What is Crypto Wallet Insurance and How Does It Work?
While cryptocurrency had a rough few months in the second half of 2022, overall adoption of crypto is higher than ever. In 2022, global crypto ownership rates reached an estimated average of 4.2%, with over 320 million crypto users worldwide, and over 15,000 businesses now accept cryptocurrency payments. Global revenue in the cryptocurrencies segment reached $32.52 billion in 2021 and is projected to reach a staggering $74.3 billion by 2027.
Cryptocurrency usage is growing faster than ever before, but there’s a giant blind spot in the market: safety. There are billions of dollars in cryptocurrency being held in online custody but less than 1% of those assets are insured.
The Glaring Safety Gap in Crypto
Over the past several years, cryptocurrency has become an increasingly popular target for cybercriminals. Since 2014, a number of crypto institutions have been hit by high-profile hacks. For example, the Ronin Network was recently hacked in 2022 for a shocking $614M, making it the biggest crypto hack of all time. PolyNetwork lost $611M in 2021, KuCoin lost $285M in 2020, Coincheck lost $547M in 2018, and the list goes on and on. When these kinds of hacks happen, hundreds of millions of dollars are lost and the exchanges aren’t always able to fully reimburse individual wallet holders.
The Federal Deposit Insurance Corporation (FDIC) protects patrons of traditional banks with fiat money in the event of theft, but no such protection exists for crypto institutions. If digital assets are stolen from a crypto exchange or custodian, whether or not individual wallet holders get their money back is wholly dependent on if the institution is insured and how much insurance they have.
Most crypto institutions do have a commercial insurance policy, which provides some protection to crypto wallet holders, but there is no telling when an individual would receive compensation or how much they would get back due to commercial policy limits. In the 2016 Bitfinex hack, customers lost 36% of their holdings – there was only so much that Bitfinex’s insurer would reimburse, and it was less than the total amount stolen.