This week, major New York City-based crypto exchange Gemini obtained insurance coverage from a consortium of leading insurance providers led by Aon, a multi-billion dollar insurance giant based in London.
Yusuf Hussain, Gemini’s Head of Risk, emphasized the importance of providing sufficient consumer protection to assure that investors on the platform can freely trade cryptocurrencies without the possibility of fund theft.
“Consumers are looking for the same levels of insured protection they’re used to being afforded by traditional financial institutions. Educating our insurers not only allows us to provide such protections to our customers, but it also sets the expectation for consumer protection across the crypto industry.”
Gemini is Establishing Industry Standards
Since its launch in 2014, Gemini insured its funds through the Federal Deposit Insurance Corporation (FDIC), a US government agency that provides insurance to depositors in US commercial banks and savings institutions.
The insurance coverage secured by Gemini from Aon adds another layer of security to protect user funds, to ensure that in an unexpected case of a security breach, all users on the platform are properly compensated and reimbursed.
Previously, Zaif, one of the largest crypto exchanges in Japan, was forced to sell the majority of the company’s stake to a corporation listed on the Tokyo Stock Exchange after it struggled to compensate users that were affected in a $60 million security breach.
If the exchange had implemented strong security measures and secured insurance coverage from a trusted insurance provider, then the firm could have compensated its users and maintained control over the company’s equity.
As a result of the hack, the Japanese Financial Services Agency (FSA) is expected to implement stricter policies on exchange security and insurance, subsequent to the conclusion of its official investigation into the Zaif security breach.
Already, in South Korea, the nation’s blockchain association has encouraged all of the local exchanges including major trading platforms in the likes of Upbit, Bithumb, Korbit, and Gopax to obtain insurance coverage as a base requirement to run an exchange in the local cryptocurrency exchange market.
Upbit, the biggest cryptocurrency exchange in South Korea by daily trading volume, has already obtained insurance from Samsung, the country’s leading insurance provider alongside Kyobo. Bithumb and Korbit are expected to secure insurance coverage in the months to come as well.
Earlier this year, Jeon Ha-jin, the chairman of South Korea Blockchain Association said:
“Stealing cryptocurrencies is similar to stealing cash, and exchanges will continue to be targeted by hacking attacks in the long-term. It is as important to establish systems to deal with the aftermath of hacking attacks as integrating various methods to prevent hacking attacks.”
Chairman Jeon emphasized that Bithumb, which experienced two hacking attacks in 2018, was cleared by the government in various security tests and evaluations. Yet, Bithumb suffered two consecutive hacking attacks.
Given the two security breaches of Bithumb and the fact that any exchange, small to large, can fall victim to a hacking attempt, the South Korea Blockchain Association stated that implementing a solid system to deal with security breaches is as important as preventing hacking attacks.
Positive Outlook on the Industry
With Gemini and Upbit establishing an example in the US and South Korea, and leading companies such as Coinbase focusing their efforts in being compliant with local regulations, the cryptocurrency sector will continue to see rapid improvement in infrastructure, particularly pertaining to security, efficiency, and investor protection.
Cover Photo by Kid Circus on Unsplash