Why is There So Much Animosity for Crypto, and What Do DeFi Insurance Companies do About It?

When you mention Bitcoin to the average person, you’re more likely to get a negative reaction than a positive one. People will say it’s a scam, it’s a Ponzi scheme, or it’s just internet funny money. To take it one step further, if you mention NFTs, you’ll almost definitely hear a guttural reaction, and often even from those who have been in the crypto world for a while.

If I’m being charitable, I would say this is progress. Just the fact that people know what you’re talking about shows that adoption is starting. Think of a decade ago — if someone mentioned this newfangled digital currency “Bitcoin” in 2012 that people are using to buy pizzas online, I’d forgive you for thinking this person was a lunatic.

The insurance industry is no stranger to this animosity. To be clear — there are numerous examples of insurance companies not acting in good faith. However, much of the vitriol that is thrown towards the insurance industry, in my opinion, comes from a place of ignorance and not understanding how the industry works.

I say this with no exaggeration — insurance is the backbone of society. It allows individuals, entrepreneurs, and companies to take reasonable risks without having to worry about the volatility associated with catastrophic events. Without insurance, you would seriously consider the trade offs every time you left your house to drive. Small businesses would go under when a minor accident occurred at their office.

So, where do these concepts cross over? In the new age of DeFi based insurance initiatives (or, “Metasurance companies”), adoption and acceptance is going to be the biggest hurdle. You can have the best and brightest on your team, but if no one uses your product, it will flounder. Let’s examine these challenges.

Why the Hate?

I recently posed the question on Reddit’s /r/cryptocurrency, “In your opinion, why is there so much hate for crypto?”. This post gained more traction than I was expecting — it seems people have a lot of thoughts about this.

New Things Are Scary

The most common theme was that people are afraid of change, and afraid of things they don’t understand. People would rather write off new technology as a fad than learn about it. Often this is a sound approach; does anyone remember when 3D televisions were going to revolutionize the at home experience? In the case of crypto, it’s quite clear that it’s here to stay. Multi-billion dollar companies have gone public on the NYSE based solely on crypto. Adoption is growing and the technology is advancing.

So what are we, as insurance & crypto professionals, to do? The answer is education. First, educating ourselves on how the technology works. When the topic of crypto comes up in conversation, by focusing on the exciting aspects of the technology itself we can avoid the spiral of meme-coins and monkey jpeg conversations. I’ve found that if you’re speaking with people in good faith, and know what you’re talking about, they’re very interested in learning more — the key is being able to answer the question “What is the practical application of this?”

Luckily many applications of DeFi to insurance are quite obvious and easy to understand. Smart Contracts that will automatically pay out claims based on event triggers. Allocation of premium to reinsurers through automatic routing. Public claims listing to promote transparency and trust. These ideas, and more, are what we should be focusing on, and less the coin of the day.

It’s All A Scam, and I Missed Out

The second theme I noticed was people frustrated that they didn’t get in earlier, and thus decided to write the whole thing off. It’s true — the likelihood that anything will repeat the gains and staying power of Bitcoin from the period of ~2008–2017 are vanishingly small. Many people had heard about Bitcoin back in the day, but brushed it off and didn’t invest. Now they’re upset about the missed opportunity.

What this has given rise to is a huge increase in low-effort, flashy scamcoins that promise the world. With a few exceptions, most subreddits and Discord channels related to crypto are dedicated to pumping and dumping their version of a generic ERC20 coin that promises to net you 10,000% gains if only you invest your hard earned cash. When 95% of what people are exposed to in the crypto space are these scams, and these are what make the news, it’s not hard to see why people slog it off.

It comes back again to education. Much like crypto, many people consider insurance to be a scam. There are many examples of poor decision making during claims handling or policy writing that contribute to this, but often this idea comes from a lack of understanding. I’ve noticed a trend of newer insurance companies spelling out their polices in plain English, and providing examples of scenarios where it would and would not pay out up front. These initiatives are exactly what the industry needs to improve its image and exactly what the successful metasurance companies will need to do as well.

A Battle on Two Fronts

Only weirdos like actuaries love to talk about insurance. It’s going to be an uphill battle for DeFi insurance companies to gain traction, trust, and visibility in a world that doesn’t want them to exist. Those that are successful will revolutionize a trillion dollar industry, so I applaud those who are trying.

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