Autor Cointelegraph By Guest Authors

The insurance industry has a long history of providing vital support for major leaps in innovation. It’s no coincidence that the modern insurance industry and the industrial revolution arose in parallel. Indeed, it has been convincingly argued that the invention of fire and property insurance — in response to the Great Fire of London — lubricated the gears of capital investment that powered the industrial revolution and is likely the reason why it started in London. Through that first and each subsequent technological revolution, insurance has offered innovators and investors a safety net and served as an outside, objective validator of risk — thereby acting as a source of both the encouragement and the security needed to confidently test and break barriers.Today, we are in the midst of a new digital financial revolution, and the case for this new technology is clear and compelling. The recent White House executive order on “Ensuring Responsible Development of Digital Assets” further underscored this and was a watershed moment for the industry, elevating the discussion around the importance of the technology to the national stage and acknowledging its importance to the United States strategy, interests and global competitiveness.The lack of crypto insurance Yet, considering current crypto insurance capacity is estimated to be about $6 billion — a drop in the bucket for an asset class with a roughly $2-trillion market capitalization — it’s clear that the insurance industry is failing to keep up and play its vital role.This striking lack of insurance protection for digital assets was specifically referenced in December’s House Financial Services Committee hearings on the state of the market. Should this state of affairs persist, it does so at the risk of impeding future growth and adoption.Why have traditional insurers avoided entering this space despite the obvious need and opportunity?Related: The meaningful shift from Bitcoin maximalism to Bitcoin realismTraditional insurers face several fundamental impediments in responding to the new risk class presented by crypto. The most basic of these is a lack of understanding of this often counterintuitive technology. Even when the technical understanding is present, challenges such as properly classifying new and nuanced risk types — e.g., those associated with hot, cold and warm wallets and how myriad technology, business and operational factors bear upon each of these — remain. The problem is further compounded by rapid change in the industry, perhaps best exemplified by the seemingly overnight emergence of new and occasionally confounding risk classes, such as nonfungible tokens (NFT).And of course, many insurers are still licking their wounds inflicted by their rush to write cybersecurity policies in the early dot-com days without fully understanding those risks and the enormous losses that frequently resulted.Meanwhile, according to Chainalysis, about $3.2 billion in crypto was stolen in 2021. In the absence of risk mitigation options, that number is enough to give any responsible financial institution considering real participation in this space serious heartburn. In contrast, U.S. banks generally lose less than $15 million to fiat robberies each year. One reason why bank robberies are so rare and unproductive (with a success rate of only about 20% while netting the perpetrator on average just around $4,000 per incident) is that in order to operate, most U.S. banks must qualify for blanket bond insurance, which requires security measures designed to limit these losses. In this way, insurance not only manages the risk of losses due to robbery but creates an environment in which those losses are much less likely to occur, to begin with.Related: In defense of crypto: Why digital currencies deserve a better reputationThe need for crypto insurance The same applies to insurance against the loss of crypto assets. The goods stored in insured wallets are not only protected but are much less likely to be lost, to begin with, since the underwriting process imposes such a high level of multidisciplinary expert scrutiny and compliance requirements.The need for and benefit of crypto asset insurance is obvious. But given the circumstances, it’s clear that traditional insurance is unlikely to step up to solve the crypto asset risk problem on a reasonable timeline. Instead, the solution will need to originate from within. We need crypto-native solutions tailored to the industry’s needs, with the flexibility to cover the full spectrum of crypto asset risks, products and services, including NFTs, decentralized finance protocols, and infrastructure.The advantages of home-grown risk solutions are manifold.Primarily, dedicated crypto insurance companies possess greater industry knowledge and expertise, enabling higher quality coverage, which, in turn, equates to greater security and safety for the crypto industry as a whole. Given this level of understanding, crypto-native insurance firms would be able to craft risk mitigation products with the flexibility to meet the unique and rapidly changing needs of the industry. Then, once in place, these firms could expand insurance capacity on the order of trillions of dollars by working in partnership with the traditional insurance market. Finally, a dedicated crypto insurance sector will better meet legal and regulatory requirements, ensuring that the lack of insurance does not stall adoption or the growth of crypto.In light of all this, what’s keeping crypto-native insurance solutions from stepping up to solve the problem?Ironically, in the case of crypto asset insurance, the industry is overwhelmingly choosing to direct its investment resources in the direction of the very crypto projects whose future viability will be negatively impacted by the lack of insurance capacity resulting from the lack of investment in that space.That we are in the midst of a new technological revolution is undeniable. So, too, is the fact that insurance has played a vital role in helping past technological revolutions meet their full potential. The extreme lack of crypto asset risk protection in place today is unsustainable and poses an unacceptable threat. It is vital that the crypto community recognize the danger posed by the status quo with its severe lack of crypto asset insurance options.The good news is we got this far by solving seemingly insurmountable technological and economic problems ourselves, and we believe we can do it again.This article was co-authored by Sofia Arend and J. Gdanski.This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.Sofia Arend currently is the communications and content lead at the Global Blockchain Business Council (GBBC). Prior to joining the GBBC, Sofia worked for the Atlantic Council, a top 10 global think tank for defense and national security. Sofia received her Bachelor of Arts in International Relations and Global Studies with high honors from the University of Texas at Austin, where she competed as an NCAA Division-I-recruited rower.J. Gdanski is a privacy, security and risk-management expert, a key leader in the enterprise blockchain space and the CEO and founder of Evertas — the first company dedicated to insurance of crypto assets and blockchain systems.

