Michael Giusti Sheds Light on NFT Insurance

CryptoPunk NFT concept

MP recently sat down with Michael Giusti, a senior writer and analyst with InsuranceQuotes.com, which gives consumers a free, easy way to shop and compare insurance quotes online for auto, home, health, life, and business. He has worked as a journalist for more than 20 years, including as a reporter at a daily newspaper in Florida, as an editor at a regional business journal, and as a writer for national and international publications. Giusti specializes in business, technology, finance, insurance, automotive, and industry-focused writing.

iQ writer Michael Giusti
InsuranceQuotes.com writer Michael Giusti / Photo courtesy of Michael Giusti

MP: What is an NFT and how is it different from the art it represents?

MG: Think of an NFT as a receipt or a deed. It is a trackable digital proof of ownership that can be transferred between people and tracked and verified through blockchain. 

The NFT is literally a line of computer code that has a URL to the art hosted somewhere, along with metadata describing what the underlying asset is. 

It is like that long receipt from CVS. It says you now own a box of razors, but it is not the same as the actual razors. 

How do you know if it’s a good investment?

While I am not an art collector/investor, I would encourage anyone looking to invest in art through an NFT to ensure the person or entity selling the NFT is authorized to sell it and that the asset to which the NFT refers exists. I would also like to see specific language in the sale agreement that transfers the ownership, and ultimately the copyrights of the artwork. 

What should someone do if they have been scammed into buying a fake NFT?

I would suggest starting with the marketplace that sold the NFT. With any luck it wasn’t a scam and instead just a misunderstanding. But, like anything that is stolen or fraudulent, alerting the authorities would be the logical next step. That might be the local police or the Federal Trade Commission 

Which insurance companies are now offering NFT insurance?

The most prominent is Coincover, who launched a product in conjunction with Lloyds. I am unaware of other specific policies, but I am confident more will arise in the coming months. 

What exactly does NFT insurance protect?

Several things: 

First, the NFT itself can be insured – meaning the computer code. If the URL or the metadata is corrupted or destroyed, that would be covered under an NFT policy. 

Second, the underlying asset can be insured. If it is a digital asset, like a .jpg or a movie clip that was made inaccessible somehow, that could be covered. 

Third, since NFTs have both a public key and a private key, if you lose access to your private key and no longer are able to transfer ownership, that can be covered. 

Fourth, if a scammer hacks your crypto wallet and takes your NFT, that can be insured. 

Finally, the ability to transfer ownership of the NFT to heirs after the owner dies would also be insurable. 

How does NFT insurance differ from typical property insurance?

Property insurance tends to cover physical items. Interestingly, NFTs can track ownership of a physical item as well, like, say a baseball card or even real estate, and in this case, you would need typical property insurance to protect the underlying asset. 

But, typical policies, such as a homeowner’s insurance policy, do not have provisions to protect digital art, much less the computer code and protocols of an NFT. 

What’s the future of NFT insurance?

NFTs are new, but the risks they represent really aren’t. Ownership. Damage. Loss. Theft. There are insurance policies for all those risks. However, since the idea of an NFT is new, policy language may not have caught up. I suspect more insurers will jump into the market as money follows these NFTs. The risks are quantifiable, which means insurance is possible. The market just needs to catch up some. 

Is there anything else you would like to add?

Copyright is a challenge with NFTs. Anyone can make an NFT whether they own the underlying asset or not. I liken it to printing out a fraudulent deed to my neighbor’s house. With that fraudulently printed deed in hand, I could stand on the sidewalk in front of their house and sell the deed to the first person to pass by. The sale would be valid. Money changed hands, and the passerby had something that said they owned the house. But the fraudulent deed wouldn’t represent ownership of the house. Just because that passerby has the deed and then walked into that house, that doesn’t mean they aren’t trespassing. Making an NFT isn’t the same as owning the art, and the law really hasn’t caught up, much less really defined who the victim of a fraudulent NFT really is.