Can my Crypto Wallet be Insured?
The coverage market in the crypto space is starting to boom, as more and more investors seek to protect themselves against hacks. A common question that many users ask when seeking coverage is, “Can my crypto wallet be insured?”.
It depends on the type of wallet!
Let’s take a look at the wallet types and what that means for coverage. For more information on how coverage works, see our article on Coverage Protocols.
Custodial Crypto Wallet
A custodial wallet is an exchange-owned wallet. A user accesses their funds through the website, while the exchange ultimately holds the private key to the wallet address. Without direct ownership of this key, the funds are not actually in your possession. The exchange owns the funds and acts on your behalf to move them or sell them. This puts your assets at the mercy of the exchange’s security. Funds could be at risk for vulnerabilities in the Exchange’s security. Luckily, coverage exists for custodial wallets. Many providers offer this service and will reimburse you for lost funds.
A personal wallet is a wallet that a user owns the private key for. Software, such as Metamask, is one example of a personal wallet interface. Coverage for personal wallets does not exist. For a personal wallet to be compromised a user would have to give away their private key or grant permissions to another user to transfer funds out of their wallet. Ownership of the hacker wallet can not be easily verified, meaning the hacked user could also be the hacker. It is not feasible to offer personal coverage of this nature. Personal wallets are an individual’s responsibility, no coverage protocol offers personal wallet coverage. Always be sure to read transactions you sign with your wallet, and verify contracts and protocols that you interact with are legitimate, the tenet of “Do Your Own Research” is vital to follow in the crypto space.