Coinbase Confirms Crypto Insurance Coverage Worth $255 Million for Hot Wallets
The largest U. S.-based crypto exchange, Coinbase, has recently revealed some of the details pertaining to its insurance coverage for cryptocurrencies. The Vice President of Security of the company, Philip Martin, has recently affirmed that the coverage of the company covers up for $255 million USD in assets in hot wallets.
Fortunately, only less than 2% of the clients’ funds are held in hot storage. Most of them are protected from hackers in cold storage and their private keys are kept completely offline. Nobody knows how much money Coinbase holds in total, but it was around $25 billion USD during the height of the bull market, so expect less money today.
The main reason for the company to hold so many of its assets in cold storage is, basically, because it is safer to do it. These funds may be somewhat harder to reach, but at least they are safe. Martin affirmed that the focus should be the insurance of the money in hot wallet storage since it is prone to be stolen by hackers and affirmed that there is a lot of confusion about that yet.
BitGo has recently revealed that it has a coverage of $100 million USD, so Coinbase is certainly ahead of one of its main competitors in custody solutions. The vice president of marketing at BitGo, Clarissa Horowitz, has affirmed that the company is glad that Coinbase is “following their lead” and bringing more transparency to the whole asset custody field.
Martin vowed to be more transparent and also took the opportunity to talk about how common the occurrence of hot wallet theft is. Because of this, he affirmed, the insurance for hot wallets is way more expensive than for cold wallets, as they are less likely to be effectively attacked.
Talking more about the risks of keeping assets in hot wallets, he said that more companies should be focused on having insurance coverage for their hot wallets, as we see so many crimes involving them that it would be dangerous not to do it.
He also talked about how hot wallet cover is related to crime insurance market while the cold wallet variety is covered by special insurance market, a difference that may not be so interesting for consumers, but it is for the companies that have to pay for the insurance.
According to him, crime policies cover a “value in transit”, generally caused by insider theft, hacking and fraudulent transfers. The species market, however, ensures “value at rest”, which is when valuable assets like metals or fine art are actually stolen because they are focused on the physical loss of the asset.
He finished by saying that the species insurance cover does not account for any loss of fund that can be caused due to a malfunction in the blockchain or because a vulnerable smart contract was exploited or even any failure in the hardware, as well as the (not very likely) hacking of a hot wallet.
The Limits Of Insurance And The Bull Market
Another interesting point that was raised by Martin was how the insurance works using the figures in fiat, not crypto. This means that, during a bear market, the insurance can start to become insufficient. Bull markets can see the prices of crypto rasing over 500% in a year. Because of this, many problems could appear.
The old contract would protect the company a lot less during a market in which prices are going up because the assets stolen would be worth a lot more and the company would receive a fixed amount of money for them. The classic ways of how insurance works are very old-fashioned for the crypto industry.
According to Martin, the only way to actually be able to solve this problem 100% would be if the companies trading the assets could insure them. Also, the policies are written to the custodians, not the crypto holders, which is also another problem for the exchanges.
More people are entering the market right now, so we can be ready to see the need for insurance getting a lot bigger in the coming days. Will insurance be enough? We’ll discover soon.