United States President Joe Biden’s executive order on digital assets has kickstarted an interagency mission to support financial innovation while protecting American consumers and interests. While many industry leaders welcome the constructive tone, some critics hope for a crackdown. We don’t blame them.Many cryptocurrency projects operate behind thin veils of decentralization. In public, they’re sold on the premise that they distribute power. Behind the curtains, leaders pull the strings. In the recent case of Wonderland, a serial scammer and felon directed a $1 billion treasury.Many projects secretly pay influencers to shill their tokens. The price pumps. Insiders dump. Naive investors lose money. Sometimes, the shillers are celebrities. And, sometimes, those celebrities leak the surprisingly low cost of their integrity.Related: Year of sponsorships: Celebrities who embraced crypto in 2021Hundreds of projects suffer technical vulnerabilities. Seemingly every week, hackers exploit hidden software bugs. The third-largest ever occurred in early February, with $326 million — gone. And then in late March, another $600 million — poof.Many cryptocurrencies are blatant scams — some, proudly pyramid-shaped. Market participants treat these as facts of life, with oft-used terms for exit scams (“rug pulls”) and pyramid-shaped projects (“Ponzis”). To most, cryptocurrencies look the same, like tomatoes pasted in Aisle 9 — only tasteless, useless, and more numerous. The cynical see the menu of cryptocurrencies as a proxy most-wanted list. Neither group is entirely wrong.Yet one item on the menu stands apart. It is arguably one of the more important technological advances since the internet, itself. Buy it or not, we don’t care. But we three professors do care to bring one simple message: Bitcoin (BTC) is special. It deserves study and discussion.Let’s talk about BitcoinBitcoin is genuinely decentralized. Tens of thousands run nodes all around the world. Operating a node is easy; you could do so within the hour with an internet-connected computer and a few hundred gigabytes of storage. In 2017, these nodes vetoed a controversial change to Bitcoin that would have upped the network’s centralization by making it harder for ordinary people to run a node. In doing so, they trumped a majority of Bitcoin miners, exchanges and other powerful legacy players. Bitcoin’s decentralization makes it fair. No foundation enjoys a trademark or governs its monetary policy. This contrasts not only with more centralized cryptocurrencies but with the Federal Reserve, itself. In the past year, three Federal Reserve officials have resigned after a series of, let’s say, well-timed trades. Bitcoin has never had any officials resign in disgrace — it has no such officials. The network automates these jobs away.Bitcoin’s decentralization also makes it secure. Most money is digital and sits under the thumb of third parties like banks and payment processors. But innocent Russian and Canadian citizens remind us that third parties can freeze and seize those balances, especially when subject to state pressure. Reliance on third parties jeopardizes funds. Bitcoin participants can hold their own private keys and thereby save and send value without third parties. Bitcoin is in a different league than other cryptocurrencies. In the digital age, Bitcoin’s unparalleled level of decentralization makes it the safe haven from state and corporate overreach.Related: The meaningful shift from Bitcoin maximalism to Bitcoin realismAnd unlike most other cryptocurrencies, Bitcoin never had a private token sale to venture capitalists or an initial coin offering to enrich insiders. Bitcoin is