Blockchain and cryptocurrencies are changing the way the insurance industry operates –– especially insurance in the crypto and decentralized finance (DeFi) space. Some companies are even decentralizing insurance funds with blockchain technology, meaning that anyone can buy tokens that represent a piece of the insurance fund and potentially profit from the value of the fund increasing.
Similar to other investments, losses from the value of your cryptocurrency decreasing are not insured. Losses from smart contract bugs and hackers, however, may be insured. To limit your risk as an investor, you should use a cryptocurrency exchange and crypto wallet that are insured.
Best for Decentralization: Nexus Mutual
Nexus Mutual is a decentralized insurance fund that operates on the blockchain. Nexus Mutual uses smart contracts to pool funds and distribute insurance claims.
Smart contracts are sets of code that are capable of performing financial functions on the blockchain. For example, once an insurance claim is verified, the Nexus Mutual smart contract pays out the insured party from the insurance fund automatically.
Investors in the fund get to vote on which smart contracts and crypto wallets they insure proportional to the amount of their Nexus tokens (NXM) in the fund. Companies who are insured by Nexus mutual pay into the fund with NXM tokens. Nexus uses mathematical functions to calculate the amount of claims they are capable of insuring so the fund doesn’t become over leveraged.
Best for Theft & Loss: Evertas
Evertas is the 1st insurance company that solely underwrites insurance for blockchain and cryptocurrency users. Not only does Evertas insure your crypto from online hacks, but they also insure for loss of your private keys. Private keys are what give you access to your cryptocurrency wallet.
Evertas also covers losses due to technology errors and omissions. Technology errors and omissions include smart contract failures, exchange outages and hardware malfunctions. This type of coverage is bought by cryptocurrency platforms to insure their legal liability to recover users’ funds in the case of a technology failure.
Best for Insurance Variety: Etherisc
Etherisc is a smart contract protocol for insurance on the Ethereum blockchain. This company is decentralized, meaning that anyone can invest into the insurance fund or be insured by the fund. And developers can create new insurance protocols on Etherisc, but these new proposals must be approved, registered and regulated by the government.
As of now, the only licensed insurance on Etherisc is for flight delays and cancellation. Users can buy this insurance to insure against real-world flight cancellation or delays.
Many other insurance protocols have been developed on Etherisc. Developers have created hurricane insurance, crypto wallet insurance, crypto loan insurance and crop insurance, but they have yet to get licensed.
You also have the option to invest in the Etherisc insurance fund. Users can deposit Ethereum, Bitcoin, or USD to earn an interest on their investment. If you don’t want to risk money on Etherisc but want to get involved with the platform, you can be paid to process claims, develop insurance protocols or file insurance reports.
Best for Crypto Wallets: Coincover
Coincover is a centralized insurance option for crypto wallets, smart contracts and exchanges. They don’t directly sell insurance to retail investors, as its focus is to insure cryptocurrency companies from online hackers. If you see the “protected by coincover” stamp on your crypto exchange, then you know your funds stored on that exchange are insured against a security breach.
Coincover also lets companies sell additional insurance coverage to their clients. For example, exchanges can sell you private key coverage, so you can be insured in case you lose your private keys.
What’s most unique about coincover is their cryptocurrency storage solution. Coincover offers its users an insured crypto wallet where 100% of your cryptocurrency will be replaced in the event of a security breach. Also, coincover is incredibly secure –– it locks its private keys in a vault off-line, so an online hack is virtually impossible.
Best for Crypto Exchanges: Aon
Aon is a traditional insurance company that provides professional risk solutions to businesses. It’s a publicly-traded company on the New York Stock Exchange. Aon also offers commercial risk solutions in several blockchain-related ventures like crypto brokerages, cryptocurrency miners and blockchain protocols.
The company insures a Montreal-based cryptocurrency exchange called Shakepay. You can use Shakepay with confidence knowing that any loss due to a security breach is insured by a well-known insurance company.
Is Crypto FDIC Insured?
The Federal Deposit Insurance Corporation (FDIC) insures cash deposits at traditional banks up to $250,000. Like other investments, cryptocurrency is a separate asset class from the dollar, so it’s not insured by the FDIC. For cryptocurrency to ever be insured by the FDIC, mainstream adoption from banks and a stabilization of cryptocurrency prices would have to occur.
