Envisioning the Next Round of Storage Trends – Data Insurance
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Author: Marshal Orange @ Contributor of PermaDAO
Translator: Marshal Orange @ Contributor of PermaDAO
Reviewer: Saiee @ Contributor of PermaDAO
On May 11th this year, PICC, People's Insurance Co. of China, successfully issued the nation's first-ever Data Intellectual Property Infringement Insurance. The definition provided by PICC for Data Intellectual Property Infringement Insurance is as follows: "It provides risk protection for data that is legally owned and registered in the data intellectual property registration system or storage platform. It requires a data intellectual property registration certificate or a certificate of deposit."
Subsequently, various regions have been promoting the popularization and expansion of Data Intellectual Property Infringement Insurance. Recently, Hangzhou, Hi-tech Zone (Binjiang), also introduced the city's first Data Intellectual Property Infringement Insurance. A company in Hangzhou has insured 2,276 quarterly updated datasets. If data intellectual property infringement occurs, the company can receive substantial compensation from the insurance company, providing an additional layer of data security for users.
But have you ever considered whether insurance could also be combined with decentralized storage to introduce data security insurance tailored to decentralized storage products, thereby contributing to decentralized storage ecosystem growth?
Data security insurance for decentralized storage, in essence, offers data protection services for Web3 users. Users store their data in decentralized storage projects, and those who have purchased data security insurance can alleviate concerns about data security management. In the event of accidental data loss, damage, or hacker intrusions in decentralized storage, users have the right to receive corresponding compensation.
Currently, consumer adoption of decentralized storage projects is relatively low. The reason is not that decentralized storage products are inadequate. For example, products in the Arweave ecosystem, like Akord, a digital insurance vault, already offer secure, convenient, and privacy-controlled data storage and management services, achieving bank-level security for decentralized data storage. However, users still subconsciously lack trust in decentralized storage products. Introducing data security insurance specifically for decentralized storage directly addresses users' stereotypes about decentralized storage, dispels concerns about data security and privacy that are continuously growing, and also encourages more decentralized storage solution providers to improve service quality, enhancing the potential of the decentralized storage ecosystem's growth.
Indeed, the insurance industry started exploring applications in the blockchain field quite early, dating back to the first decentralized insurance platform, Etherisc, launched on Ethereum in 2017. It provided a peer-to-peer insurance marketplace where users could purchase or sell general insurance policies, such as flight delays and hurricane losses, without involving traditional insurance companies. The turning point came in 2019 with the introduction of the first insurance protocol designed specifically for the DeFi (Decentralized Finance) ecosystem, Nexus Mutual. Especially, with many DeFi applications experiencing security incidents resulting in losses amounting to billions of dollars, the development of blockchain DeFi insurance has been rapid. It mitigates inherent risks in DeFi and rebuilds market confidence, ensuring broader participation by Web3 users in DeFi.
So, how does DeFi insurance work? DeFi insurance allows individuals and businesses to safeguard their funds in DeFi against unpredictable risks using decentralized providers. In this model, users pay a certain amount of premium when purchasing insurance to obtain coverage. Insurance providers earn a portion of interest from the locked funds in the pool paid as premiums, thereby establishing a connection between insurance and risk.
Users access insurance products from DeFi asset insurance providers to purchase coverage for the potential loss of funds on the platform based on their insurance needs. DeFi insurance premiums depend on various factors, including the type of insurance, insurance providers, the coverage term, and the level of risk associated with the insured assets. Generally, popular DeFi insurance covers attacks on DeFi protocols, stablecoin price collapses, and exchange hacks. Some insurance policies also cover specific smart contract vulnerabilities, slashing events, yield token losses, and more.
The introduction of decentralized storage insurance benefits both users and project parties:
From a user perspective: Web3 data storage insurance coverage typically covers data leaks and hacker attacks. Some users can feel more confident about storing their data in decentralized storage networks without worrying about data theft or misuse. For certain essential business or government confidential documents, some users may still prefer to store them on private physical hard drives.