the most widely distributed digital asset. In an important sense, it has no insiders — only early adopters. The main early adopter, Satoshi Nakamoto, mined about a million Bitcoin (5% of the maximum supply). Satoshi’s holdings are fully visible, and Satoshi never spent a single dime. With most other cryptocurrencies, the rich get richer, sometimes in hidden ways, and have more say over the network. Not so with Bitcoin.Whereas some projects move fast and break things, Bitcoin moves slowly but surely. Bugs are rare. Granted, this conservative approach has tradeoffs. Upgrades are as rare as bugs. And Bitcoin lacks the flexibility of other platforms. But in exchange, countries and corporations feel secure with Bitcoin on their balance sheets.You may have heard of hacks and stolen Bitcoin. These cases don’t involve weaknesses in Bitcoin, itself. They illustrate instead the pitfalls of insecure key storage or relying on third-party custodians.Related: Satoshi may have needed an alias, but can we say the same?Finally, Bitcoin is no scam. It can certainly be used for scams — much like the U.S. dollar, or other digital assets. But the Bitcoin network offers final settlement of its native asset, much like the Federal Reserve System offers final settlement of the U.S. dollar. People do speculate wildly on the Bitcoin price. Such is the way for early stages of innovation. And people worldwide need it even as privileged Westerners speculate.Bitcoin’s design involves tradeoffs, to be sure. Its public ledger makes privacy difficult, though not impossible. It requires energy for its security. And its fixed supply engenders price volatility. But for all that, Bitcoin has become something remarkable: a neutral monetary system beyond the control of autocrats. Ideologues will balk as they seek that perfect — but perfectly elusive — monetary system. Wise and pragmatic policymakers, by contrast, will instead seek to use Bitcoin to improve the world.Here’s what that means for public policyFirst, we must not assume that cryptocurrencies share more in common than they, in fact, do. Bitcoin leads them all precisely because no one leads it. The policy must begin here from a place of understanding — not of cryptocurrency, in general, but of Bitcoin, in particular. As President Biden’s executive order conveys, digital assets are here to stay. The general category isn’t going anywhere precisely because Bitcoin, itself, isn’t going anywhere. We owe it special attention. Not Bitcoin only, but Bitcoin first.Second, Bitcoin is credibly neutral since the network remains leaderless. Consequently, the U.S. can use and support Bitcoin without “picking winners and losers.” Bitcoin has, in fact, already won as a globally neutral monetary network. Nurturing the Bitcoin network, using Bitcoin as a reserve asset, or making payments over Bitcoin would be analogous to deploying gold within the monetary system — only digital, more portable, more divisible, and easier to audit and verify. We commend President Biden for recognizing that digital assets deserve attention. We’ll need all hands on deck — from computer scientists, economists, philosophers, lawyers, political scientists, and more — to spur innovation and nurture what’s already here.This article was co-authored by Andrew M. Bailey, Bradley Rettler and Craig Warmke.This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.Andrew M. Bailey, Bradley Rettler and Craig Warmke are fellows with the Bitcoin Policy Institute and the Resistance Money Bitcoin research collective and teach, respectively, at Yale-NUS College, the University of Wyoming and Northern Illinois University. Warmke is also a writer for Atomic.Finance.

