Should You Get NFT Insurance?

With the evolution of the cryptocurrency space, insurance offerings are evolving as well.

The hottest trend within the cryptocurrency space continues to be NFTs. According to nonfungible.com, all-time sales of non-fungible tokens (NFTs) have surpassed $23.3 billion in revenue since July 2017 and the upward trend continues. In Jan. 2022, the largest NFT marketplace in the world, Opensea, recorded single-month sales of more than $5 billion.

But trends that attract a lot of money also tend to attract a lot of fraud and theft. Several media reports this year suggest that NFT cryptocurrency scams are everywhere. As that appears to be the case anecdotally, one insurance company is offering a solution for NFT investors to secure some protection through NFT insurance.

But before we talk about NFT insurance, let's talk about NFTs in general.

Understanding the basics of NFTs

Technically speaking, an NFT is a snippet of software with specific conditions programmed into its computer code. This code allows the NFT to be bought, sold, or transferred to someone else once those conditions are met -- so they’re basically a smart contract in the form of a crypto token. Smart contracts are self-executing mini computer programs that can’t be changed once they go live.

As digital assets, NFTs allow the transfer of virtual versions of music files, original art, videos, digital trading cards, sports memorabilia, e-tickets, in-game purchases...the list goes on. NFTs can be used as certificates of authenticity or a receipt following the sale of a digital or physical asset. Once an NFT is sold, the unique transaction is added to a blockchain that cannot be hacked, changed, or manipulated. The NFT-linked blockchain data validates proof of ownership of the underlying asset -- whether the asset is something physical or virtual.

Coincover appears first to the NFT insurance space

The emergence of this NFT ownership technology spurred the logical emergence of NFT insurance. Sharon Henley is the vice president of Research & Development of Coincover, a leading insurance provider within the crypto space that's based in the U.K. She confirmed through an email exchange that Coincover now offers corporate and consumer protection through an insurance-backed solution for NFTs.

"Coincover is on a mission to make crypto accessible to everyone by making it safe. We have been doing this since 2018. As the market evolves and the products and services develop, we are committed to protecting them. The NFT space is such an exciting one with a massive potential for everyone. Protecting NFTs is just part of our business to help the whole sector become more accessible to all by making it safe," Henley shared via email.

Given the complexity surrounding the need to protect the NFT token, the linked blockchain metadata, and the underlying asset itself that the NFT represents, Henley said Coincover has developed a sophisticated technology solution that addresses those needs.

"Coincover can implement our tech via API to protect the wallets of our partners and the NFTs that sit within them from hacking, phishing, and other malicious activity -- whilst offering an insurance-backed guarantee should anything happen," Henley explained. "This complements the prevention of lost access to the NFTs with our disaster recovery service -- a back-up key recovery service that provides recovery of NFT in the case of lost passwords and mnemonics for example."

Because of the complexity of the NFT asset class -- compared to, say, buying insurance for a Monet, Rolex watch, or first edition of a Charles Dickens novel -- Henley says the NFT owner has to have a clear understanding of what they want to protect, "What are you buying protection for? Just the token? For the validity of the metadata? For the authentication of the JPEG? Having protection of a token when the metadata has been compromised -- it’s important to understand what protection you are buying."

It's safe to say that as mass adoption of NFTs continues -- and there's little evidence that it won't -- NFT insurance options and use cases will likely grow in parallel.