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2014

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“When would we know our financial system is working?”

Long Finance

People, Risk and Uncertainty over

Time:

How Might Blockchain Technology

Transform Personal Insurance London, 11 September 2014

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2014

♦ Welcome

♦ Presentation

♦ Discussion and Q&A

♦ Closing remarks

♦ Next steps

Agenda

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2014

Self-referential system

upon which all our

analysis is based:

♦ What does GDP mean?

♦ Are competing

currencies good or bad?

♦ Should money be a long

term store of value?

The Eternal Coin

[Source: http://illusionsetc.blogspot.com/2005/08/moving-mobius-strip.html]

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2014

Long Finance Research Agenda

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2014

♦ Long Finance research project

♦ Aims to explore how blockchain technology

might transform interactions among individuals

and insurance companies over time

♦ Engaging blockchain technology experts,

insurance industry professionals, regulators,

consumer bodies, futurists, researchers and

academics

♦ Through desk-research, semi-structured

interviews, today’s workshop, and an

international webinar (1 October)

♦ Report published towards year end

Blockchain Technology & Insurance

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2014

♦ What is blockchain technology?

♦ How does it work?

♦ Possible applications in finance

♦ Changing risks and perceptions

♦ Possible applications for blockchain

technology in insurance

“People, Uncertainty and Risk over Time: How Might

Blockchain Transform Personal Insurance”

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2014

♦ Blockchain = a database

Aka ‘chain of blocks of transactions’

A publicly accessible ledger of all transactions that

have ever occurred in a protocol

Fully decentralized and accessible to every node of

the system (protocol)

♦ Requires ‘proof of work’ to verify blocks

♦ Technology emerged with the creation of

Bitcoin in 2009

Other protocols exist e.g. Ethereum

♦ Can host applications e.g. smart contracts,

decentralised autonomous organisations

What Is Blockchain?

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2014

Example - A Bitcoin Transaction

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2014

Look Beneath The Coins

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2014

The Blockchain ‘Ecosystem’

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2014

♦ Displaces two roles of trusted third parties:

Can’t do the same transaction twice* - no double spending or

transaction repudiation

Public history of transactions* - one unified unalterable state

of the ledger at all times shared by all nodes

Trustful – initial entry requires high degrees of trust

♦ Decentralised - robust, no central control or authority

required to coordinate behaviour or interaction

♦ ‘Proof of work’ and block validation - lower transaction

costs, but speed sometimes an issue

What’s Interesting About It?

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2014

♦ Smart contract - self-administered contracts

(aka scripts) enforced when certain pre-

defined conditions are met - these can include

Oracles, e.g. crop insurance smart contract coupled

with ‘trusted’ weather data feed

Arbitrators, e.g. appointed ‘experts’ e.g. software

development smart contract appointing software

experts to test the product

Escrow services

Already exists in real world

Initiatives underway to interface ‘smart’ and ‘real

world’ contracts, e.g. Common Accord

Distributed Applications (1)

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2014

♦ Decentralised autonomous organisations

(DAO) - sophisticated types of ‘smart

contracts’ creating autonomous entities

involving both a governance system and a way

for the DAO to fund and manage its funds and

resources itself e.g. through the sale of a

service or endowment

Still at a conceptual stage

Ongoing work on consensus governance and DAO

framework e.g. ERIS by Project Douglas

Distributed Applications (2)

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2014

Blockchains Smart contracts DAOs & related

Bitcoin – cryptocurrency created in 2009

Counterparty – P2P financing e.g. crowdunfing,

based on Bitcoin

Bitshares – community of DAOs, allowing to invest

in DAOs

NameCoin – domain

name system based on own protocol

Proof of Existence –

notary system, based on Bitcoin

ERIS – platform for

people to create, test and run DAOs, to be hosted

on Ethereum blockchain

Agora Voting – online

voting system

Monegraph – registry for

digital art, based on NameCoin

BitTorrent – decentralised file transfer system

Twister – decentralised P2P microblogging

platform, based on Bitcoin

and BitTorrent protocols

Ethereum – decentralised platform and programming

language to support and

host distributed applications and to be

released in March 2015

Smart property – still conceptual, aims to record

and manage ownership

through the blockchain

Existing & Emerging Applications

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2014

♦ Registries – ships, aircraft, artworks, tax, …

♦ Trade reporting

♦ Consolidated tapes

♦ Personal insurance blockchains and smart

insurance contracts

♦ Corporate voting

♦ Identity blockchains for anti-fraud protection or

anti-money laundering

♦ Accounting registries

♦ Multi-entity contracting and virtual contract

companies

What Might Blockchain Technology Mean For

Traditional Financial Services?

