Crypto insurance may not protect digital assets from theft — Bloomberg

The growing popularity of digital assets has forced crypto platforms to adapt and create new insurance products. However, the solutions offered by companies are usually not full-fledged insurance, but rather limited guarantees with highly specific compensation conditions, reports Bloomberg.

Your crypto wallet or your life

One of the most popular platforms offering protection for digital funds is Coinbase. The company introduced its account protection system in 2021. The program supplemented its basic insurance, which only covered specific cases such as server breaches. The new system was structured as a subscription, allowing users to obtain a certain maximum compensation depending on the pricing tier. Subscribers had more covered scenarios than regular users — however, each case was reviewed individually, and many types of attacks, such as phishing or theft due to user device vulnerabilities, still remained uncovered.

The system faced its first serious test in 2023. In North Carolina, robbers broke into the home of a Coinbase client, assaulted his wife, and, at gunpoint, forced him to provide access to his crypto wallet, after which they transferred $156,000. Coinbase compensated the victim, but it is unclear why. The company’s base insurance does not cover losses if transactions were authorized under coercion, while additional subscription guarantees allow for broad interpretation of what qualifies as an “unauthorized” transfer. Bloomberg notes that there is no guarantee compensation would be paid in a similar case.

The situation was less favorable for Matthew Allan, Chief Risk Officer at Intuit, where he oversees fraud and cybersecurity protection. Despite subscribing to Coinbase One for $29.99 per month, which promises coverage up to $1 million, nearly $100,000 in bitcoin disappeared from his Coinbase account. The company refused compensation, stating that customers are responsible for all activity in their accounts, even if access was gained through hacking. Allan filed a lawsuit, but the case was moved to private arbitration, so it is unclear whether he received compensation, the agency reports.

The fine print

Although more crypto platforms are introducing account protection tools, Bloomberg notes that they sell not so much asset security as peace of mind. A close reading of the terms reveals that users’ protection capabilities are far more limited than they typically assume.

Some platforms are experimenting with new formats. For example, the MetaMask wallet introduced a Transaction Shield subscription designed to assess the risk of any potential transaction. If a transaction approved by the system results in a loss, the user is guaranteed compensation. However, as program head Zheng Chen explains, Transaction Shield is not full insurance but rather a limited guarantee.

Bloomberg highlights the conditions disclosed by Coinbase during subscription: the account protection system is not insurance and does not cover many types of losses typically included in traditional insurance. Clients often overlook this nuance. For example, the North Carolina victim described his Coinbase subscription in court specifically as “insurance.”

See also: "Morgan Stanley enters the Bitcoin ETF market with a record-low fee"

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