NFT Thefts Leave Experts Wondering How To Insure The Asset


The buzz surrounding NFTs has many legal experts speculating how these digital assets might be insured as more and more are stolen, raising questions about where the value lies and how it could be quantified in the volatile marketplace.

Nonfungible tokens are data files that are forged on the blockchain and individually identifiable and unique. Although the first NFT was created in 2015, its explosion in popularity is much more recent, and sales have been staggering. In September, Christie's auction house announced that it had sold more than $100 million in NFTs worldwide, setting a record in March with its $69 million sale of NFT The First 5,000 Days — the most expensive artwork ever sold online.

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The volatility may also present opportunities for fraud, said Stephen Palley, partner and chair of the crypto practice at Anderson Kill LLP.

"If you take a wildly speculative asset and provide large limits for coverage, does it maybe create a perverse incentive [for the owner] to lose their NFT?" he said. "How would you value it for the purposes of setting limits?"

Another question is how to define what exactly is insurable, Palley said.

"You need a really good technical understanding of what the asset is and what rights you want to protect," he said. "If you buy a Bored Ape NFT, you're getting a data artifact, but that does not include within it the image over which you've got rights — it includes a pointer to that image, and that image resides somewhere else."

The owner's plan for mitigating the risk of any theft of that NFT also needs to be taken into account, Palley said. A key consideration is whether the policyholder is going to "have their NFT stored offline in a hardware wallet," which is essentially a device like a USB port to protect the asset from hackers, Palley said.

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