Recent geopolitical events have polarized the world. Partisanship and the ideological divide have further balkanized the internet, whose gatekeepers have trampled upon the rights of millions to access financial services. Nations are gradually waking up to the reality of having neutral protocols and national stacks. Hailed as the next generation of the internet, Web3 will be sanction-resistant and free of data silos. Gavin Wood, co-founder of Ethereum and creator of Polkadot and Kusama, coined the term Web3 in 2004. Five years later, the Bitcoin (BTC) white paper was released in 2009, which further cemented the imperative of decentralization. Is the decentralization narrative here to stay? Let’s find out why Web3 is gaining ground today.Related: Decentralization vs. centralization: Where does the future lie? Experts answerWeb3: Role of decentralization in the innovation economyWeb3 can offer global digital rails to aid innovation and independence. The clamor to reign in Big Tech have propelled the discussions around Web3. Big Tech’s dominance over the internet and its control over personal data has fueled the war cry for its decentralization. A renowned Silicon Valley Venture Capital firm, a16z published its policy paper “How to Build a Better Internet: 10 Principles for World Leaders Shaping the Future of Web3.” It states that data ownership and monetization will lead to newer business models in the Web3 era, advocating that: “The world deserves technology that can unlock opportunity for the millions on the margins of the innovation economy and enable people to take control of their digital lives.” The fundamental premise of the internet centered around connecting people. The internet has evolved over the last 30 years, and our interaction with it has also changed. Despite the changes, the era of online communities can be broadly classified into three time periods.“Privacy is necessary for an open society in the electronic age,” said Eric Hughes, an American mathematician and founder of the cypherpunk movement, underscoring the importance of privacy and how it’s more pronounced in a decentralized version of the internet. The current state of the internet, Web2, reeks of Big Tech monopoly; Facebook, Amazon, Apple and Google today own and govern the internet. Related: Why decentralization isn’t the ultimate goal of Web3The proponents of Web3 have urged that the future of the internet should be built upon the first principles of decentralization, self-sovereignty, data ownership and censorship resistance. At the core of Web3 is the philosophy of decentralized internet infrastructure designed to ensure individual privacy.Web3 has yet to reach its full potential. At this point, the idea of individuals exercising complete ownership of their data and privacy seems quite dystopian because adoption is insignificant and limited to crypto-savvy individuals. There is a need to address the entry-level friction in the Web3 space. Web3 adoption The lofty ideals of ownership in a truly decentralized economy can only come to fruition if we create enabling tools and complementary infrastructure compatible with Web2 and Web3. Web3 adoption is still in its infancy, though a few Web2 companies have gradually begun migrating to Web3 and are embracing decentralization. Easy-to-use enabling services and infrastructure need to be built to ensure the seamless onboarding of users in the Web3 era. A lot still needs to be done.Related: The metaverse will change the paradigm of content creationThe idea of portable digital identities and ownership on the internet is incumbent upon easy-to-use Web3 wallets for everyone, including non-native crypto audiences. Credential management coupled with the custody of digital assets is the missing link inhibiting Web3 adoption. A composite wallet that can enable users to assert their identity in the physical and digital realm, store credentials digital assets such as NFTs tokens, ensure payments, staking and more are the need of the hour. The current players’ on-ramp (fiat to crypto) and off-ramp (crypto to fiat) services are far from satisfactory, which needs to be addressed from a user-experience point of view to enable mass adoption.Web3 and ownership economyWeb3 will bring a paradigm shift in the ways people in online communities use technology. Value creation and distribution will no longer be at the mercy of centralized actors, and decentralized groups will enable new forms of ownership and co-creation.Gaming, a $200-billion industry in 2021, is the way forward for onboarding users to the Web3 ecosystem. Emerging gaming markets such as India have more than 450 million gamers. Emerging markets have lower per-capita income, creating huge opportunities for gamers to earn an income via blockchain-based play-to-earn games. Financialization-first Web3 games are expected to grow further in the longer term. Web3 is at the heart of discourse, focused on the creator and ownership economy. JPMorgan’s recent report, “Opportunities in the Metaverse,” highlights the importance of a single-wallet user experience in Web3 and meta-commerce. The report states that a single wallet should include the following:Web2 traditional finance payment rails, digital currencies and digital assets.Web3 crypto, NFTs and digital assets.Digital identity verifiable credentials, Know Your Customer and Anti-Money Laundering compliance keys, and reputation points. Multiple aliases to preserve privacy and enable digital freedom.Related: DAOs are the foundation of Web3, the creator economy and the future of workPrivacy-preserving- and self-sovereignty-based tools and services are essential for harnessing the full potential of Web3 and leveraging trillion-dollar opportunities in the metaverse. An enhanced user experience is crucial for mainstream adoption.This article was co-authored by Sharat Chandra and Shiv Aggarwal.This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.Sharat Chandra is a keynote speaker, educator and blockchain and emerging tech evangelist. He leads research and strategy at EarthId, an award-winning decentralized identity management platform.Shiv Aggarwal is the founder and CEO of EarthId, an award-winning decentralized identity management platform. Shiv is currently leading EarthId toward enabling frictionless adoption of Web3-based ecosystems. He is a thought leader in the blockchain and digital identity space and has delivered various keynotes at international conferences. Shiv also leads the Government Blockchain Association in EMEA.