Who Protects Cryptocurrency Investors?

The Intelligent Insurer #21 — What solutions do cryptocurrency investors have as regulators refrain from providing protection?

Many governments around the world choose to exonerate themselves from the risks associated with cryptocurrencies. Some out rightly set up restrictions around the use of crypto while others simply advise netizens to refrain from getting involved with crypto-related investments and transactions.

The government of Namibia is among the latest to warn its citizens about the risks associated with cryptocurrencies. Through its national bank, the government warned that it will not entertain any complaints from the citizens regarding scams in the cryptocurrency industry.

In the latest Intelligent Insurer, we highlight some of the countries where cryptocurrency-related activities have been restricted. With regulations failing to provide protection to cryptocurrency investors, we outline why digital asset insurance solutions are becoming one of the most important parts of the growing ecosystem.

Cryptocurrency remains high-risk

Cryptocurrency investment remains a high-risk venture. From a highly volatile market that is yet to fully mature, to developing projects with flaws and bugs that are yet to be fixed, the developing industry exposes participants to widespread risks.

Apart from the technical weaknesses that have been associated with emerging cryptocurrency projects, rampant cases of deliberate fraud and extortion also generate significant concern among crypto users. Some practitioners take advantage of the limited knowledge of retail investors by setting up systems that enable them to drain their capital.

In our previous posts, we have identified how bad actors targeted both the Binance Smart Chain (BSC) and Polygon (MATIC) to extort users through “rug pulls”. According to reports, from a geographical perspective, Russia is ranked top among the countries that are most susceptible to cryptocurrency attacks. The report, based on findings by a Slovakian internet security company, suggests that as cryptocurrencies become more popular within a region, the number of malware attempting to profit from them increases.

(Source: News.Bitcoin.com)

Governments claim lack of jurisdictional power

In the case of Namibia, the warning by its national bank borders outlines the regulatory limits of their power. Since its mandate does not currently cover digital currencies, it lacks the “legal power” to follow up complaints that are crypto-related.

In a similar development this year, the Central Bank of Nigeria (CBN) prohibited all deposit money banks (DMBs) within the country from enabling crypto-related transactions. The DMBs were ordered to close all accounts of individuals noticed to be transacting in cryptocurrencies. Explaining this decision to stakeholders a few days after, the CBN governor, Godwin Emefiele highlighted the lack of legal backing as one of the reasons for the restriction.

Cases like these raise concern among genuine cryptocurrency users who may feel unprotected, especially with the increasing cases of attacks on cryptocurrency platforms. This is where the overall novelty of the industry comes into play, implying that crypto-native solutions may be the only option for users until substantial mainstream adoption is achieved.

Insured Finance as a crypto-native solution

Cryptocurrency users seeking to protect their digital assets are finding adequate protection in decentralized insurance solutions like Insured Finance. The platform provides tailored insurance policies that protect users from rug pulls, exchange hacks, and stablecoin failures.

Asset protection is a vital aspect of any investment system, which places decentralized insurance as one of the most important developments in the maturing cryptocurrency industry. With the growing number of use cases, more users are expected to enter the crypto space. With the crypto industry still in a rapid phase of development, these users will be exposed to eclectic risks, making insurance solutions even more relevant.

About Insured Finance

Insured Finance is a decentralized, peer-to-peer insurance marketplace. Insured Finance users can request customized insurance on a wide variety of digital assets. Those that fulfill requests earn premiums and can earn a competitive return on their capital. Claims are fully collateralized and settled instantly.