Recovering stolen cryptocurrency is so time-consuming and expensive that it remains out of reach for most consumers and businesses. A new insurance model will make it easier for assets to be traced and recovered and for bad actors to be prosecuted, shares Roger Ying, CEO and co-founder of CryptoLock.ai.
Tech companies and investors who keep significant sums at Silicon Valley Bank had a weekend of panic recently when the fate of their funds was uncertain. But by early the following week, their anxieties were quelled by a government stepping up to guarantee their deposits.
Blockchain builders and investors have lived through many such frantic times â€“ but for them, the happy endings and sighs of relief have been few and far between. That’s because if an exchange like FTX or a crypto bank goes down, there is no white knight that comes riding in on a horse.
In crypto, assets that are hacked, hijacked or stolen tend to stay that way. And in cases where lost assets are recovered, it’s only after years of work and millions of dollars spent.
It is way beyond the means of the average individual, investor or business to spend what it takes on forensic accounting and legal services to recover lost digital assets. But this is beginning to change.
And the changeâ€“brought about by new insurance models and technologiesâ€“couldn’t come at a better time. The amount of crypto stolen each year continues to climb, while most law enforcement agencies lack the time, resources and expertise to trace and recover lost digital assets.
Long Road to Recovery
Stolen digital assets are transferred rapidly from one wallet or address to another, converted into other coins or parked in cold storage, where investigators won’t stumble across them. Tracing their location takes a recovery expert, someone schooled in cybersecurity, Web3 technologies and forensic accounting. Even an expert who ticks all the boxes will take a significant amount of time to trace the assets â€“ and this expert won’t come cheap.
In high-profile cases where there are billions of dollars at stake, law enforcement agencies sometimes lead the hunt. But these cases usually involve multiple jurisdictions, which makes bringing them to court a logistical nightmare. And for smaller heists â€“ which make up the majority of lost crypto casesâ€“law enforcement is simply too busy and under-resourced to take them on.
This is why everyday people and businesses don’t chase lost assets. They hope to sidestep such problems entirely by working through exchanges like Coinbase, which guarantees the assets that trade on their platform. However, not every user reads the fine print when it comes to account protection.Â
Coinbase guarantees the recovery of value as long as it does not top $1 million and only if it can be demonstrated that the loss occurred because of a glitch or problem on the part of the exchange.
Proving that money was lost this way â€“ as opposed to being lost because the user fell for a scamâ€“is way more complex and arduous than most users realize.Â
At the end of the day, account protection is not quite all it’s cracked up to be.
Mass adoption is the goal of many who work in the cryptocurrency and blockchain industries. And it’s also something that can happen. But with so little recourse when assets are stolen, that goal seems only nominally closer today than it did five years ago.
Mass adoption will happen far more easily when everyday people and mainstream businesses no longer fear that assets they worked hard to accumulate can be stolen without the hope of recovery. And it won’t likely be law enforcement that soothes that fear; It will be innovative insurance solutions.
New Solutions for Digital Asset Recovery
Insurance plays a major role in banking and in all business. The crypto market can and must benefit from the protections that insurance brings, but standard policies and structures that work for other businesses can’t just be transplanted onto crypto. As it has in the past, the insurance industry needs to grow and evolve to make way for new technologies while regulators figure out how to oversee new markets while legislation is still being drafted. For crypto to see mass adoption, regular users need to feel safe, especially in an environment where even large household names in the banking industry are failing.Â
New, full-stack insurance technology platforms are currently being customized so they can plug directly into legacy business and productivity technologies to suit the needs of a new generation of consumers and businesses. But these platforms are not always readily adopted by reinsurers and insurers who are still using legacy core platforms that do not allow them to deploy innovative new products that require connectivity to new data sources and modern technologies.Â
Serverless, no-code-low-code insurance-as-a-service platforms are being combined with a network of partners with expertise that will be immensely helpful in the digital-asset recovery space, including experts in cyber forensic accounting and in blockchain technology. The flexibility of an API-first and no-code approach allows constant innovation and makes sure staying connected with the latest technologies in AI, SaaS tools and data sources is easy and fast.Â
Technology can be used for fraud prevention and identifying suspect transactions, but asset recovery depends on the perfect combination of these technologies with human ability.
This combination can be offered through a membership model consisting of tiers, each of which blends technology with human expertise. Many of these services, including tracing assets, filing injunctions, litigating,Â identifying bad actors and freezing accounts, have been possible, but each kind of service has existed in its own separateâ€“and prohibitively expensiveâ€“silo.
InsurTech providers are now bringing them together, which will be a game-changer in recovering lost digital assets.
A customizable and flexible approach â€“ one that combines human diligence and advanced technologiesâ€“ is what it will take to recover assets that in the past were all but unrecoverable or whose pursuit was unaffordable.
Today, many crypto users do not know what to do in the case of lost assets. But fortunately for them â€“ and for everyone rooting for the mass adoption of blockchain and digital assets â€“ new approaches are leading to new and much-needed solutions.
Do you think insurance-as-a-service is the next step in the evolution of digital asset recovery? Share with us on FacebookOpens a new window , TwitterOpens a new window , and LinkedInOpens a new window . We’d love to hear from you!