What cryptocurrency insurance options are available to consumers today and what is right for you?
Cryptocurrency can be held in a number of different ways. Here’s an overview of insurance across the different options.
Exchanges are the primary place to buy or sell cryptocurrency – either by exchanging one cryptocurrency for another or exchanging fiat currency for cryptocurrency. While your funds are on an exchange, the exchange holds them on your behalf.
Cryptocurrency exchanges are highly prone to hacks with 7 major exchanges hacked in 2019.
Exchanges protect themselves against loss by holding the majority of their funds off line where it is less vulnerable to external hack. Many hold just 2% funds online. Exchanges either insure what they hold online or self-insure with their own balance sheets to cover any losses.
Exchange insurance only covers the exchange against losses their own security breaches or employee theft not thefts from your personal account.
Exchange insurance does not cover you in the same way a bank might if your card was stolen. This is your responsibility. Any losses resulting from the compromise of your own individual account are not covered.
Hot Wallets and Hardware Wallets
If you want to take your cryptocurrency off exchange, your alternative is to hold them in a wallet. There are two kinds available but insurance is still very rare:
- Hot wallets are held in an online environment and are the most common type available today. They allow easy, always available access to your cryptocurrency. This ease of use makes them appealing - but in some cases has resulted in them being easier to hack and steal funds.
- Hardware wallets also offer you direct access to the blockchain but hold your private keys in on a specially made microchip called a high-security module(HSM). These can offer robust security as you have your private keys held offline on a dedicated device. But you have reduced usability and convenience.
For more details please see: Hot Wallets vs Hardware Wallets
Some hardware wallets are starting to claim they are insured, but you can't insure yourself against theft from funds held using a hardware wallet.
If your hardware device is stolen and / or compromised you aren’t protected. This is also still the case for most hot wallets too. The world’s largest hot wallet provider was attacked in June 2019 and $27M in cryptocurrency stolen.
The first and only insured hot wallet on the market is a BitGo wallet protected by Coincover Theft Cover personal insurance protection.
So what is the best option for you?
There are many factors to consider when choosing where to hold your cryptocurrency. Exchanges remain a risky option particularly if your account gets hacked rather than the exchange itself as it is not possible to insure yourself against theft.
If you plan to hold your cryptocurrency longer-term and do not trade multiple times a day, you should consider taking your funds off the exchange to reduce risk.
Taking your funds off exchange will mean using a wallet. When selecting your wallet provider, the final choice will depend on your own needs and preferences. But if you are looking to reduce risk as well as take direct control of your funds,an insured hot wallet gives the best possible combination of direct ownership, instant access and security.
With a BitGo wallet protected by Coincover, you get permanent protection and a guaranteed pay out if your cryptocurrency is stolen. You are free to continue using your wallet as you would normally and are not required to notify us of transfers. Prices start from as low as 0.75% of the holding value per year.
Visit Theft Cover to learn more.
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