This is the time of year when I look both ways. No, not crossing the street, but reflecting on the past and imagining what’s ahead. Like you, I’m sure.
In that spirit, I‘d like to share some of a 20-year-old chestnut from Newsweek in the form of a piece by Astronomer/Author Clifford Stoll on “Why the Web Won’t be Nirvana.”
“After two decades online, I’m perplexed. It’s not that I haven’t had a gas of a good time on the Internet. I’ve met great people and even caught a hacker or two. But today, I’m uneasy about this most trendy and oversold community. Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms. They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make government more democratic.
Baloney. Do our computer pundits lack all common sense? The truth is, no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.”
He goes on to write “…you can’t tote that laptop to the beach. Yet Nicholas Negroponte, director of the MIT Media Lab, predicts that we’ll soon buy books and newspapers straight over the Internet. Uh, sure.”
One of his worst predictions was to bash the idea of e-commerce, writing that even if there were a secure way to send money, it would fail because “the network is missing a most essential ingredient of capitalism: salespeople.”
Stoll was a smart scientist and had been a savvy systems administrator: He was famous for unearthing KGB hacker Markus Hess’s attempt to breach US military security in 1986. In those heady days of 1995, though, he underestimated the public’s willingness to forego a large measure of human interaction in exchange for having the world literally at its fingertips. So despite his tech savvy, his article lives on in the selfsame cyberspace he’d underestimated, a testament to misreading the future.
So here we stand at the dawn of 2016, looking forward to change and trying to predict whether blockchain will indeed prove to be the next Internet-like change driver. I’m aligned with those who see the use of blockchain as continuing to gain momentum and expect it will have a profound effect on business. This is starting to happen now, especially in retail and in banking.
A blockchain is essentially just a digital record of “events” that is shared by many different parties. Insurance is gaining momentum in the use of blockchain and slowly figuring out the true business use or to some degree what the use case should be. I have no doubt that within the next few years it will be a major technology in the insurance ecosystem.
Bitcoin digital currency has gotten a lot of attention since its launch in 2009 as an international digital currency, but it is actually blockchain, the technology behind bitcoin, that assures the integrity of a transaction and will likely bring about the most change. It can only be updated by consensus of a majority of the participants in the system. And, once entered, information can never be erased.
Blockchain has real advantages:
- Security is one of the biggest reasons that companies are investing in blockchain research. The nature of blockchain as a distributed database makes it difficult and prohibitively expensive to unilaterally edit, since so many copies exist.
- Trust is another virtue of blockchain. The blocks provide transparency and record the history of a particular contract or deal. It’s an effective way to establish provenance of a painting or ownership of a diamond, with all the “paperwork” digitally attached to the item, lessening the chance of fraud.
- Dealings are more direct. Blockchain transactions are conducted by the parties themselves with no third party or central body acting as intermediary. It can be more open or more private depending on how the technology is used.
- Efficiency is a major draw for blockchain. Contracts or transactions are frictionless and can be done more quickly and less expensively than conventional business dealings, opening the way for very tailored arrangements.
How is it/will it be used?
There are a variety of uses for blockchain technology, now and down the road:
- Blockchain can be used to trade stocks and bonds. Nasdaq is building a system to use blockchain in private markets, while Overstock just received SEC approval to use the blockchain to issue its stock via an alternative trading system (ATS) rather than the NYSE and Nasdaq. Overstock is already issuing bonds through cyptosecurity technology developed by its subsidiary and plans to begin using the technology as a service to allow other businesses to securely issue capital-market products. .
- Secure information storage is a valuable usage for blockchain. It can store medical records for health insurance and health care, and Genecoin is promoting a service that allows customers to store a copy of their DNA on blockchain. Similarly, it’s hard to imagine the authentication of IDs, property ownership and value through an immutable ledger not catching on. For insurers, this would be a big boon to reducing fraud and settling claims.
- The effect of blockchain for insurance products is a not as clear-cut and will likely take longer to emerge than for banking. The speed and ease with which contracts could be changed and the time-stamping feature of blockchain could, for example, facilitate individualized contracts that reflect actual risk, such as on-demand auto insurance effective only during hours a car is being driven.
- Blockchain could prove important in creating and managing large layered commercial insurance programs where different organizations assume separate layers of the risk. Similarly it could also be used to manage insurer-reinsurer transactions.
- Another development could lie in affinity group or P2P (peer to peer) social insurance mechanisms that take advantage of blockchain contracts to bypass insurers and fund their own coverage pool. In this case, the role for insurers could be quite specialized in areas like risk management and complex claim handling.
- Finally, while there has been tremendous investment in startups using blockchain, there is also a powerful counterforce to keep blockchain open and accessible in the form of the Open Ledger Project. This is a brand new partnership of the Linux Foundation and a diverse group of major companies such as Accenture, Cisco, the London Stock Exchange, IBM and State Street to create a free and open-source version of a new technology under the name “Hyperledger.” Its task is to re-imagine supply chains, contracts and other ways information about ownership and value are exchanged in a digital economy. How would this work, taking into account the ecosystem concept? Think about buying a new house. Imagine signing the multitude of documents, setting up the escrow and title, acknowledging the appraisal, ordering the homeowner’s insurance policy (and tying it to your current car insurance policy) and transferring the money—and doing this all in days rather than weeks or months. Blockchain could help make something like this possible.
If you aren’t yet convinced that blockchain is here and subject to many iterations, consider this. On Nov. 2, Kim Jackson and Zach LeBeau were married at the ConsenSys headquarters in Williamsburg, Brooklyn. They are the first couple to have a blockchain wedding using a marriage contract created and executed on the Ethereum platform.
Happy New Year!
- Read, “Blockchain” (ACORD CEO Gregory Maciag’s blog)