Carriers today are investigating a wide world of products. Insurance for non-fungible tokens (NFTs) has gained viral popularity, although it may be an odd concept for many to understand at first.
WaterStreet Company is here to help inform carriers and MGAs of ongoing industry trends for policy administration and emerging technology.
What is an NFT?
A non-fungible token (NFT) is a representation of a unique digital asset, similar to how a trading card can represent a player on a sports team. The most popular NFTs today represent digital art, such as gifs and pictures. Trading and selling NFTs relies on blockchain technology for a secure transaction process through distributed ledgers.
While the creator of the work still retains reproduction and copyrights, the owner of the NFT owns the “original.” If the digital art were ever removed from the internet or discontinued from physical print, the NFT owner would, in theory, have the final copy. A scenario could occur where a meme video or tweet may be deleted by the creator, and the NFT owner has the power to retain the original. One recent example is a meme video named “Charlie Bit My Finger,” where the video was removed from YouTube following its sale as an NFT.
Retaining the digital asset your NFT represents does come with risk. As with all digital creations, the dangers of technology errors, lost passwords and broken computers could erase the creation. The NFT is a token which represents the original, but is not the original itself.
Are NFTs Insurable?
Carriers are challenged to create products that can insure NFTs. The price of an NFT is volatile as the market is entirely new. Many memes come and go in popularity, making it difficult to gauge how popular an NFT may remain over time for the true value rather than the auctioned value.
The most comparable insurance coverage offered at this time is cryptocurrency insurance. While Bitcoin is not paper money, your Bitcoin can be insured in case it is stolen. This is a form of cyber insurance and comes with hefty premiums for the policyholder. A certain percentage of a cryptocurrency owner’s wallet may be held with a cyber insurance company, ensuring it is safe, and covered if it is stolen.
An insured NFT could follow a similar process if the NFT owner places a copy of the insured digital asset into the hands of a cybersecurity firm, much like how fine art is kept in a vault while a replica is out on display.
Today’s policies are unlike those of the past. We aim to keep our carriers and MGAs knowledgeable and ahead of policy administration trends.
While insurance for NFTs still seems fresh and unknown, speak to us if you have any questions about gaining the software to support unique requirements for your policy administration system.
Reach out to WaterStreet Company today to request a consultation and demo of our solutions.