The digital currency world, the crypto market, or whatever people call it, is growing very fast and becoming a popular and well-accepted medium of trading and staking one’s funds. The acceptance of cryptos widely in the financial industry helped the cryptocurrency platforms gain worldwide recognition, which boosted the platform with more investors. Since its public inception till now, the crypto world has never failed to amaze its users with new and beneficial features.
Unlike the traditional way, the digital money world is the first of its kind, bringing in a decentralized platform for everyone to invest and trade. There is no requirement for permission from other sources to transfer funds. And as the blockchain mechanism protocol backs the platforms, they become reliable platforms with robust security features.
Now, to help crypto users with more security, the crypto platforms are gradually welcoming the idea of decentralized finance insurance. Although decentralized insurance is not new, some people do not understand what it is or how it works. This blog post will lighten this matter of decentralized finance insurance and describe all the factors one needs to know to have a coherent idea. So let’s get started.
What Is Decentralized Insurance?
As the term says, decentralized insurance is related to decentralized insurance crypto. The insurance works for all cryptocurrencies, rewards, tokens, or any crypto funds, just like any traditional insurance. With its unique features and facilities, the skyrocketing popularity of the crypto world managed to amaze people enough to become a common name in that world. As a result, the number of crypto users across the globe is growing more and more with time.
This, although it points out the usefulness of the crypto platforms, however, at the same time makes the platforms vulnerable to security threats and risks. Just in the United States, the statistics show that nearly forty million users have already enrolled themselves as crypto users and are actively participating in crypto trading, investing, or transactions. And to mitigate the potential risks, the platforms introduced the decentralized insurance crypto.
Decentralized insurance is a type of insurance that operates without relying on a centralized entity or traditional insurance company. It is an open, distributed, automated insurance system powered by blockchain technology. Decentralized insurance allows users to create, manage, and trade insurance policies with peers securely, transparently, and truthfully. It also allows for the pooling of risk, making it easier to spread the cost of insurance over a more significant number of people.
The decentralized insurance feature is based on the blockchain protocol that provides an efficient, fast, and transparent system. The insurance is a coverage that works for digital assets, and by opting for such insurance, the insurance buyer is deliberately participating in blockchain protection. The insurance providers can be any individual or platform that locks the assets in the decentralized blockchain. The insurance coverages range from wallet security and crypto assets to NFTs protection.
How Does Decentralized Insurance Work?
The insurance is not subjected to any policy regulations and is open to everyone. Because of its decentralized system, anyone can take up the job of providing insurance to anyone willing to buy it. A coverage pool is created because the insurance protocol does not follow the traditional policy regulations. It remains open for crypto users to choose their preferred insurance providers.
Now the insurance providers, whether individuals or companies, can ask the buyer to put a certain amount into the pool for risk management. The amount is always lesser than the actual assets the buyer can claim later. The working principle of decentralized insurance can be described as the best DeFi insurance system.
The DeFi uses a “parametric insurance” feature that eliminates the need for a “claim” to avail of insurance benefits. The system makes the process fast and finalizes coverage payments by comparing pre-determined compliance. In this way, whenever a situation falls under the insurance coverage, the buyer gets paid whether he faces any loss due to the circumstances.
For example, a person engaged in agricultural activities can get paid for drought through this “parametric” system even when he does not bear any loss. Etherisc is another platform that uses etherisc chainlink to determine the parameters of “local weather” for providing etherisc insurance services.
What Are The Benefits Of Decentralized Insurance?
Although Decentralized insurance is volatile and nothing can be taken quite in this crypto world, the vision to use blockchain mechanism past the wall of the cryptocurrency paves the potential use of it in many sectors, like health, agriculture, life, etc.
A few important ones of the countless benefits of decentralized insurance are as follows –
- No need to wait for the claim recovery.
- Protects against the volatile nature of the crypto market.
- Protection against any kind of online fraud or hacking activities. The crypto market faces several fraud incidents regularly, and decentralized insurance can be used to detect such fraud claims.
- Uses smart contacts for providing payment automation facility.
- The insurance facility could work as a record holder regarding the health of the insurance buyers, and the data can be verified by the blockchain mechanism for using it in the health insurance sectors.
- The process is fast and transparent as it is backed by blockchain technology to provide users with ease and a better experience.
What Are The Use Cases Of Decentralized Insurance In Different Sectors?
With the decentralized insurance protocol, the healthcare sector has already provided a promising glance at the near future. And other sectors as well can follow the path of having a decentralized system for regulating their concerned insurance cases.
Here are some use cases of the decentralized insurance protocol that holds a positive future –
- Agriculture: With the weather parameters based on compliances, the agriculture sector can avail of fast and secured payment. The decentralized insurance’s automation feature uses blockchain smart contracts for verifying data.
- Travel: The speed and transparency of decentralized insurance can help the travel sector settle major to minor travel disputes, especially in flight issues.
- Car: The automobile insurance industry faces a lot of fraud claims regarding car insurance. Introducing the decentralized insurance feature in that sector would help diminish the fraud claims and provide data regarding the vehicle via the blockchain “smart contract” technology.
What Are Some Popular Decentralized Insurance Protocols?
Applying the decentralized insurance protocol would no doubt change how the world sees the insurance industry. Nonetheless, the possibility remains whether the protocol would be compelling enough for customers to provide a readily reliable service at their convenience. Considering that possibility, here are some of the decentralized insurance protocols that one needs to look out for –
- The cover protocol is one of the popular ones among the DeFi platform. The protocol follows the “P2P” (peer-to-peer) system for providing a flexible marketplace with the help of a balanced demand and supply dynamic.
- Bridge Mutual has gained a lot of attention as a decentralized insurance provider. The platform offers its users a two-step authentication feature that further needs to be verified through voting to establish it as a genuine claim.
- Nexus protocol works as a secure platform against hacking. The platform provides an original decentralized insurance protocol price and boosts the process of “smart contracts.” The platform offers its users direct exposure to the “DeFi insurance” marketplace.
Now that you know what this decentralized finance insurance is and how to use it to protect your crypto funds, you can choose a decentralized insurance platform and avail yourself of the benefits. You will find many current crypto platforms that offer their customers this insurance facility; however, select one such platform only after you are done analyzing all the facts and evaluating their security strength and guidelines regarding risk measurements. Insurance for your crypto funds can ensure you do not face any loss whatsoever by the circumstances in this volatile trading world.