Home » Digital Asset Insurance Coverage Series, Part 7: Insurance for NFTs

Digital Asset Insurance Coverage Series, Part 7: Insurance for NFTs

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As discussed in previous parts of this series, the insurance industry has developed a series of policies specifically tailored to cover cryptocurrency claims, and some of these policies are specific NFTs. may also cover claims for Apart from these customized policies, policyholders claiming NFT claims may also look to traditional policies.

NFTs are collectible and one-of-a-kind, but digital. The most common NFTs are types of visual art images such as digital paintings, photographs, and generative design (created by artificial intelligence). However, this high-level definition does not justify how prevalent these have become. In addition to traditional artwork, there are:

  • Sports, movies, or other collectible NFTs are tokenized collectibles. Sports collectibles include trading cards, jerseys, and photographs, including digitized images/videos of players. For example, his NFT of LeBron James sells for his $230,000.[1] Movie collectibles include digitized versions of scripts and movie posters, as with DC’s recent release of NFT’s Batman Collection, which includes images depicting the 83-year history of Batman comics. .[2]
  • Music NFTs are tokenized albums, songs, and/or music videos. Music NFTs may offer simple streaming access (and higher loyalty opportunities for artists than regular streaming) or concert access.Artist 3LAU has auctioned off his 33 NFT collection versions of his albums ultraviolet raystotaling $11.7 million.[3]
  • Gamified NFTs are assets that can be collected and used within game experiences or accessed in specific video games. For example, ZED RUN is a digital horse racing game and NFT is available in a variety of unique breed and themed skins.[4]

There are also digitized images, such as Twitter president Jack Dorsey’s first tweet.[5]

Prior to the recent market crash, the media had been enthusiastically reporting on the rise of the NFT economy over the past two years. In particular, they focus on selling high-value art auctions (although most sales are made through peer-to-peer marketplaces like OpenSea). For example, artist Mike Winkelman (a.k.a. “Beeple”) compiled his 5,000 images into a single NFT of his, which he sold for $69.3 million at Christie’s auction in March 2021. rice field. A transaction equivalent to the sale of other works of art.

Like non-digitized art, NFTs are subject to theft. Hackers target digital wallets and marketplace users his account logins to move NFTs and sell them as their own. Some of these hacks have caused NFT investors to lose millions in assets. For example, one account reports that a thief stole her NFTs worth $2.2 million from a personal wallet. In another reported hack, he had $1.7 million worth of his NFTs stolen from various OpenSea users. In some cases, markets such as OpenSea react by delisting the second sale (by hackers), but usually reverse the sale or recover stolen assets for the original owner’s sake. It does not.

The most pervasive problem among NFTs is the proliferation of copyrighted and unauthorized works. For example, artist Aja Trier’s viral “Vincent Van Gogh style painting” has been transformed by an unauthorized third party into his 86,000 different NFTs.[6] Importantly, artists report that submitting takedown requests to remove infringements on the NFT marketplace is inefficient in most cases. As a result, most artists have to take legal action to enforce their rights.

Unlike traditional high-value art, where the provenance can be authenticated back to the original artist, the creators of NFTs are often anonymous, meaning that the NFT is the product of its original creation or someone else’s work. complicates checking for unauthorized duplication of Therefore, a ledger-based code that authenticates sales transactions in a transparent manner may not help ensure the authenticity of the art itself. This poses the risk that NFTs are essentially worthless after purchase (because they cannot be resold if they are counterfeit).[7]

In the traditional context of non-digitized art, these assets are covered by various types of insurance (for example, art is scheduled under a crime policy and covered by specie insurance). Infringement-related claims asserted against NFT Creators and/or NFT Marketplace may be covered by conventional coverage and other coverage such as errors and omissions or third-party insurance.

However, the insurance industry has been slow to develop and issue policies specifically tailored to encompass digitized products. In fact, at the time this article was published, there is only one insurance product commonly offered through CoinCover.[8] YAS Digital Limited announced a microinsurance product specifically covering NFTs in the fine arts sector in April 2021 and additional NFTs the following month, but its website has been silent on the matter. doing. There has been no subsequent media attention regarding participation in NFT coverage and further scrutiny is warranted.[9]

There are several reasons why the insurance market has been so slow to enter the NFT space.

First, as mentioned above, non-digitized artwork can be easily authenticated, establishing a blockchain ledger by design. While there may be ways to authenticate NFTs, it can be difficult to authenticate his NFT creator’s ownership of the underlying rights to the NFT’s name or image, so insurers may opt for these solutions. still not satisfied with

Second, there can be considerable uncertainty when valuing digital assets, especially when there are few comparable sales. This is likely due to Jack Dorsey’s tweet above, which first sold for his $2.9 million in 2021 and a year later at his April 22, 2022 auction for just his $6,800. best shown.[10]

Given the growing value of the NFT market, the insurance industry is no doubt looking at ways to offer customized insurance products. Until they do so, NFT holders are left with claims that the NFT is subject to pre-existing offenses, species, professional liability, errors and omissions, third parties, directors and officers, and other indemnifications, and to insurance companies. We encourage you to provide a schedule. It’s as detailed as the non-digitized artwork provided.

As discussed in this series, businesses and individuals who have suffered (and have suffered) losses related to cryptocurrencies and NFTs, whether under customized policies or digital asset-specific policies, You may have access to insurance. They recommend evaluating all available products and discussing them with a broker or attorney who specializes in the field.

In the future, those with exposure to the digital asset sector will have to adapt to the emerging market of insurance products. While the NFT-specific insurance sector is in its infancy, the proliferation of cryptocurrencies has created a substantial market for crypto-specific insurance. , more insurance products are becoming available. Coverage is by no means unique and it is important for digital asset owners to understand the types of products available and determine which products suit their specific needs. You will be able to deal with insurance companies in the event of a claim.

This is the seventh and final post in the Digital Asset Insurance Coverage series on the blog.

This post is an excerpt from an article authored by Scott DeVries, Jessica Cohen-Nowak, and Adriana Perez. This article was originally published in Journal on Emerging Issues in Litigation, Volume 2, Number 4 (Fall 2022), published by Fastcase Full Court Press, pp. 255 – 276 (a comprehensive list of all references is available in the published journal version). provided).

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