However, some exchanges like Gemini are FDIC insured for cash deposits. This means that the
cash you hold on Gemini will be covered if it is lost. Gemini is a great crypto brokerage if you look to frequently hold cash positions or swing-trade cryptocurrencies.
Crypto Exchanges That Are Insured
Many large exchanges offer insurance for their users. Coinbase insures the funds stored on its exchange, so if there was ever a hack its users would be reimbursed.
To keep insurance costs low while maintaining security, Coinbase stores 98% of its funds in an offline hardware wallet, with the remaining 2% is stored on the exchange for liquidity. Hardware wallets cannot be hacked into remotely, so as long as the physical cryptocurrency wallet is kept safe, the funds will be secure.
Both Gemini and Binance insure user cash deposits through the FDIC. Any cash holdings you have on either of these exchanges would be reimbursed if there were ever a security breach.
As of last year, Binance has created its own insurance fund for its users. The fund is called Secure Asset Fund for Users (SAFU). The SAFU is funded by 10% of the revenue from trading fees. This fund is used to insure users’ assets in the case of a security breach on Binance’s website. The fund does not, however, insure hacks against personal accounts, so be sure to keep your passwords safe and use 2-factor authentication.
Gemini is a cryptocurrency exchange and custodian that offers investors access to over 100 coins and tokens. Founded in the US, Gemini is expanding globally, in particular into Europe and Asia. Offerings include both major cryptocurrency projects like Bitcoin and Ethereum, and smaller altcoins like Orchid and 0x.
Gemini is 1 of the only brokers with multiple platform options based on skill level. New investors will love the streamlined interface of Gemini’s mobile and web apps, while advanced investors might appreciate all the tools that come with ActiveTrader.
In addition to a host of platform choices, Gemini users also have access to insured hot wallets to store tokens without worrying about digital asset theft. Learn more about what Gemini can do for you in our review.
- New investors looking for a simple mobile and web app
- Day traders looking to use technical analysis tools
- Users looking for a 1-stop-shop to buy, sell and store all of their cryptos
- Easy and quick signups — can get started in as little as a 5 minutes
- Multitude of platforms to accommodate traders of all skill levels
- Hot wallets include insurance to protect your from theft and hacking attempts
- Charges both a commission and a convenience fee for users buying and selling through the desktop or mobile app
Coinbase is one of the Internet’s largest cryptocurrency trading platforms. From Bitcoin to Litecoin or Basic Attention Token to Chainlink, Coinbase makes it exceptionally simple to buy and sell major cryptocurrency pairs.
You can even earn cryptocurrency rewards through Coinbase’s unique Coinbase Earn feature. More advanced traders will love the Coinbase Pro platform, which offers more order types and enhanced functionality.
Though Coinbase doesn’t offer the most affordable pricing or the lowest fees, its simple platform is easy enough for complete beginners to master in as little as a single trade.
- New cryptocurrency traders
- Cryptocurrency traders interested in major pairs
- Cryptocurrency traders interested in a simple platform
- Simple platform is easy to operate
- Comprehensive mobile app mirrors desktop functionality
- Coinbase Earn feature rewards you with crypto for learning about available coins
- Higher fees than competitors
What is Actually Insured?
As you can see, there are many different ways exchanges go about securing and insuring your funds. If a crypto brokerage insures your funds on its exchange, you can trust that the exchange is secure. If it wasn’t, no insurance company would insure them. Even if there were a security breach, you know that your funds will be reimbursed by the insurance company.
If an exchange holds part of your cryptocurrency in a hardware wallet, then it’s secured from hackers. Insurance on hardware wallets isn’t necessary, as they can’t be hacked into like an exchange can.
It’s also a good idea to use an exchange that is FDIC insured for cash deposits, especially if you plan on having a cash balance in your crypto brokerages account. Both Coinbase and Gemini insure their cash deposits, so you will be covered up to $250,000 in the case your cash deposit is lost.
The insurance industry is beginning to implement blockchains into their business model to cut costs for the companies’ bottom-line. Blockchain technology can help verify insurance claims and eliminate much of the overhead costs associated with traditional insurance firms. And decentralized insurance like Etherisc lets users directly own a piece of its insurance fund to earn interest on their cryptocurrencies.
Continue reading: BEST SPECIALTY INSURANCE COMPANIES USING BLOCKCHAIN AND INSURTECH