NFT Insurance

Non-fungible tokens (NFTs) are so hot right now! But what are they?

NFTs are gaining attention all over the world right now. Most of this attention has been associated with the buying and selling of digital collectibles on websites like Opensea, where NFTs are changing hands for serious money. NFTs are unique digital markers or pieces of computer code that can be associated with an asset to identify it as one-of-a-kind. They are made up of URLs that point to something like a piece of digital art hosted on a server, along with a metadata description of the thing the NFT represents.

“Non-fungible” means an item is unique and can’t be replaced by something else. For example, a dollar is fungible, meaning that you can trade it for another dollar bill or specific numbers of other coins to make up the dollar. A single Bitcoin is also fungible. Something that’s not fungible is a one-off or collector’s item like a baseball trading card. If you trade it for a different card, you would have a different item, and you would lose ownership of the original collector card.

Can NFTs be Insured?

To protect NFTs and other digital assets, the insurance industry is working on new types of coverage designed around the risks intrinsic to NFTs. NFT insurance policies can protect the digital asset itself, just like a homeowner’s policy can protect a valuable piece of art. If the art is destroyed, the policy would payout. NFT insurance could also be useful to protect the computer code, so if the URL or the metadata is somehow corrupted the insurance could payout on the value of the NFT lost. At the moment it appears that Coincover is the only company working with NFT insurance but I’m sure that there will be other providers offering it in the near future.

When an NFT is minted, it comes with both a public key and a private key - just like cryptocurrency. The public key moves through the blockchain ledger while the private key is your proof that you own it. If a hacker steals your private key, they can transfer ownership to themselves and this risk of theft could be insured. Or, if you lose your private key, your ownership is essentially lost and this is where an insurance policy could kick in too.

How to verify NFT ownership?

Before you make your NFT purchase, you need to make sure that the NFT is owned by the seller. The easiest way to review the authenticity of the NFT is to check the metadata on a blockchain explorer, like Etherscan.io. You will need to either find the asset on the blockchain or request the wallet address of the person selling the asset to make sure it exists and that it’s in their ownership.

Here’s a quick overview of how to do it:

Visit the NFT’s metadata on the blockchain explorer (Etherscan.io)

Confirm the location of the NFT’s hash. This will tell you where the NFT is on the blockchain.

In Etherscan you need to enter this hash.

You’ll then be able to view the NFT’s metadata.

Try to only buy your NFTs from reputable websites and make sure you do your due diligence before you transfer any payment.