Where the Blockchain Twineth

By: Gary Anderberg

December 21, 2023 — Blockchain and crypto currencies were supposed — a few years ago — to revolutionize finance and the very concept of money. Crypto has encountered a very bumpy road to the future, as any number of recent headlines will testify. But what about blockchain? Let's take a look.

Both Risk & Insurance and its sister publication, ITL, published fairly detailed updates on blockchain in early October. Blockchain gives every indication of being alive and well, even though it has not yet achieved the ubiquity predicted when it first burst on the scene along with Bitcoin back in 2008. The essential purpose of blockchain is to link electronic ledger transactions in a public ledger chain via cryptographic hashes in a way that cannot be reversed. In short, transactions executed via blockchain have a high degree of security* — an issue always of interest when we talk about the risks inherent in electronic commerce.

As Pat Carroll points out in ITL, "blockchain keeps moving forward and is very close to entering production with at least a couple of applications than can make the industry operate more efficiently." Pat goes on to examine two developments from Risk Stream Collaborative that impact two very different areas of insurance. The first one facilitates the sharing of information regarding auto accidents between carriers. While seemingly modest, it models a type of function that occurs at scale across many, if not all, types of insurance. Not only can this use of blockchain reduce email games between claims operations, but its security feature may also eliminate error potential in the process. The reality of life is that every keystroke executed by the notorious Homo sapiens V 1.0 application creates the risk of material error.

Additionally, "RiskStream has also made great progress in an area where it didn't expect to find nearly so much interest: surety bonds."

The adroit application of blockchain addresses the very essence of these bonds — surety — allowing verification in depth. The slow-motion development of real, useful blockchain applications in risk management has been a chicken-and-egg scenario. Many of us saw the potential years ago, but a critical number of participants in the information chains that describe insurance have had to get involved before the use of blockchain could truly make a difference.

It may be hard to recall at this distance of time, but the same thing happened back in the early 90s when that funny thing called the internet was brand new. Everyday, real-life uses appeared slowly at first. All we had was telephone modems with their beeping-burping chatter sounds. Most folks just didn't get it — a toy for us nerds. But then a few high-value uses, like buying airline tickets online, came along, and it started to make sense. The rest, as they say, is history.

Blockchain does one big thing and does it well. It replaces traditional third-party trust with mathematical proof that a particular thing happened at a particular time. When you are in the business of managing risk, that's a big thing indeed.

*As we noted in this journal a couple of years ago, even blockchain transactions still have room for "fat finger" mistakes, as a classic decimal point error (think multiple orders of magnitude) demonstrated quite publicly when transferring totals from one series of ledgers to another.