New Virtual Asset 'NFT' Emerges... Will Insurance Guaranteeing Asset Value Appear?

No Physical Entity Limits Coverage of Existing Insurance

[Asia Economy Reporter Oh Hyung-gil] With the emergence of 'Non-Fungible Tokens (NFTs)' utilizing blockchain technology, ranging from the art auction market to the entertainment industry, there is growing interest in whether the asset value of NFTs can be insured.

NFTs are tokenized digital content such as image files and videos by assigning unique identification values using blockchain technology. Unlike interchangeable cryptocurrencies, NFTs are non-fungible. Therefore, they are used as certificates of ownership for the 'original' of digital files, which are otherwise easy to replicate.

Since the NFT artwork "Everydays" by digital artist Mike Winkelmann (Beeple) was sold for $69.3 million (approximately 82.7 billion KRW) at Christie's auction house in New York last March, the NFT market size has been explosively increasing.

According to OpenSea, the world's largest NFT marketplace, NFT transaction volume in August increased more than tenfold compared to the previous month, reaching $3.4 billion (4.06 trillion KRW). According to blockchain data platform DappRadar, NFT transaction volume in the third quarter of this year surpassed $10 billion (11.94 trillion KRW) for the first time.

Currently, the overseas insurance industry is in the early stages of discussing NFTs, with key issues including who can subscribe to NFT insurance and the possibility of coverage through existing insurance. However, discussions on applying insurance to digital assets have not progressed rapidly in the domestic insurance industry yet.

This is due to the characteristics of digital assets. Traditional art insurance is designed to cover physical loss or damage to artworks, but NFT artworks do not have a physical form and do not suffer physical loss or damage, making it difficult to cover them with existing art insurance.

Additionally, NFT artworks differ in that if the artwork's cryptographic key is lost or hacked, the digital file itself still exists, but it is considered a financial loss.

Currently, cyber insurance covers data security and theft, but regarding virtual currencies, the risks covered by insurers are limited to physical loss or employee system hacking, resulting in insufficient coverage.

Son Ji-young, a research fellow at the Korea Insurance Research Institute, explained, "To incorporate newly emerging digital assets as insurance targets, challenges such as high volatility of digital assets and difficulty in loss measurement must be addressed," adding, "Since NFTs are expected to play an important role in fields such as art, sports, entertainment, and the future industry of the metaverse, there is also a perspective that views this as an opportunity."