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Crypto’s Biggest Roadblock

November 21, 2018


When we consider the case for widespread adoption of Cryptocurrencies, the roadblocks that come to mind are usually related to partnerships and education of the general populace. Both areas are valid concerns, but it seems as if neither is the biggest factor that is holding Crypto back.


For a possible answer to that, consider insurance.


Yes, you heard that right. Even though most Cryptocurrencies are inherently decentralized, a strong case can still be made for them being insured. If this is not accurately done, then, as Coindesk suggested today, many institutional clients will continue to hold out on investing in the space. The reason why comes down to the same reason that many of us still trust banks with the bulk of our money.


If something goes wrong and the bank ends up losing a lot of customer funds, those funds are not truly lost. As we know, they are effectively insured by the government.

While in the case of Cryptocurrencies, government insurance would be an oxymoron, certain companies are working to provide a similar, yet private scheme. Aon Risk Solutions, which is one of these companies, recently helped to clarify some of the difficulties being faced in this niche. Central to this discussion was the point that there just is not enough insurance to go around.


Jacqueline Quintal, one of Aon’s practice leaders, specifically stated that capacity is behind demand. So, why is this the case? What can the current state of the market tell us about the reason behind Crypto investments not being truly backed on a one-to-one basis?


If we continue to use Aon as the effective case study for this analysis, then the answer comes down to the confidence of the traditional finance industry in the viability of Cryptocurrencies. To understand this, it is first important to clarify that Aon is not a Blockchain firm.


They are actually a publicly traded, leading provider of risk management insurance to various kinds of financial companies. Therefore, in the same way that institutional investors are balking at investing into Crypto due to market volatility, Aon and others like them could be doing the same. If theoretically, many leading financial services companies are not confident that Crypto is a trustworthy investment, then why should traditional insurance providers be any different?


In Coindesk’s article today on the subject, their estimate of the current coverage given by insurance providers to businesses with Crypto holdings is quite telling. Precisely, that number reportedly sits at only $6 billion globally. Even if you look at the average Crypto market cap this week, it is still around $140 billion. Because of this, it becomes quite easy to see that we are nowhere close to a reliable insurance solution that would draw in large clients, en-masse.


In the end, one logical answer to this effective wall that sits in front of our chances for widespread adoption is insurance via Stablecoins. If investor holdings are insured with Crypto coins that keep a consistent value, then such a solution would work just as well as those that are fiat based.



By: BGN Editorial Staff

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