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As cryptocurrency use grows around the world, several offshoot industries are coming into being as the digital assets fully develop into a practical financial system.
The cryptocurrencies themselves have grown faster than the infrastructure that supports them, and many firms are working on building the relevant structures needed to provide full support for cryptocurrency.
Issues of security have long plagued the crypto industry, and several prospective traders shy away from cryptocurrencies due to fears of losing their holdings to hackers and fraudulent schemes.
Billions of dollars have been lost to fraudsters who employ crypto assets in their scheme.
Crypto exchanges, platforms that serve as a storage facility for the coins and a marketplace for traders to exchange their holdings, are targeted by hackers who seek to take advantage of the obscurity that surrounds cryptocurrencies.
Once crypto holdings have been looted by a hacker, it is next to impossible for the owner or the exchange to trace the stolen assets.
Growing demand for crypto insurance
The cryptocurrency industry has grown to become one of the biggest financial industries across the world.
The crypto sector has reached a market capitalization of over $200 billion, and this continues to grow as the demand for the asset class increases.
The size of the market now has led to the demand for crypto insurance from exchanges and traders who fear to lose their holdings to hackers.
Many big-name insurance providers have entered the fray and have begun offering insurance for cryptocurrency. Lloyd’s of London is one such insurer that has started offering crypto insurance.
The firm has been in business for over a century and it is worth close to $45 billion. This insurance firm got into a partnership with Coinbase in 2018 and provided the exchange with a $255 million insurance policy.
The policy came into effect in April this year and Coinbase will be able to cover any losses incurred on its platform.
Several other crypto exchanges and custodians such as Anchorage, Kingdom Trust, and Gemini have purchased insurance policies of their own.
The need for more insurance for crypto exchanges
Cybersecurity is one of the greatest threats to various industries, and the crypto industry is no exception.
According to information from CipherTrace, a security research firm, over $4 billion worth of crypto funds have been lost in 2019 alone.
One of the leading crypto exchanges, Binance, reported that it discovered a security breach through which hackers managed to steal 7000 Bitcoins, worth $40 million at the time.
This is one example among several cases of exchanges that have lost funds to hackers.
These hacks seem to be intensifying as time passes. This year alone, there have been at least seven cases of large scale breaches on cryptocurrency exchanges that have been reported.
Insurance would go a long way in giving these exchanges, and their users, a buffer if they fall victim to the loss of funds through hacks. Insurers are slow to enter the market due to regulatory uncertainty around the crypto industry.
Regulators need to develop proper frameworks for the crypto industry, and this will allow more insurers to provide the much needed product for crypto exchanges.