New Hope in the Recovery of Lost Crypto Assets
Crypto investors, exchange operators and blockchain developers watched in awe as Silicon Valley Bank imploded with hundreds of millions of dollars’ worth of deposits trapped inside – only to be backstopped by the government so that customers don’t lose access to their funds.
There was a collective sigh of relief in the crypto space, but also a note of sadness. Because everyone knows that if it had been a digital asset exchange or bank that imploded, there would be no backstop. Whatever assets could be salvaged would only be recovered and returned after years had passed and untold millions had been spent.
Even without the implosions of organizations like FTX or Silvergate, cryptocurrency goes missing frequently. According to Kiplinger, hackers stole more than $3 billion worth of cryptocurrency last year. It’s a figure that keeps going up despite the many guardrails and security features being built into the crypto market each year. And only a small, paltry sum is ever recovered.
Fortunately, advances in insurance technology are taking the onus off of law enforcement—which is swamped with other matters—and users when it comes to recovering crypto assets that have been stolen by hackers or other malicious actors.
If the average user loses cryptocurrency in a hack or other exploit, the barriers to ever getting it back are all but insurmountable. This is also true, unfortunately, of organizations that lose digital assets.
Stolen digital assets often move from one address to another quickly, get converted into other digital assets or are parked in obscure locations that can be difficult to penetrate. Finding the right recovery expert—someone who knows forensic accounting, cybersecurity and blockchains—is difficult, and that expert will likely charge tens of thousands of dollars just to get started on the long, arduous project.
Law enforcement sometimes gets involved, but only in cases like Mt. Gox, when hundreds of millions of dollars’ worth of crypto goes missing. Other exploits are below their radar. And when it comes to bringing cases to court, multiple jurisdictions are usually involved, which means cases are complex and fees mount up quickly.
For these reasons, most users don’t think in terms of chasing lost assets. Instead, they hope to circumvent such problems by sticking with exchanges that “guarantee” the assets that trade there, for example Coinbase. But there is plenty that users don’t know about this account protection.
For starters, Coinbase only guarantees recovery of value of up to $1 million, and only if a loss is “due to a compromise of your Coinbase Account login credentials resulting from a vulnerability or other deficiency in Coinbase’s systems and/or security protocols.” The catch is that it will be up to you to prove that that is how the loss occurred.
Proving that the loss occurred from a deficiency in the exchange technology—as opposed to the user sending their assets to a scammer—is far more difficult and time-consuming than the average user realizes.
While such guarantees are better than nothing, they are not scalable if protection ends after the $1 million mark, and if it is up to users to provide proof of how their assets vanished.
Having little recourse when digital assets are stolen has been one of the main barriers to the mass adoption of cryptocurrency by both financial institutions and retail investors. But fortunately, customizable insurance technology can dissolve that barrier.
Insurance underpins the business world, but it has been difficult to port the standard insurance model to the nascent, complicated and wild world of crypto. The standard insurance model, however, can and must evolve when new technologies emerge and enable new experiences.
That’s why some of the best developers today are creating full-stack insurance technology platforms that can be customized to fit the needs of various businesses, and which can be plugged directly into legacy workflow technologies.
New, insurance-as-a-service platforms are serverless, no-code-low-code solutions that can digitize and integrate 95% of the insurance products on the market today. Some of these platforms have an extensive network of partners, including cyber forensic experts and those who can navigate blockchain technology.
For recovering cryptocurrency, new technology is just one part of the equation. While technology is used for fraud prevention and detecting risky transactions, human expertise is critical when it comes to asset recovery.
This combination of technology and legal and investigative skills exists today via a tiered membership model, where insurance-technology providers offer forensic reporting on breaches and losses that will stand up in court, and offer membership to a network of litigators and investigators that can trace lost assets, freeze accounts if necessary and even file injunctions and work hand in hand with law enforcement. These services were offered in a fragmented fashion in the past, but InsurTech providers are now bringing them together seamlessly.
This flexible, customizable approach is what it will take to recover digital assets. Insurance allows the business world to function, and it should be doing the same for cryptocurrency, a business that is growing exponentially each year.
Customizable insurance—backed up by the right network of partners—can do what law enforcement, the courts and the exchanges cannot: offer the services required for recovery of everyday users’ digital assets.