The rise of digital assets has forced crypto platforms to adapt and create new insurance products. However, the solutions offered by these companies typically offer limited warranties with highly specific compensation terms rather than full-fledged insurance, Bloomberg reports.

Crypto Wallet or Life

One of the most popular crypto platforms offering digital asset protection is Coinbase. The company introduced its account protection system in 2021. The program complemented the basic insurance, which only covered specific incidents, such as server hacking. The new system was a subscription offering various plans for a specific maximum compensation amount. Subscription holders had many more insurance claims than regular users, but each was considered separately, and many types of hacks, such as phishing or theft due to a user's device vulnerability, were still not covered.

The system's first major security test occurred in 2023. In North Carolina, robbers broke into a Coinbase customer's home, beat his wife, and forced her at gunpoint to hand over access to her crypto wallet. They then transferred $156,000 from it. Coinbase compensated the victim, but it's unclear why. Coinbase's basic insurance doesn't cover losses if the user authorized transactions under duress, and the subscription's additional guarantees allow for a very broad interpretation of what constitutes an "unauthorized" transfer. Bloomberg notes that there is no guarantee that the victim will be compensated in a similar case.

The situation was less fortunate for Matthew Allan, chief risk officer at Intuit, where he is responsible for protecting against fraud and cyberattacks. Despite a $29.99 per month Coinbase One subscription, which promises coverage for up to $1 million, nearly $100,000 in bitcoin disappeared from his Coinbase account. The company refused to compensate for the losses, stating that clients are responsible for any transactions in their accounts, even if access was gained through hacking. Allan filed a lawsuit, but the case was transferred to private arbitration, so it is unknown whether he succeeded in obtaining compensation, the agency writes.

Fine Print

Despite the fact that an increasing number of crypto platforms are implementing account protection tools, as Bloomberg notes, they are selling not so much the security of digital funds as peace of mind for clients. A careful reading of the insurance terms and conditions reveals that users' options for protecting their accounts are much more limited than they often believe.

Some crypto platforms are experimenting with new formats. For example, the crypto wallet MetaMask introduced a Transaction Shield subscription, which is designed to assess the risk of any potential transaction. If the transfer is approved by this system, the user is guaranteed compensation in the event of loss of funds. However, as Zheng Chen, head of the program, notes, Transaction Shield is not full-fledged insurance, but rather a limited guarantee. Bloomberg points out the terms Coinbase notifies users when they sign up for a subscription: the account protection system is not insurance and does not provide reimbursement for many types of losses covered by traditional insurance. Clients often overlook this detail. For example, the aforementioned North Carolina victim described his Coinbase subscription in court as "insurance."