Cryptocurrency, while indeed opening a whole new world of financial freedom and opportunities, involves an awful amount of risk. Given that cryptocurrencies are decentralized, this has made their users so prone to theft, fraud, and loss, with little avenue to seek redress as would be the case with other, more conventional financial systems.
With digital assets increasingly popular, the need for robust security solutions, including developing concerns like cryptocurrency insurance, has become a very paramount concern.
The article outlines the necessity behind cryptocurrency insurance, the different types of coverage, and how NCOG Earth Chain positions itself to solve user needs looking for protection against crypto-related risks.
Table of Contents
The Need for Cryptocurrency Insurance
Rise in Cryptocurrency Theft and Hacks
Sadly, the rise in cryptocurrency’s momentum has been paralleled by a surge in thefts and hacks; this troubling trend cannot be overlooked. In 2022 alone, billions of dollars were lost within the cryptocurrency realm (due to) security breaches that varied from exchange hacks to phishing schemes.
According to Chainalysis (a prominent blockchain data analytics firm), cybercriminals managed to pilfer an astounding $3.8 billion in cryptocurrency during that year, with DeFi protocols emerging as primary targets.
Conventional Insurance Model
The traditional models of insurance, whether it be for health, cars, or property, are all based on a system of centralized oversight, which can usually act as intermediaries that might reverse fraudulent transactions, freeze accounts, or compensate the users in case of theft or loss.
Contrasting, cryptocurrency works through a decentralized system whereby the finality of transactions and a user’s responsibility for their private keys make recovery and compensation much more complex.
Lacking familiarity has hindered the insurance sector from providing comprehensive policy-level solutions for digital assets. At the same time, increase in institutional interest in cryptocurrencies has led to excess specialist insurance products tailored to the market.
Types of Cryptocurrency Insurance Available
Custodial Insurance
In this case, the insurance of cryptocurrency assets is held by a third-party custodian, such as exchanges and wallet providers. The insurer protects the user in case the custodian has some security breach. Among large exchanges, custodial insurance is part of the service packages offered to users.
Custodial insurance is especially attractive to institutional investors and high-net-worth individuals who need assurance that their investments are safe from theft and human error at the hands of the custodian.
To that end, custodial insurance usually covers breaches from the custodian’s side but not from user errors such as losing private keys.
Crime Insurance
Crime insurance is designed to help the cryptocurrency owner cover losses due to hacking, fraud, and similar criminal acts. It typically covers theft in funds lying with hot wallets, those that are constantly connected to the internet, and sometimes even smart contract vulnerabilities.
As DeFi and other decentralized applications continue to thrive, a plan to protect against the risks from the use of these often less secure financial products becomes increasingly germane through crime insurance.
Wallet Insurance
Wallet insurance, or coverage for a wallet, is designed to protect individual users from private key theft or loss. Wallet insurance ensures that in the case of wallet compromise, one can recover the value of the lost assets.
This can apply to both hot wallets and cold wallets or offline storage, though the latter is considered somewhat more secure since they are not exposed to the internet.
These claims are normally made after certain conditions have been met, such as multi-signature backup of private keys or following specific backup procedures.
Smart Contract Insurance
While NFTs might be the exciting part of DeFi, smart contracts are the backbone. Because of bug-ridden code, smart contracts are vulnerable to exploits. Smart contract insurance protects users and projects from such vulnerabilities; hence, in cases of smart contract exploits, it will pay out compensation.
Benefits of Crypto Insurance
Blockchain is currently utilized (by several large traditional insurance companies) to enhance efficiency and transparency. This technology boosts efficiency
- By lowering the high costs and extended processing times that characterize conventional insurance firms. Decentralized applications (DApps), however, can further amplify efficiency and transparency gains compared to traditional insurance providers. They are considerably more cost-effective, as they require less overhead—specifically in terms of workforce, materials, and real estate. Additionally, DApps operate more swiftly
- Through increased automation via smart contracts; they never sleep (there are no DeFi business hours or holidays), and they draw on a broader pool of individuals to assess risk. They exhibit greater transparency because assessments are conducted by on-chain members of the DeFi insurance protocol and subsequently voted on by the community. In contrast, traditional insurance claims are still resolved in-house, with minimal insight into the opaque decision-making processes that often ensue.
Although the potential benefits are significant, many conventional firms remain hesitant to adapt. In addition to all of that, unlike many traditional insurance companies, DeFi insurance protocols’ incentives are aligned with their insured (which is a significant departure from the norm).
For instance, the highly dysfunctional US insurance industry spends considerable time and effort delaying or denying coverage of claims, knowing that every minute delayed or every dollar denied is profit for the insurance company.
There’s really no consequence to denying customers’ claims since all insurance companies do this because there’s nowhere else to go. These for-profit companies fight for the profits of their shareholders at the expense of their customers (however, this creates a twisted incentive structure).
Claimants become antagonistic toward the insurance company, but DeFi flips this on its head by aligning the protocol with insurance holders, thus creating a more equitable system.
How NCOG Earth Chain Solves Cryptocurrency Security
NCOG’s Embedded Security
While most platforms are mainly focused on protecting users from external threats, NCOG’s basic philosophy simply tries to prevent thefts and losses in advance through robust encryption and security architecture.
With quantum-resistant cryptography and decentralized governance among its advanced features, NCOG Earth Chain is designed with security at the core of protecting users’ assets.
NCOG uses post-quantum cryptography, a particular type of cryptography that is resistant to attacks by classical and quantum computers. Thus, it can help ensure that the blockchain is secure today and into the future as quantum computing advances.
