Paper 2025/088

ICT: Insured Cryptocurrency Transactions

Abstract

Cryptocurrencies have emerged as a critical medium for digital financial transactions, driving widespread adoption while simultaneously exposing users to escalating fraud risks. The irreversible nature of cryptocurrency transactions, combined with the absence of consumer protection mechanisms, leaves users vulnerable to substantial financial losses and emotional distress. To address these vulnerabilities, we introduce Insured Cryptocurrency Transactions (ICT), a novel decentralized insurance framework designed to ensure financial recovery for honest users affected by fraudulent cryptocurrency transactions. We rigorously formalize the ICT framework, establishing strong security guarantees to protect against malicious adversaries. Furthermore, we present Insured Cryptocurrency Exchange (ICE), a concrete instantiation of ICT tailored for centralized cryptocurrency exchanges. ICE relies primarily on a standard smart contract and provides a robust mechanism to compensate users in cases of security breaches, insolvency, or fraudulent activities affecting the exchange. We have implemented ICE’s smart contract and evaluated its on-chain costs. The evaluation results demonstrate ICE’s low operational overhead. To our knowledge, ICT and ICE represent the first formal approaches to decentralized insurance frameworks in the cryptocurrency domain.