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Like traditional insurance, cryptocurrency insurance protects against losses due to calamities that are difficult to forecast. Hacks involving multiple millions of dollars are commonplace in the extremely volatile cryptocurrency, costing investors and businesses billions of dollars. About $615 million was stolen from a blockchain project connected to the popular game Axie Infinity. Another $23.3 million was stolen from the Ronin network, allowing users to transfer cryptocurrencies across multiple blockchains.
According to Chainalysis, "cryptocurrency-based crime reached an all-time high in 2021," with $14 billion transferred to unlawful addresses, up from $7.8 billion in 2020.
A crypto exchange development firm can help insurance companies in various ways, such as developing a platform for accepting cryptocurrency as payment for premiums, creating blockchain-based smart contracts for insurance claims, and assisting in investing a portion of assets in cryptocurrencies. A crypto exchange development company staffed with blockchain app development services can also assist in creating Decentralized Finance based insurance products, which can automate the claims process, increase transparency and efficiency, and allow insurance companies to better serve their customers by leveraging the power of blockchain technology and cryptocurrency. Additionally, they can provide expertise in understanding the crypto market and underlying technology, which would help the insurance companies in assessing the risks associated with investing in cryptocurrencies
Cryptocurrencies, in contrast to government-backed fiat currencies like the U.S. dollar, euro, or Mexican peso, lack any sort of built-in security to prevent their value from being lost or stolen. American financial institutions are safeguarded from losses of up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). However, digital currencies lack this safeguard.
Typically, investors in the United States who own conventional securities, such as bonds or stocks, are covered by either government or private insurance. However, investors in cryptocurrencies in the United States do not automatically enjoy these protections.
This is where cryptocurrency insurance comes in to protect cryptocurrency owners' investments.
Currently, there is a rising demand for cryptocurrency insurance, particularly for theft. However, the biggest problem for insurers is the underwriting process when solid risk assessments become complicated due to the crypto-insurance industry's lack of cohesive regulations. While some more innovative and recent startups have taken the initiative in this regard, others, like Stateside, are still very much; they were just "dipping their toes in the water" before making a full commitment. How, then, can you be certain that your cryptocurrency is protected if the industry, which is still in its infancy, is so unpredictably volatile?
This is where businesses such as Gemini Crypto Insurance could be of assistance. Yusuff Hussain, the New York-based Head of Risk at Gemini, explained, "Until now, insurers were unwilling to insure the crypto business due to high-profile thefts that caused catastrophic losses and insufficient security standards, internal controls, and policies and procedures. Consequently, many crypto exchanges and custodians have either I been unable to obtain insurance or avoided it due to the high cost of premiums demanded by the few insurers willing to insure the industry."
Gemini, a New York trust firm, "is a safe and secure exchange and custodian where consumers may purchase, trade, and keep digital assets in a regulated, secure, and compliant environment," as we successfully explained to insurers.
How this insurance operates depends entirely on the companies willing to underwrite and insure the digital assets.
For instance, Coinbase Crypto Insurance states, "We are building the crypto-economy, which is a more equitable, accessible, efficient, and transparent financial system enabled by crypto."
"Back in 2012, we started off with the novel idea that Bitcoin payments should be simple and secure for everyone, wherever in the world. Now, you can tap into the wider crypto-economy on a dependable and straightforward platform offered by us." And they don't take it lightly! They have approximately 73 million verified users, 10,000 institutions, and 185,000 ecosystem partners in over 100 countries. In addition, they have assets worth $255 billion on their platform.
Now, this is both wonderfully simple and complex in its operation. While cryptocurrencies are not legal tender in the United States, the money used to purchase them is and can be in the form of U.S. dollars, Euros, British pounds, etc. This form of legal tender used to acquire the digital asset becomes a component of the risk portfolio insurers evaluate when deciding whether or not to underwrite and accept an insurance policy.
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Again, this depends heavily on the insurer, but in general, the policy will not cover direct hardware loss and damage, nor will it cover the transfer of cryptocurrency to a third party. In addition, it does not protect against disruption or failure of the asset's underlying blockchain.
Governments and regulatory authorities will have an impact at some point, regardless of how much the creators of cryptocurrency have avoided regulation. The leading European think tank CEPS recently reported: "The EU is proposing a dedicated regime for crypto-asset providers in the EU via the MiCA regulation, the first international bloc to do so. When adopted, only licensed providers will be permitted to offer and operate crypto-currency exchanges in the EU."