Quantum-resistant protocols guard against the hypothetical risk that quantum computers could break traditional cryptographic methods, leaving most blockchain systems vulnerable.
NCOG’s Security Structure: Prevention vs Insurance
While NCOG focuses on prevention rather than reaction, insurance will go a long way in giving users peace of mind when unforeseen incidents occur.
NCOG’s decentralized governance model means no one point of failure can undermine the system, drastically reducing the risk of such big events as exchange hacks and network failures. Third-party insurance integrations, however, can expand security for users further.
NCOG’s structure focuses on the features of transparency and traceability, which can help users recover their losses if they use forensic blockchain tools to track where the stolen cryptocurrency went on the network.
NCOG Coverage Options
The fact that the platform does seem to be championing decentralized and quantum-resistant security, in general, which offers users a heightened level of protection in comparison to other platforms.
With such high security standards inbuilt into the NCOG, further collaborations with top insurance providers may extend this safety net for its users and institutions holding large sums of cryptocurrencies in the network.
Third-Party Insurance for NCOG Users
While NCOG itself does not have in-house insurance, users can use third-party insurance companies to insure their assets. These services could include:
Smart contract malfunction on NCOG decentralized applications.
Wallet theft, where individual user accounts are compromised
Custodial losses – when users hold their assets with third-party custodial services that operate in concert with NCOG’s blockchain
Third-party custodial service providers may provide policies targeted at NCOG users to enable them to hedge the risk of utilizing blockchain technology for substantial value transfers.
Possible Gaps in Cryptocurrency Insurance
Limited Cover for Decentralized Platforms
There are still some challenges in cryptocurrency insurance, and even more so in the DeFi realm, which is devoid of some controlling authority over transactions.
It is still in its infancy, wherein insurance models for various DeFi platforms have newly emerged; hence, comprehensive coverage is difficult to avail of.
Still, the NCOG decentralizes control across the network with its decentralized model of governance, thus mitigating some risk. Still, such unique risks remain a signature of decentralized systems that often are not covered under conventional insurance.
Exclusions may also include losses due to governance attacks and failures, wherein the bad actors have taken over a decentralized project through governance and manipulated the protocol to steal funds.
Exclusions and Limitations
As with regular insurance, cryptocurrency coverage often has exclusions and limitations. Losses resulting from user negligence, such as the loss of private keys or failure to keep wallets secure, would normally not be covered.
Other exclusions may include regulatory risks, such as government seizures or changes in legality.
NCOG users must understand the specific exclusions that any third-party insurance would contemplate and accept risks that insurance will not cover.
Why NCOG Could Be a Leader in Digital Asset Insurance
Security and Transparency of NCOG
NCOG earns people’s Trust because it is committed to security and transparency. Quantum-resistant cryptography provides long-term assurance over security, while a clear and transparent ledger keeps an immutable record of every transaction.
Such traceability amplifies the capability of the platform for detecting and responding to any probable security breaches, which may be complemented by possible future insurance against such breaches.
The Future of Cryptocurrency Insurance on the NCOG Platform
Possible Integrations for Future Growth
NCOG is at the forefront of blockchain security, and continuing to integrate comprehensive insurance solutions will further set it apart from any other competitor
. As the tide of institutional and retail users shifts towards NCOG for its advanced security and scalability, so too will their demands for insurance options continue to rise.
By partnering with major insurance providers or building out its decentralized insurance options, NCOG is in a position to capture more blockchain market share and set a new standard in protection for digital assets.
The integration of insurance also attracts businesses and developers to the NCOG ecosystem because this added layer of protection makes it more attractive for deploying decentralized applications, financial transaction processing, and digital asset management.
Driving Trust into a Decentralized Future
As more and more cryptocurrencies start to mature, trust will be a key factor when it comes to attracting new users. Insurance is one of the most important mechanisms for building that trust, particularly in a decentralized environment where no central authority provides recourse in case of theft or loss.
With a quantum-resistant security emphasis and backing it up with its transparent ledger and decentralized governance, NCOG puts itself out in front as one that users can really have confidence in.
By providing or bringing along the avenue of cryptocurrency insurance, NCOG is building on this trust in such a manner that users feel safe and secure while utilizing its platform.
Cryptocurrency insurance remains an ever-evolving discipline that is finding much greater and deeper relevance with the rising popularity and value of digital assets.
While traditional insurance models usually fail to keep up with the decentralized nature of blockchain technology, innovative solutions to protect users from theft, fraud, and loss are slowly popping up.
The NCOG Earth Chain’s focus on quantum-resistant security and decentralized governance gives a good grounding for cryptocurrency security. Currently, the platform tends to focus on prevention as a means of mitigating risks.
However, there is fair potential for NCOG in both the integration and development of comprehensive insurance solutions in the future. This way, NCOG will safeguard not only its users but also command a leading position in the future of decentralized digital assets.
Conclusion
With more and more users investing in cryptocurrencies, the need for comprehensive protection from various kinds of risks will continue to grow, thus providing room for platforms like the NCOG to have the initiative to offer comprehensive solutions for user peace of mind amid a highly volatile market.
Whether through cooperation with large insurance companies or by creating its decentralized insurance solutions, the future of cryptocurrency insurance on the NCOG Earth Chain indeed looks bright.
Advanced security protocols put in place by NCOG, together with the possibility of integrating insurance solutions, turn it into an ideal platform for both individual and institutional investors who are looking for a blockchain network that offers safety and security in managing digital wealth.
While the market for cryptocurrency insurance is growing, so is the positioning of NCOG in such a market, with the much-needed protection to enable users to go through the complexities of the digital cryptocurrency space.