However, for personal data like photos, audio, and video files (which can accumulate significantly over time), using hard drives may not be as convenient for regular data updates. Moreover, it involves purchasing expensive hard drives, concerns about hard drive lifespan, quality, and other issues. By initially storing data in decentralized storage networks like Arweave and then purchasing data insurance coverage, users can eliminate many of these concerns. They only need to periodically check the status of their data. If data is lost or abnormalities occur, they will receive substantial insurance compensation, even though no one hopes for such incidents.
Furthermore, the introduction of data storage insurance is an educational initiative for data security on a Web3 scale. It raises user awareness of data security and may lead to adopting additional measures to enhance data protection, such as using stronger passwords and enabling multi-factor authentication.
From an ecosystem perspective: Ecosystem participants that offer Web3 data storage insurance will significantly boost data storage adoption within their ecosystem. To attract more users, competition among decentralized storage ecosystem participants will evolve beyond just storage space and pricing to competition in data security. This could potentially disrupt the current decentralized storage landscape, including Filecoin, which faces the risk of data loss, and may lose its leading position. Competition will greatly encourage them to continually improve their data security and backup mechanisms. After all, any mistakes will lead to paying substantial insurance amounts, and decentralized storage ecosystem participants may further enhance their data redundancy, backup, and recovery solutions to ensure data availability at all times.
DeFi insurance can offer valuable insights for decentralized data insurance, particularly from a consumer psychology perspective, where the success of a project largely depends on gaining user trust. DeFi insurance significantly enhances a sense of security in an inherently uncertain environment, allowing users to find trust in a decentralized ecosystem. This is also crucial for decentralized storage projects because consumers need to trust that their data on decentralized networks will be securely safeguarded. At such times, insurance is a commitment to users that their data will not be lost, misused, or leaked.
Arweave is inherently well-suited for the integration of data storage insurance as it can technically achieve permanent and secure data storage. It can also build a data guarantee market through smart contracts to enable data storage insurance. However, the promotion of decentralized storage data insurance does not seem to be straightforward. Even now, there are no commercially viable use cases for Web3 data storage insurance. This suggests that introducing data storage insurance may pose new challenges, including:
Premiums and Coverage: Insurance providers need to employ complex mathematical models and risk assessment criteria that differ from those used in Web2 to determine premium pricing and coverage. Moreover, data storage insurance premiums may increase the overall cost for users, potentially impacting the willingness of small businesses and individual users to pay for it. Although the security of insured data is invaluable, it may not lead to an immediate reduction in storage costs.
Market Acceptance: The introduction of decentralized data storage insurance may require time for broad market acceptance. Users and businesses may require time to adapt to this new insurance model, including raising awareness of risks and the demand for data security. User education takes time, and developing data storage insurance products tailored to different use cases requires a thorough analysis of industry needs, pain points, and risks.
Legal and Regulatory Challenges: Decentralization is a global concept. While insurance execution can be managed through smart contracts, the rights and obligations of insurance still require legal definitions. Different countries and regions have varying legal and regulatory requirements for data storage and data protection, making it complex to determine insurance responsibilities and compensation scopes. Defining the damage to data on decentralized networks requires consensus to prevent complications in the compensation and accountability process due to information asymmetry between users and project parties.
In conclusion, the introduction of Web3 data storage insurance marks a new level of achievement for decentralized storage. This has the potential to enhance user trust in decentralized storage and provide additional security for data. However, data security insurance services are a complex decision involving technology, law, policy, and user education. This requires collaboration among providers, insurance companies, and regulatory bodies to ensure effectiveness and compliance. Both users and providers need greater understanding and transparency regarding premiums, data privacy, and policy regulations, clarifying the rights and responsibilities of all parties involved.
The traditional global insurance market remains vast, and we have witnessed the rise of DeFi insurance, making decentralized insurance a promising niche within the blockchain industry. In the unknown Web3 "dark forest," Web3 data storage insurance has the potential to significantly boost user trust in decentralized storage. The development of decentralized storage data insurance will require collaborative efforts in technology, law, regulation, and business. We also look forward to seeing more innovative use cases for decentralized storage insurance to empower the future of decentralized storage solutions.