Theft and hacking attacks are rife not just across Web2 assets like Instagram accounts - Web3 assets such as NFTs have also been plagued by security breaches. For people participating and investing in these ecosystems, financial protection against such threats is a must - but what exactly does digital asset insurance mean, what options exist, and how does it work?
The rise of NFTs
Awareness and access to NFTs saw explosive growth in 2021, fueled by hype around the gaming web3 space, news reports of celebrities like Snoop Dogg buying virtual real estate, and social media giants Instagram announcing the integration of NFTs on the platform - allowing creators, businesses and collectors to share digital collectibles they created or own.
According to Chainalysis, in Q1 2022, 950,000 unique addresses bought or sold an NFT - marking a 50% increase from Q4 2021. And perhaps the most telling sign of the industry’s growth is the fact that the number of active NFT buyers and sellers has increased every quarter since Q2 2020.
Unfortunately, NFT traders are not the only ones who’ve been busy - hackers have been too.
Phishing scams and hacking: The Wild West of Web3
Between July 2021 and July 2022, an astonishing $100m worth of NFTs was stolen, according to a report by cryptocurrency analyst Elliptic. This figure does not include the single largest heist so far - some $540 million wiped out from Axie Infinity. July 2022 alone saw over 4,600 NFTs stolen – more than any other month on record. Here’s just a few high profile cases from the first half of 2022:
- In January 2022, Todd Karmer, an NYC art dealer, had his digital wallet hacked. He lost an estimate of $2.2 million.
- In February 2022, an OpenSea hack in which customers were targeted by a phishing scam resulted in 32 users of the leading NFT marketplace losing their assets.
- In April 2022, the pioneer of play-to-earn crypto gaming, Axie Infinity, saw $540 million stolen by hackers in an elaborate phishing scheme, involving a senior engineer and a fake job offer.
- Also in April 2022, Bored Ape Yacht Club's Instagram account was hacked, and the hacker sent a phishing post that tricked followers into clicking. The result? These followers unknowingly connected their crypto wallets to the hacker's "smart contract", which allowed the criminal to steal the digital assets stored in the wallets. In total, around $3m worth of NFTs were stolen.
- In May 2022, hackers stole hundreds of thousands of dollars worth of NFTs from the actor Seth Green.
Cases like these happen more often than we think, and there isn’t much that can be done to help the losses. Seth Green, for example, had to pay a ransom of $260,000 to get his Bored Ape NFT back. Most people can’t afford to do this, and once they fall victim to a hack, that’s it.
How to protect your NFTs
While Web3 participants and innovators are pushing forth in full force, some basic logistics are getting left behind, like the rising need for NFT insurance.
Can you insure NFTs?
Along with the ability to own and trade digital assets comes the responsibility to protect those assets. Currently, responsible Web3 investors and participants looking for NFT insurance don’t have a huge amount of choice. In fact, out of $1 trillion in crypto assets, less than 1% are insured.
UK based company, Coincover, is one of the first entrants in the NFT insurance space, protecting crypto wallets and NFTs against hacking, phishing and other malicious activity.
In March 2022, U.S insurance broker IMA Financial Group announced its plans to begin selling NFT insurance in Decentraland. Decentraland is a Web3 game; a decentralized virtual world where particpants create, explore, and trade NFTs - such as virtual plots of land.
“We have this huge asset class worth over $40 billion, for which there’s no traditional insurance products,” Justin Jacobs, senior vice president of marketing at IMA Financial Group and architect of Web3Labs, told CoinDesk.
Here at Notch, we’re working on launching our NFT insurance product as soon as possible, after the successful roll out of our world-first insurance for Instagram accounts against hacks.
In the next year, as the NFT space matures, additional options will emerge as more insurance companies learn how to assess risk and underwrite coverage of NFTs.
How to keep your NFTs safe
While the insurance industry figures out its model for insuring NFTs, it’s vital that anyone who owns NFTs takes all the necessary precautions. Here are 4 key security measures:
- Buy a hardware wallet: Hardware wallets are physical devices that securely store your NFT assets. Ledger and Trezor are two of the most established wallets.
- Get a software wallet: If you don't want to put your digital assets in a physical wallet that could be lost or stolen, then your next best option is to use a software wallet like MetaMask (pictured above). Just make sure you write down your login key in a safe place.
- Be aware of phishing scams: Most NFT theft happens due to people clicking on phishing links - whether those are on Discord communities, email, or any other social or communication channel. For instance, a scammer might impersonate OpenSea and send you an email about a special offer or NFT drop. Never rush into clicking links, pay attention to domain URLs, and keep on top of latest NFT theft stories in the news to educate yourself on the tactics used by criminals, and to help keep security at the top of your mind. And remember - if you’re unsure about a link, it’s better to be safe than sorry.
- Look out for bogus mint pages: Particularly when a much-hyped NFT collection is about to launch, numerous fake pages appear on OpenSea that impersonate the legitimate collection. Investors sometimes rush into the purchase, without double checking the domain URL or verifying the page by doing some due diligence on its social channels. Don’t make this mistake.
These measures will certainly help you stay safer, but unfortunately, there is no way to 100% secure your digital assets - hackers and thieves are only getting more sophisticated, as the Axie Infinity hacks demonstrate.
That’s why every responsible NFT investor should insure their digital assets - which will be the norm in the near future.
Keep an eye out for Notch’s NFT insurance and follow us on Instagram @getnotch for more updates and information.