Could there be an effective way to recover stolen cryptocurrency?
Recovering stolen cryptocurrency is so time-consuming and expensive that it remains out of reach for most consumers and businesses. A new insurance model will make it easier to track and recover assets and go after bad actors, said Roger Ing, CEO and co-founder of CryptoLock.ai.
Tech companies and investors who hold significant sums in Silicon Valley Bank recently had a weekend of panic when the fate of their funds was uncertain. But early next week, their worries were quelled by the government stepping up to guarantee their deposits.
Blockchain creators and investors have seen many such frantic times – but for them, happy endings and sighs of relief are rare. This is because if an exchange like FTX or a crypto bank goes down, there is no white knight riding a horse.
In crypto, assets that are hacked, hijacked or stolen usually stay that way. And in cases where lost assets are recovered, it is only after years of work and millions of dollars spent.
It is far beyond the means of the average individual, investor or business to spend what it takes on forensic accounting and legal services to recover lost digital assets. But that is starting to change.
And the change – driven by new insurance models and technology – couldn’t come at a better time. The amount of cryptocurrency stolen each year continues to grow, while most law enforcement agencies lack the time, resources, and expertise to track and recover lost digital assets.
See more: How Insurtechs are driving the biggest changes in the insurance industry?
Long road to recovery
Stolen digital assets are quickly transferred from one wallet or address to another, converted into other coins or parked in cold storage where investigators will not come across them. Tracking their location requires a recovery expert, someone trained in cyber security, Web3 technologies and forensic accounting. Even an expert who ticks all the boxes will take a significant amount of time to track down the assets – and that expert won’t come cheap.
In high-profile cases where billions of dollars are at stake, law enforcement sometimes leads the chase. But these cases typically involve multiple jurisdictions, making bringing them to court a logistical nightmare. And for smaller heists – which make up the majority of lost cryptocurrency cases – law enforcement is simply too busy and under-resourced to take them on.
This is why ordinary people and businesses do not pursue lost assets. They hope to completely bypass such issues by working through exchanges like Coinbase, which guarantees the assets they trade on their platform. However, not every user reads the fine print when it comes to account security.
Coinbase guarantees to refund the value as long as it does not exceed $1 million and only if it can be proven that the loss occurred due to a bug or problem on the part of the exchange.
Proving that money was lost this way – as opposed to lost because the consumer fell for a scam – is much more complex and difficult than most consumers realize.
At the end of the day, account protection isn’t all it’s cracked up to be.
Mass adoption is the goal of many who work in the cryptocurrency and blockchain industry. And that’s also something that can happen. But with so few remedies against asset theft, that goal seems only nominally closer today than it did five years ago.
Mass adoption will happen much more easily when ordinary people and mainstream businesses no longer fear that the assets they have worked hard to accumulate can be stolen with no hope of recovery. And law enforcement is unlikely to calm that fear; These will be innovative insurance solutions.
New solutions for digital asset recovery
Insurance plays an important role in banking and all business. The crypto market can and should benefit from the protections that insurance brings, but the standard policies and structures that work for other businesses cannot simply be transplanted onto crypto. As in the past, the insurance industry must grow and evolve to make way for new technologies while regulators figure out how to oversee new markets while legislation is still being drafted. For cryptocurrency to be widely adopted, ordinary users need to feel secure, especially in an environment where even big names in the banking industry are failing.
New full-stack insurance technology platforms are currently being customized so that they can plug directly into legacy business and production technologies to meet the needs of a new generation of consumers and businesses. But these platforms are not always easily adopted by reinsurers and insurers who still use legacy core platforms that prevent them from implementing innovative new products that require connectivity to new data sources and advanced technologies.
Serverless low-code insurance-as-a-service platforms are combined with a network of partners with expertise that will be extremely useful in the digital asset recovery space, including experts in cyber forensic accounting and blockchain technology. The flexibility of an API-first, no-code approach enables constant innovation and ensures that staying connected to the latest technologies in AI, SaaS tools and data sources is easy and fast.
Technology can be used to prevent fraud and identify suspicious transactions, but asset recovery depends on the perfect combination of these technologies with human capabilities.
This combination can be offered through a tiered membership model, each of which combines technology with human expertise. Many of these services, including asset tracking, subpoena filing, litigation, identifying bad actors and freezing accounts, were possible, but each type of service existed in its own separate – and prohibitively expensive – silo.
InsurTech providers are now bringing them together, which will be a game-changer in the recovery of lost digital assets.
An adaptable and flexible approach – one that combines human effort and advanced technology – is what will be needed to recover assets that in the past were nearly irrecoverable or impossible to pursue.
Today, many crypto users do not know what to do in case of lost assets. But fortunately for them – and for everyone who supports the mass adoption of blockchain and digital assets – new approaches are leading to new and much-needed solutions.
Do you think insurance-as-a-service is the next step in the evolution of digital asset recovery? Share with us at Facebook, Twitterand LinkedIn. We’d love to hear from you!
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