5 Reasons It’s Hard to Verify Cryptocurrency Transactions and Best Ways to Stay Safe

Matthew Studley, CFA, is Vice President, Complex Risk, for global insurer Hub International. He is a recognized expert in financial risk management, senior liability and special risk mitigation through insurance and insurance-linked protection. He handles a wide range of client issues and potential turnaround processes, and advises clients on corporate governance, corporate litigation, regulatory investigations and complaints management.

How do you insure a product with little history, a price that could go up or down by 25%+ next month, a history of crime, an unknown background, insufficient supply/demand, and a lot of uncertainty in terms?

At this point, you have decided that we are explaining the complexities of cryptocurrency insurance.

Despite these problems, crypto is still very popular. It is also inherently dangerous. Therefore, it is something that should be insured, however, only a small part of businesses and people in the cryptocurrency markets have confirmed their risk.

Let’s take a closer look at the challenges of getting help:

1) Lack of History

Because cryptocurrency is so new, it has no history, making it difficult for insurers to assess and price risks. Unlike insuring a home or car, insurers have a limited history on which to base their chances of loss.

For example, how can an insurer predict the likelihood of a hacker breaking into someone’s private wallet and stealing crypto assets without knowing what weak or strong controls look like?

2) Price Adjustment

Cryptocurrency is one of the most volatile assets, including fluctuations in the price of Bitcoin, Ethereum or other crypto assets and accounting for the rise and fall of foreign currencies. It is very difficult to measure insurance prices and the amount of price volatility in the underlying products.

3) Anonymity

A big plus for many crypto users is their belief that it is anonymous.

Some of these individuals or organizations may be engaged in illegal activities, such as drug trafficking, ransomware or other suspicious or dubious activities. Others may simply follow the Libertarian philosophy of centralizing government and business power.

In fact, crypto is pseudonymous since blockchain technology allows people to track everything, but the official names of the participants are hidden from the participants with account numbers or wallets. Top crypto businesses follow the opposite of money and know your customer’s strategies that are ubiquitous in the financial services industry.

Regardless of why you want anonymity, it’s a big part of cryptocurrency’s popularity. But pseudonymity is not compatible with the number of insurance companies that work. How can you provide proof of loss if you cannot verify the account holder from which the goods were transferred?

4) Lack of Availability and Misconceptions About Price

For all the reasons listed above, including the high demand for crypto insurance and the difficulty in providing it, there is a huge imbalance between supply and demand, which adds to the problems surrounding supply and pricing.

In addition, there is a big discrepancy between the idea of ​​​​the amount of insurance money of cryptocurrency companies and the idea of ​​insurance on the appropriate prices of things such as directors and insurance officers.

Insurance rates are higher than most people want or pay, leaving many cryptocurrency companies and investors unprotected and vulnerable.

5) Systematic uncertainty

In addition to everything else, the control interface is new and evolving.

The US Securities and Exchange Commission has developed a comprehensive plan to regulate the Treasury market, which may include cryptocurrency trading. On the other hand, the Commodity Futures Trading Commission wants to regulate digital assets as commodities.

Insurers understandably want to see the impact of crypto regulations and assess their impact.

How To Make It Easy To Get Crypto Insurance

In the face of these challenges, the best way to get proper and affordable coverage is for cryptocurrency participants to make a compelling case for potential insurers.

Cryptocurrency companies and investors need to be clear about what they do.

  • How do they work and earn money?
  • What is their crypto exposure and the need for real insurance?
  • What are they doing to reduce the risk?
  • What are they doing to prevent cybercrime?

Cryptocurrency is still new and represents a huge opportunity for many people and organizations. Insurance companies and government regulatory agencies are on the same learning curve as everyone else. Given the growing demand, expect the demand for cryptocurrency insurance to grow in the coming months as we all face various challenges. &