Earlier in 2021, there were 106 million people who had invested in cryptocurrency. This number has been steadily increasing since Bitcoin first made a splash in the market back in 2008.

Since then, there has even been a rise in the baby boomer population taking the risk by investing in cryptocurrency. While the market for digital currency is expanding, how risky is it?

The debate about cryptocurrency insurance has started as more people are using and accepting it as currency. If you are curious about insurance policies that protect cryptocurrency, keep reading to learn more about it.

What Is Cryptocurrency?

To better understand protecting digital assets, it is important to know what cryptocurrency is. Many people who have invested in digital currencies don’t fully know how it operates or functions.

In a basic sense – cryptocurrency is a digital form of currency. Like cash, it is used for purchasing various items or services. This form of currency is traded in an online market that is unregulated by the government or businesses.

To purchase cryptocurrency in the United States, you still need USD. Some online exchanges allow you to purchase other digital currencies with Bitcoin or other popular ones.

Once you have a digital currency, it gets put in an online wallet. These are accounts that you have purchased your currency through. Common sites that act as an exchange site for crypto are Coinbase.

These sites allow you to buy or sell different cryptocurrencies while keeping your currencies in their exchange base. Some other brokers are implementing crypto exchanges such as Robinhood.

Blockchains

Cryptocurrencies often operate under a blockchain. This term is important to know as it affects the safety of your digital currencies. It also provides more understanding of how these databases get hacked.

Essentially, a blockchain is a database. There is a lot more that goes behind it, and it can become much more complicated. These blockchains collect all the information from their currencies, transactions, and participants.

Once a block is full, then a new one is created. With this in mind, there are typically thousands of blockchains on a server.

Cryptocurrencies operate in a decentralized pattern. This means that the databases and computers that hold the blockchains are spread out. This pattern is found in Bitcoin’s structure.

The idea of having multiple blockchains that are spread out helps to pinpoint any obvious discrepancies from hackers. However, there are pros and cons to this.

Anyone can see these transactions, although those who make the transactions maintain anonymity. How do hackers break into blockchains?

Most often, hackers need to control at least 51% of a blockchain. For assets such as Bitcoin, this would take quite a bit of money.

However, for other cryptocurrencies, it may be easier and more workable. With that said, as cryptocurrencies expand and increase in value, it makes it more difficult for hackers to get through.

Because a government or business entity does not protect it, digital currencies are sometimes used on the black market. If a hacker were to get through, your bank would not reimburse you.

You would have to look into the details of your exchange site for more information on coverage or reimbursement.

Coinbase

Coinbase is arguably one of the largest exchanges for digital currencies. Does it offer any cryptocurrency protection?

Coinbase states that they cover some of your cryptocurrency from breaches. Yet, it states that any breaches on your personal account are not covered.

This means that someone could hack into your computer or cellphone and log into your account. If this happens, your digital currencies are no longer protected.

Most banks protect your money through the Federal Deposit Insurance Corporation (FDIC). Since the government does not monitor cryptocurrency, it does not fall under the same criteria.

Cryptocurrency Insurance

Are there any options for Bitcoin insurance? Currently, insurance companies have not fully embraced insuring digital currencies.

This is an important distinction from cyber and data breach insurance, which is offered by insurance companies. The goal of cyber insurance is to protect digital information. Ultimately, data breaches lead to many instances of lost information and money.

If you want to add protection to your business or personal computers, this insurance is beneficial. However, insurance companies have not fully insured cryptocurrencies because of their volatility.

There are some instances of coverage, but it is typically less than insuring other valuable assets. For instance, some coverage offers anywhere from $10 million to the rare occasions of the $100 to $200 million range.

Insurance companies have to go through certain regulations and monitoring. Because cryptocurrencies don’t operate under government regulation, it makes it more challenging to fully insure.

One of the best strategies outside of crypto insurance is to spread your digital currencies across multiple digital wallets. This ensures that not all of your money is in one spot.

Look at reading the fine print of the exchanges and sites you go through for purchasing or trading digital currencies. It also doesn’t hurt to reach out to insurance companies to see what options they have for insuring your cryptocurrency.

The Digital World

It is likely that in the future more insurance companies will offer cryptocurrency insurance. If it remains volatile and unregulated, you might find it more difficult to find full coverage. There is no denying that cryptocurrency is here to stay for the short-term.

If you want advice on the type of insurance and for analyzing your risk management, contact us today and let one of our skilled agents help you out.