Cryptocurrency exchanges, especially those from South Korea are now reeling from the implications of recent hacks on Bithumb and Coinrail this month. Somehow, these events have catapulted them into a state of desperation, with insurance companies becoming more and more hesitant in extending their services to these platforms.
Between 2011 and now, there has already been an accounted loss of $2,679,045,200 through hacks and scams. If 2018 alone was to be accounted for, hackers and scammers have already stolen $1,659,580,000 worth of cryptos. That is if the last six months of this year remain hack-free.
It is not surprising to hear that South Korean exchange platforms are struggling to gain back the public’s trust. Currently, they are doubling down on their protection for their funds. One strategy that they are considering is providing digital currency insurance. However, that in itself has its own disadvantages.
First, the cryptocurrency market hasn’t grown from its infantile stage. Second, there are not enough research studies conducted and even lesser statistics for insurance companies to infer their decision from. Trust plays a very vital role, and it is something that crypto exchange platforms are struggling to earn especially nowadays.
An official from the said sector said to Business Korea:
“The Korea Blockchain Association emphasized a stronger internal control system and security at the earlier sessions. But we cannot trust it as even the largest cryptocurrency exchange in South Korea was exposed to cyber attacks. There are no statistics related to the risks of virtual currencies both at home and abroad and it is still not sure whether an insurer can accept exchanges as its policyholders as a group, which are smaller and riskier than Bithumb.”
Truth be told, there are also a handful of crypto exchanges that have a contract with insurance companies. However, they have very low limits of liability, ranging from $2.5 mln to $5.2 mln. Compared with the recent hacks on cryptocurrency exchanges this month alone, these amounts are almost negligible.
On June 20, Bithumb announced that every user who ever lost their crypto on its platform would be repaid to the full amount. Also, the said exchange has already begun its ‘recovery’ processes so as to reduce the total amount of tokens lost on its platform.