Before extending coverage further for more competitive pricing points, insurers will seek greater regulatory clarity in the coming years and need to arrive there relatively quickly.
Digital assets are not a new phenomenon. If we include crypto under that umbrella term (which we do), then insurers, and yes, even bankers (shocking! ), will need to participate in a market that will only continue to expand and become more lucrative. However, why are insurers so hesitant? This is at least partially due to the constantly shifting regulatory landscape. In January of last year, the Office of the Comptroller of the Currency (OCC) granted a South Dakota trust company a national trust bank charter. This made it the first bank in the United States to focus on digital assets. This implies that government insurance and backing will need to follow suit, which raises a number of intriguing questions regarding inheritance and wealth transfer tax and capital gains taxes.
The SEC (Securities and Exchange Commission) has now clarified how broker-dealers must operate when acting as custodians of digital asset securities so that they do not run afoul of law enforcement.
There is no one-word answer, but yes. Insurance Quotes analyst Brian O'Connell states that most crypto assets are not insured because of the market's infancy because of the cryptocurrency's volatility.
The largest portion of the cryptocurrency insurance market is more likely to be held by cryptocurrency exchanges than individuals trading cryptocurrencies. Therefore, you must check with your platform to determine if you are covered as a crypto purchaser when trading on that platform.
Since the first Bitcoin block was mined in 2009, more than $1.3 billion in assets have been stolen from cryptocurrency exchanges, with an average of $2.7 million stolen daily in 2018. Therefore, insurance is crucial for reducing risk for those who wish to hold digital assets.
Of course, criminals have recognized the limitless potential for instantly transferring vast amounts of cryptocurrency due to the ease of theft. Cash can only be obtained through theft, and there are limits to how much can be taken. In addition, cash can be traced or reprinted with a new design, as was the case with the theft of a vault from a Northern Ireland bank several years ago, rendering the former useless and illegal.
Regarding cryptocurrency, a potential thief need only hack into the private keys of a cryptocurrency holder and digitally transfer as much as they desire to an anonymous account.
You'll have to determine the best provider of crypto-insurance on your own. However, Lloyds appears to be at the top of the list, and AON cryptocurrency insurance is also making waves. Also, be sure to investigate Coin cover, a British company that offers a variety of insurance protection and products.
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One must remember that most of the cryptocurrency industry consists of startups and exchanges. It is not yet large enough to generate revenue for the insurance industry. Even the largest exchange in North America, Coinbase, insures only 2% of its coins with Lloyds of London.
Interestingly, while some of these coins are held in hot storage — in locations connected to the Internet — the majority are held in cold storage or locations not connected to the Internet. Therefore, no one can accurately determine their insurance status.
There is no way around it: cryptocurrencies will alter our understanding and interaction with money. They will sooner rather than later have an effect on how we secure our financial future.
But what about individual private crypto insurance? While some companies are evolving to offer private crypto-insurance, the levels and scope of these offerings vary greatly.
We recommend starting small. Build your portfolio with skill and patience using reputable exchanges. Avoid promotional deposits that promise enormous profits but are too good to be true.
In 1688, Lloyds of London began insuring British merchant shipping companies against loss due to piracy, sinking, and storms. It makes sense that they are continuing insurance's evolution into this brave new world. While it appears that the European Union and Asia are somewhat ahead of the curve, the recent enthusiastic endorsement of Bitcoin by Elon Musk indicates that we live in truly exciting times.
Research
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We’ll work with you to develop a true ‘MVP’ (Minimum Viable Product). We will “cut the fat” and design a lean product that has only the critical features.
Designing a successful product is a science and we help implement the same Product Design frameworks used by the most successful products in the world (Ethereum, Solana, Hedera etc.)
In an industry where being first to market is critical, speed is essential. Rejolut's rapid prototyping framework(RPF) is the fastest, most effective way to take an idea to development. It is choreographed to ensure we gather an in-depth understanding of your idea in the shortest time possible.
Rejolut RPF's helps you identify problem areas in your concept and business model. We will identify your weaknesses so you can make an informed business decision about the best path for your product.
We as a blockchain development company take your success personally as we strongly believe in a philosophy that "Your success is our success and as you grow, we grow." We go the extra mile to deliver you the best product.
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