanding the risks and often the huge losses that result.

at the same time, according to For Chainalysis, about $3.2 billion in cryptocurrency will be stolen in 2021.In the absence of risk mitigation options, this number is enough for any responsible financial institution to consider genuine involvement in this space severe heartburnBy comparison, U.S. banks typically lose less than $15 million per year to fiat heists.One of the reasons bank robberies are so rare and fruitless (success speed only about 20%, while on average only the perpetrator net About $4,000 per incident) in order to operate, most U.S. banks must qualify for a package of bond insurance, which requires safety measures designed to limit these losses. In this way, insurance not only manages the risk of loss due to robbery, but also creates an environment in which these losses are less likely to occur in the first place.

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The need for crypto insurance

The same applies to insurance against the loss of crypto assets. First, goods stored in an insured wallet are not only protected, but are much less likely to be lost because the underwriting process requires such a high level of multidisciplinary expert review and compliance requirements.

The necessity and benefits of cryptoasset insurance are obvious. But given this situation, it’s clear that traditional insurance is unlikely to step up to address crypto-asset risk on a reasonable timeline. Instead, solutions need to come from within. We need crypto-native solutions tailored to industry needs, with the flexibility to cover all crypto asset risks, products and services, including NFTs, decentralized finance protocols and infrastructure.

The advantages of homegrown risk solutions are manifold.

First, professional crypto insurance companies have greater industry knowledge and expertise, and are able to provide higher quality insurance, which in turn equates to greater security and safety for the entire crypto industry. Given this level of understanding, crypto-native insurers will have the flexibility to craft risk mitigation products to meet the unique and rapidly changing needs of the industry. Then, once in place, these companies can expand trillion-dollar insurance capacity by partnering with traditional insurance markets. Finally, a dedicated crypto insurance sector would better meet legal and regulatory requirements, ensuring that a lack of insurance does not hinder crypto adoption or growth.

Given all this, what is preventing crypto-native insurance solutions from stepping up to solve the problem?

Ironically, in the case of crypto asset insurance, the industry overwhelmingly chooses to steer its investment resources in the direction of very crypto projects whose future viability will be due to a lack of investment in the sector resulting in a lack of insurance capacity be negatively affected.

There is no denying that we are in the midst of a new technological revolution. Likewise, insurance has played a vital role in helping past technological revolutions reach their full potential. The extreme lack of risk protection for crypto assets today is unsustainable and poses an unacceptable threat. It is critical that the crypto community recognizes the dangers posed by the status quo of a severe lack of insurance options for crypto assets.

The good news is that we have solved the seemingly insurmountable technical and economic problems ourselves, we have come this far, and we believe we can do it again.

This article was co-authored by Sofia Arend and J. Gdanski.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.

The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Sofia Arend Currently Head of Communications and Content at the Global Blockchain Business Council (GBBC). Before joining GBBC, Sofia worked for the Atlantic Council, a top ten global defence and national security think tank. Sofia holds a BA in International Relations and Global Studies, cum laude, from the University of Texas at Austin, where she competed as an NCAA Division-I recruited rower.

J. Gdanski is an expert in privacy, security and risk management, a key leader in the enterprise blockchain space, and the CEO and founder of Evertas, the first company dedicated to the insurance of crypto assets and blockchain systems.