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2014

♦ Security and user/asset protection, e.g.

exchanges (collapse, fraud), how user

manage their information and accounts

(hacking)

♦ Mining centralisation (51%) - though new

blockchain protocols try to address that

♦ Interfacing digital and physical worlds

♦ Compatibility with, and enforceability within,

existing legal frameworks, e.g. smart

contracts, DAOs

Possible Issues

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2014

♦ Risk management mechanism designed to

protect the financial well-being of individuals,

companies and other entities by transferring

the costs of a potential significant loss to other

entities, i.e. insurance companies, in exchange

for monetary compensation, i.e. premiums.

♦ Personal insurance - car, property, accident,

health, liability, disability, travel etc.

♦ Stable market, usual players, not much

competition

♦ Industry is generally not recognised for being

innovative

Insurance

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2014

Equality

Inequality

(Source: Adams, Risk, 1995)

Individual Collective

Fatalist (nature capricious)

Hierarchist (nature perverse/tolerant)

prescribed

prescribing

Individualist (nature benign)

Uber-Egalitarian (nature ephemeral)

Risk/Reward People Typology

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2014

♦ Diversity of views:

No change (sceptic) - what does the technology

improve that does not already exist? E.g.

automated scripts, streamlining processes

Incremental change (cautious) - blockchain

technology could bring efficiency gains to the

industry and customers through automation,

increased competition and eventually new products

(e.g. internet of things)

Radical change (enthusiastic) - the technology and

related applications could radically change the

nature and the scope of the industry

Blockchain Technology & Insurance:

Possible Applications

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2014

♦ Decentralization seems the key innovation

♦ Identity history seems the main application

♦ Applications to insurance likely to depend on the

readiness and appetite for innovation of the

industry as well as the likely benefits to customers

♦ Early stages, lots of unknowns, e.g. interfacing

virtual and physical worlds

♦ Experimentation needed, e.g. distributed

applications, private blockchains; radical change

probability uncertain

Time Will Tell

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2014

Discussion and Q&A

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2014

♦ Where could the technology (& related

applications) have the most potential and how?

♦ What are possible applications in insurance?

♦ What would be the implications in terms of

attitudes to time, dealing with uncertainty and

perception of risk?

♦ What might be the implications in terms of

identity, e.g. moving from transactions to

relationships?

♦ What’s the best attitude/approach for insurance

companies to adopt?

Questions for discussion

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2014

♦ Webinar on 1 October 2014

♦ Report to be published towards end 2014

♦ More information on the research project

♦ Slides and summary of discussion to become

available on the event page

♦ Want to get involved? Contact Michael

(michael_mainelli@zyen.com) or Chiara

(chiara_vongunten@zyen.com)

THANK YOU!

Next steps

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2014

Closing Remarks

Michael Mainelli, Z/Yen Group

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2014

About Long Finance

‘When would we know our financial

system is working?’

Objectives:

Expand Frontiers

Change Systems

Deliver Services

Build Communities

Programmes:

London Accord

Financial Centre Futures

Meta-Commerce

Eternal Coin

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Systemic Scrunch Bright Or Dark?

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2014

London Accord

Financial Centre

Futures

Meta-Commerce

Eternal Coin

Long Finance Programmes

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issues

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finance & cities since launch

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access on the website

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finance’ programme

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Long Finance Publications

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2014

Forthcoming 17

September

2014

Long Finance - What's That Got To Do With

The Price Of Fish?

Book

Launch

Book

Now

18

September

2014

Bridging the Gaps - Between Investment and

Global Resources Trends

Workshop Book

Now

18

September

2014

From Gold to Paper and Back Again Lecture -

24

September

2014

The Cambridge Economic History of Modern

Britain

Lecture -

29

September

2014

Worshipful Company of World Traders - The

City Under Threat? Challenges for the City in a

Changing EU with Alderman Fiona Woolf and

Michel Barnier.

Conference Book

Now

01 October

2014

*Webinar* How Might Blockchain Technology

Transform Personal Insurance

Webinar Book

Now

02 October

2014 Is The Risk Worth A Financial Centre? Conference -

09 October

2014

There Is An Alternative - National Economic

Strategies In A Crowded World

Seminar Book

Now

29 October

2014

Financial Markets After The Crisis - More

Europe or Less?

Lecture -

03 March

2015

Long Finance Conference 2015 - The Curious

Case of Japan: Why Macroeconomics Needs a

Rethink

Conference Book

Now