Insurance is the Answer to Crypto Adoption’s Biggest Challenge: Security
Cryptocurrency has definitely entered the mainstream conversation of being an alternate asset class. The fact that cryptocurrencies have gained traction over the last year, especially with weakened economies, and the nature of crypto as an excellent hedge goes without saying. But many fiat pundits continue to question the validity of cryptocurrencies as a valid asset class, claiming security to be the biggest “fault” in a crypto economy.
The history of cryptocurrencies is scattered with lots of examples of scams, hacks, and even the infamous silk road, giving it a bad reputation of being a haven for criminal enterprises and money launderers. In fact, it is reported that during the first half of the year 2018, a massive amount of $731 million was stolen from cryptocurrency exchanges. Let’s take at some of these incidents from the recent past, and understand how insurance can be the answer.
The Coincheck Hack — 2018
On 26th of January 2018, the tokyo based cryptocurrency exchange Coincheck, suffered one of the biggest hacks ever. The group of hackers penetrated a security lapse in the exchange and made off with $400 million worth of NEM tokens, causing a furore in the world of cryptocurrencies.
The DAO hack — 2016
In June 2016, an attacker was able to exploit a vulnerability in the code of the DAO, an Ethereum based organisation, siphoning off one third of the entire fund ($60 million worth ether) to a subsidiary fund. The attacker claimed in an open letter, that his actions were permitted by the code, and thus, the assets were rightfully his. However, the Ether community later decided to a hard fork, to virtually restore the cryptocurrencies to the original contract. This move was controversial, and resulted in a fork in Ethereum, splitting it into two separate blockchain, with its own cryptocurrencies.
The Oyster Pearl — 2018–2020
Amir Bruno Elmaani, commonly appearing under the pseudonym Bruno Block, was arrested by the United States Department of Justice for tax evasion after running an exit scam. This started in the year 2017, when Elmaani made millions of dollars from the ICO of his coin named the Oyster Pearl. Later in 2018, he minted more coins despite the supply being fixed, and converted them to other coins, before the exchanges caught on and delisted the token. The SEC describes this scam as “an illegal securities offering of digital tokens and for his scheme to profit by minting millions of unauthorized tokens for himself at no cost and selling them into the secondary market, thereby causing the value of others’ tokens to plummet.”
Has the Crypto Industry Evolved Since The Era of Hacks?
While it is true that crypto scams have happened as recently as 2020, the industry is constantly evolving, and finds solutions to these security risks. For instance, the Oyster Pearl scam would have never happened, if exchanges had already implemented KYC procedures beforehand. In fact, according to the DOJ “Elmaani carried out the exit scheme only days before the exchange he had used to cash out his pearl tokens was set to require ‘know your customer’ personal identifying information from its users.” All the reputed exchanges have since then implemented KYC procedures.
The solution favoured by the community against hacks (apart from increasing security measures, and thorough testing of code) is insurance policies for the wallets. By insuring the wallets, even if cyber-theft occurs, the end users will not face the brunt end of such theft, as insurance companies will reimburse for such losses. Global leaders in insurance, such as AON, Marsh & McClennan, Lloyd’s London, among many others have already invested heavily in the crypto investment market.
The exchanges globally are fairly unregulated by laws, as crypto is a new territory for governments. However, when an insurance firm undertakes the responsibility to insure a platform, they would have scrutinised the platform enough to be satisfied with the safety and security measures. This does not in any way mean that an insured exchange would never be vulnerable, but it does act as an assurance to the general public.
The Giottus Way
The primary focus of Giottus is to ensure the security of the coins deposited into our platform. We have undertaken several security measures, to ensure that our platform doesn’t fall victims to such thefts or attacks. Giottus is the first Indian cryptocurrency exchange to add PEP screening to our KYC process (link to be populated), and have partnered with Chainalysis and AuthBridge to ensure tracking of malicious transactions, and ensure we don’t work with people with a malicious history.
One other global leader in the cryptocurrency world, BitGo, is a brand known for providing the safest and reliable wallets. Their cold wallets are insured by Lloyd’s London to the tune of $100 million, further reinforcing the safety of the public’s wallets. Giottus is pleased to announce that Giottus has partnered with Bitgo for wallet services and majority of our customer holdings are held in Bitgo custodial wallet. This means that your investments are protected by the best in the industry and insured against cyber thefts, along with the military grade protection securing all the wallets.