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HomeNFTUnderstanding The Challenges And Solutions of NFT Insurance in 2022

Understanding The Challenges And Solutions of NFT Insurance in 2022


  • Because of the record-breaking sales of NFTs, more people asking about NFT insurance.
  • Insurance companies are attempting to determine how to offer coverage for a person selling, purchasing, or exchanging non-tangible assets.

Related: NFTs and Web3 can democratize the TV programming

When a car admirer like David MacNeil buys a luxury car like the Ferrari 250 GTO for $70 million, he probably gets it insured. But when an entrepreneur and investor spent $69 million recently, he was buying something that no one was offering insurance for a piece of digital artwork in the form of an NFT.

Non-fungible tokens (NFTs) enter the mainstream in 2021, driven in large part by a $40 billion NFT art market, which saw a record-breaking sale of Beeple’s “Everydays: The First 5000 Days” for $69.3 million. Owners are looking for strategies to protect their investments because so much money is being invested in NFTs.

NFT insurance

If NFT art were similar to other fine art, getting insurance to protect against theft or damage would be a simple process with a lot of precedents. NFT art, however, differs from other fine art. And creating a means of insuring it in the conventional sense has proven to be an impossible challenge.

About NFT

Non-fungible tokens, or NFTS, are typically created using the same kind of coding as cryptocurrencies. These cryptographic assets are based on blockchain technology, to put it simply. They cannot be traded or exchanged in the same way as other cryptographic assets.

However, NFTs are identified by their non-fungibility. Each token is distinct and cannot be interchanged or replaced. These qualities make them suited for use as ownership certificates for items like digital art. On the other hand, Fiat money and cryptocurrencies are fungible, which means that they can be traded or exchanged for one another.

NFT insurance

Risks involved with owning an NFT

Similarly, to cryptocurrencies, it is anticipated that the value of NFTs would change over time. However, there are additional risks involved with owning an NFT besides economic depreciation.

Some NFTs have “gone missing,” where the item the NFT represented has vanished due to a broken link. Think about buying a painting and then discovering that the frame was empty.

Passwords are forgotten, and devices are damaged, causing people to lose access to their digital wallets. Accounts are hacked: In a recent incident, NFT marketplace Nifty Gateway members lost thousands of dollars worth of assets. Over $11 billion has been stolen from cryptocurrency exchanges since 2011.

The media is focusing on these losses, and as people become more aware of the risk associated with digital assets, they will demand insurance products to protect their investments.

The following chart shows the monthly sales of non-fungible tokens. It appears the risks associated with NFTs drive individuals to lose interest in them. People are seeking strategies to protect their financial investments. Hence NFT insurance is a dire need at the time.

NFT insurance

NFT Insurance

What specifically you want to protect will determine if you should insure an NFT.

Similar to how a homeowner’s insurance policy can protect an oil painting, NFT plans can protect the digital asset itself. The insurance could pay out if the work of art is damaged.

However, that is not the only situation in which NFT insurance is useful. If the URL or the metadata are compromised in some way, the digital NFT—the computer code—could also be insured. NFT insurance can be a shield against asset theft. 

An NFT is issued with a private key as well as a public key. What travels across the blockchain ledger is the public key. Similar to the private key for a cryptocurrency, the private key serves as your evidence of ownership and is required to confirm ownership or transfer ownership to another party.

Ownership is effectively lost if that private key is lost, hence this can be covered by an NFT insurance policy.

The possibility can also be guaranteed. If a hacker obtains that private key, they can transfer ownership, effectively seizing ownership of the artwork.

And last, it might be assured that the NFT can be passed on to an heir after death.

At this time, few insurers are providing NFT policies.

Due to a lack of data, many insurers have been hesitant to cover digital assets. It is challenging to comprehend and value the risk completely. On physical assets, underwriters typically benefit from diversity, but the risks of digital assets expose them.

Since the NFT business is so new, a lack of data is a greater issue when thinking about insurance for NFTs. Another issue is brought up by the market’s turbulence.

The Challenges of NFT Insurance

To understand the challenges facing NFT insurance policies, it is helpful to comprehend how they work.

 As a result of enabling digital works to be validated, NFTs changed the world of digital assets. A digital file’s copy and original were the same before NFTs. Because NFTs are based on blockchain technology, they have access to a decentralized historical record that makes it possible to determine the origin of a digital file.

Immutable data blocks on the blockchain are used to establish and authenticate ownership of an NFT. The original is hence non-fungible, or not interchangeable with any possible duplicates. NFTs enable the ownership and verification of digital assets, as well as their valuation and sale, necessitating the purchase of NFT insurance.

It becomes clear that NFTs are special as soon as one tries to use standard insurance procedures. The primary coverage provided by typical homeowner plans is for property damage. NFTs are typically absent from the real world. They are intangible. They can be physically expressed, for example by printing a digital image, but the physical manifestation is not what is owned. NFTs are additionally present on the open blockchain. NFTs are hence impervious to harm and loss.

While some people believe that NFTs fit under the category of fine art, insurance policies that cover fine art rely on calculating an item’s worth based on an established market. The NFT market is very volatile and only getting started. It’s dangerous to set a value for an NFT. Additionally, insurance for fine art covers the danger of physical damage, which does not apply.

The fact that the NFT and the art that it represents are separate entities further complicates the task of insuring NFTs. The NFT is essentially a token that offers a distinct digital signature of the digital asset, a link to the file, and any other information related to the file’s ownership. The piece of art that is connected to the NFT is located somewhere else.

The Solutions to the Challenges of NFT Insurance

As they deal with the loss that happens when digital networks fail, cyber insurance policies may serve as a model for creating NFT insurance policies. NFT marketplaces offer a location where NFTs can be purchased and sold. NFTs may occasionally be kept on networks under the control of marketplaces. NFTs are vulnerable to theft or loss when marketplace networks are corrupted.

However, most cyber NFT insurance policies would deal with the marketplace’s liability rather than providing coverage for any losses suffered by those who have accounts on the marketplace.

A rising number of businesses are looking into the discretionary mutual fund as an alternative to traditional insurance that might be applicable to NFTs. This product is similar to insurance. This concept enables the development of decentralized NFT insurance networks that can pay claims for damages incurred by participants in the decentralized economy.

The applicability, however, is restricted to a loss that occurs as a result of malfunctions or flaws in the smart contracts that are programmed into the NFT and that regulate their exchange, as opposed to loss resulting from exogenous factors like theft.


The timescale for the development of NFT insurance is still unclear, although progress is being made. In the interim, relying on self-insurance and cyber safety may be the best recommendation for individuals looking to secure their NFTs. The lack of owners to take the essential efforts to secure them using readily available safeguards like offline storage and multi-factor authentication leads to the NFT thefts that are often reported. If such safety measures are not taken, NFT insurance may not offer coverage even when it does.


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Disclaimer: This blog is for educational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.



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