How will your customers protect their virtual assets? – InsuranceNewsNet

According to a Statista survey published last year, nearly three-quarters of American adults already have avatars in the metaverse or plan to build some type of virtual life soon.

Inevitably, more and more of us are thinking about our virtual security these days. Hacks are on the rise, and while Mark Zuckerberg’s Facebook Connect opening video envisioned a kind of Mayberry worm populated entirely by polite co-workers, cute puppies, family members and friends, the reality is that phishers and scammers will clearly appear in this world too. What these phishers and scammers see is a whole new environment in which to operate.

An obvious target will be non-fungible tokens, or NFTs. NFTs are unique and digitized works of art, games, videos or any other type of intellectual property or IP. Christie’s sold over $100 million in NFTs in the first three quarters of 2021 alone. Over the next few years, that number is expected to grow exponentially as NFTs become mainstream and avatars hit the shelves. This begs the question: how will your customers protect their virtual assets?

Until now, the protection of digital assets has been considered from a proactive point of view. For example, cold wallets and decentralized verification processes have their roots in the blockchain, and both seek to prevent hacks. But what if something bad happens during or after acquiring a digital token? What type of insurance would apply to a virtual asset, if any? Can NFTs even be insured? If so, are there any insurance agents in the metaverse that will sell policies – now or in the future?

The answers to these questions may have less to do with technology and more to do with the unique risks involved – and how they present themselves.

NFT Property Rights

As with any financial transaction, the first risk an NFT buyer takes is trusting the seller. What happens, for example, if the seller does not own the rights to the intellectual property sold? Equally important, though less common: what if the web address, or URL, where the IP address is stored disappears? Or what if the hyperlink is broken and the NFT no longer points to the image it’s supposed to?

No insurance is yet available for these scenarios, although they are all eminently insurable risks. Title insurance, for example, is a common way of ensuring that the seller owns the real estate purchased, while property insurance can protect the owner of all kinds of assets against loss in any way. which this loss occurred.

Flight

But what if the loss occurred after the trade? This scenario is the one we read about most often. For example, a crypto owner’s keys are stolen, possibly as part of a phishing scheme or as a result of a broader hack of a trading platform.

Theft happens to be an unfortunate but not uncommon occurrence. It is also an eminently insurable insurance. Coincover.com is a noncustodial crypto platform that sells security technology backed by insurance backed by Lloyd’s of London insurers. The company insures over 200 types of crypto against theft, promising to recover hacked or lost funds up to a fixed amount.

Fraud

Fraud is a more nuanced type of theft, and one that is increasingly common in the NFT space. Although frauds can be extremely creative, the bane of NFT platforms is remarkably simple: the draw. This happens when NFTs are pre-sold but never minted. In this scenario, being proactive is essential, and we are likely to see proactive, third-party audits of NFT markets in the future.

In the meantime, nothing prevents an insurance company – or anyone else – from guaranteeing the performance of a contract. Indeed, that’s the idea behind completion bonds and escrow apps like PayPal, both of which are used by millions of businesses every day.

Royalty fee

Another common type of guarantee that could be applied to NFTs is contractual insurance. NFTs are essentially contracts — or licenses, more specifically — that give the owner certain rights, usually digital ownership of a unique piece of intellectual property. Some NFTs, like some licenses, generate royalties. This makes the NFT indistinguishable from a financial instrument such as a bond.

Of course, financial instruments are insured regularly, sometimes as a condition of issue. As long as NFT creates a fairly predictable revenue stream, an insurance company would theoretically be able to insure it, although there isn’t enough history – or volume – yet to generate interest. major insurance companies. That will change, and sooner than most of us think.

In the meantime, the security industry will continue to focus on preventing hacks. Coincover.com, for example, offers a “hack checker,” as well as biometric identity verification and multi-wallet protection for crypto owners. It then ensures the effectiveness of its technology, and by extension, of its customers’ NFTs. This makes Coincover.com more of a LifeLock or LoJack than a real insurance company, although the result is very similar, if not identical.

In the coming years, increased adoption of NFTs will make them insurable. This is because there will be enough data to produce actuarial tables, and also because their values ​​will be much easier to calculate — and much less dynamic, i.e. volatile.

Who knows? Perhaps we will even see an agency like the Federal Deposit Insurance Corp emerge. which guarantees a minimum amount of crypto and NFT against loss in the event of a hack or major trade.