As the cryptocurrency market rapidly grows, accepting these currencies in traditional financial systems has become the center of market activists’ attention. Governments, banks and central banks, and financial institutions are trying to find a way to regulate and add crypto services to the basket of their delivered services to keep people and their customers satisfied.
The decentralized nature of cryptocurrencies is attractive to people across the globe due to lower transaction fees, circumventing intermediaries, and maintaining parties’ anonymity, making it a suitable financial instrument for everyone. Still, this market has risks that sometimes might be fatal for entities or individuals.
But with some strategies, we can control these risks by getting help from the insurance industry and letting them into the crypto market. In the world of cryptocurrencies? In this article, we will investigate why insurance is a necessity of Cryptocurrency in the crypto market.
Cryptocurrency insurance is necessary for the crypto market participants to assist them in passing bottlenecks and challenging times in this risky market. This market, besides volatility, has more dangers, including hacking or loss of the stored funds in wallets.
In situations like forgetting the private keys or other known and unknown reasons, it is more critical that the insurance industry enter the crypto market because this market daily attracts more seignior and retail investors. Naturally, it attracts insurance companies to this virgin market.
What is Cryptocurrency Insurance?
The nature of insurance in all industries is the same. It is to avoid imposing catastrophic losses to the beneficiary in case of unexpected changes in indexes in the market or severe impacts. In the cryptocurrency market, crypto insurance has the same role as mentioned earlier.
It’s a billion-dollar potent market that frequently faces theatrical changes in candles and always is an attractive object for hackers, which
Does the Cryptocurrency World Need Insurance?
In 2021, crypto market participants recently observed several attacks through millions of crypto amounts stolen. For example, in Poly Network, Hackers stole an equal amount of USD600M from Ethereum BSC and Polygon wallets.
Another example of brutal hacks happened twice in Cream finance’s protocol, and hackers stole USD150M in Ethereum, Bitcoin, and other stabelcoins. However, investing in cryptocurrencies might be highly profitable. Still, the volatile crypto market sometimes puts traders in dangerous situations, which justification the necessity of the presence of the insurance industry in the crypto market.
What is the Necessity and Importance of Cryptocurrency Insurance?
The primary purpose of cryptocurrency insurance is to cover losses in the crypto market. Of course, cryptocurrency insurance policies are unique because cryptocurrencies are not legal. The factors affecting them differ from those involving other payment and investment systems such as securities, shares, or bank accounts.
The main factors affecting blockchain and cryptocurrencies are price fluctuations, hacking, and scams. In the following, we examine the factors affecting the cryptocurrency market.
1) Price Fluctuations
Cryptocurrencies are volatile. The cryptocurrency market may experience extreme fluctuations in just one day or within a few months. These fluctuations may occur for various reasons, such as government decisions or a tweet by a famous person like Elon Musk.
These fluctuations are mainly due to the novelty of the cryptocurrency market, and most of the world’s economies are still hesitant to accept it. In any case, volatility is only part of investors’ concerns in the crypto market.
One of the biggest nightmares for crypto market participants is hackers’ attacks. There have been plenty of hacking attacks so far, and as a result, millions of dollars and other digital assets have been stolen.
There might be a solution to recover the stolen physical assets or avoid them from happening again, but recovering digital assets without having private keys is impossible.
3) Losing the Private Key
Another problem for cryptocurrency investors is losing or forgetting the private key, a password. Since it is impossible to recover the private key, forgetting it (usually in 12 separate words with a particular order) will result in losing all funds in the account.
Now that cryptocurrencies are on the verge of becoming a mainstream payment method, these problems still exist. The result would be a tremendous demand for cryptocurrency insurance, which has led some insurers to take the first steps in this field.
All businesses are to gain wealth, but along with the possible revenue, they potentially risk losing a part or the whole invested funds. In other businesses insurance industry is a solution that helps stockholders and managers to abide by unfavorable consequences.
The crypto market, a branch of financial markets, is almost a reliable way to invest, hedge, or risk management. But as a volatile market participating in this market is accompanied by fatal risks, that would be necessary for this market and investors from one side and insurance companies to step into this intact market.