Though blockchain has become a common topic in business and personal conversation, many don’t fully understand its purpose, or it's potential to change the digital landscape and disrupt industries. Blockchain technology was originally developed to secure emerging cryptocurrencies like Bitcoin. In essence, blockchain is a data structure that builds digital ledgers across a peer-to-peer network. Blockchain funding has more than doubled since 2018 and it will reach nearly $16B by 2023, according to a CB Insights research brief. The massive traction blockchain is experiencing is due to its ability to store and transfer data securely without the need of a trusted third party. Industries like finance, insurance, and even manufacturing are planning to utilize the technology to secure and simplify their processes. This will not only change the basic structure of the industries but change the ways in which we interact with these industries as well. The revolutionary and coveted abilities of this technology will result in a radically different future, evolving the way we do business, and how we protect our assets.
The Structure and Security of Blockchain
Any digital asset is prone to security risks and the threat of cyber hacks. We’ve been basically programmed to have some level of skepticism when it comes to putting confidential information on digital platforms. Though blockchain technology can’t promise 100% protection-it’s structurally secure and encrypted on a deep level. The point of blockchain is to have information easily stored and distributed, but unable to be altered or destroyed. It works by taking new data, validating that data, and then storing that data into an immutable block chronologically connected to a long chain of other data blocks. According to an expert report from Deloitte, the “combination of sequential hashing and cryptography along with its decentralized structure makes it very challenging for any party to tamper with it in contrast to a standard database”.
While blockchain data has had hacks in the past, it’s quite rare. Blockchain data is irreversible, so any tampering that does occur is easily pinpointed and tracked to the source. That doesn’t mean there is zero room for privacy. Though the technology maintains transparency through decentralized systems, encryption allows for anonymous data owners to remain anonymous. Public chains can be viewed by anyone, whereas private blockchains require a personal “key” to the encryption. This protects data from centralization and private control while maintaining personal confidentiality.
Blockchain and Cyber Security
Blockchain’s inherent encryption and structural security have the potential to aid in future cyber security strategies. As cyber hacking becomes even more threatening to our daily lives-so must our abilities to protect ourselves against them. Cyber experts have developed complex programs aimed at preventing and de-escalating malware, social engineering, and phishing schemes. The integration of blockchain for personally identifiable information (PII) and secure transactions could consolidate the issue right from the source. Blockchain provides a stronger foundation of security with systems in that data is separated even though linked through the chain. So if tampering happens within a data structure, or “node”, the other nodes are not interfered with. Traditional systems have the vulnerability of widespread data hacking with only one entry point. These benefits may have blockchain integrated as the best practice for cyber protection in the near future.
So while yes blockchain is potentially a tool in fighting cybercrime, these systems still need caution. Recent analysis from ISACA reminds blockchain users that the systems are still computer-based and vulnerable to coding errors, hacking, and malware-even if it as a “lesser” level. As industries begin to integrate the technology in their systems, insurance carriers must evaluate the use of the technology, and provide coverage for risks associated with blockchain.
Which Industries are Integrating Blockchain?
While most industries are in the process of integrating blockchain on a small scale, most are in the planning stages of much larger technology expansion. Though originally intended for the transaction of cryptocurrencies, blockchains unique technology has the potential to store data such as contracts, money transfers, secure votings, digital tokens, and more. Some industries with the potential to utilize blockchain in the future are:
Government and Benefits
Blockchain can be integrated into government-related systems and processes to increase security and productivity. A blockchain-based government would increase the security of official and public records, reduce the potential for corruption, and increase public trust in government through the decentralized database of information and transaction. It could also improve government funding processes like welfare and unemployment benefits. The technology would reduce administrative costs and distribute transactions more efficiently through a digital platform. Traditional insurance will still be in place to protect any potential losses of data, and to aid against the rise of newly engineered cyber schemes.
Recent insurance analysis estimated that blockchain will generate $3.1 trillion in new business value by 2030. Blockchain could help automate the processes and transactions involved in the insurance industry and reduce administrative costs through the distribution of automated payments for claims on demand. Smart contracts are digitally signed and digitally validated contracts between two or more people that are stored within the blockchain. These contracts allow the payment and verification of claims and coverage to be automatically distributed, removing the need for any human interaction at all. Additionally, the technology could store important information for underwriting. Re-insurance will likely utilzie the automated processes to trigger payments without the need of human based contract reviews. This technology becoming a primary system would alter the traditional way insurance has done business since it started. As with each industry introducing blockchain, cyber security and new protocols will be in place to protect assets stored within the chains.
Blockchain is already being integrated into the majority of large-scale manufacturing businesses. The technology can enhance the tracking and tracing of shipped goods and decrease the amount of lost property. Additionally, blockchain can provide transparency through immutable documentation of quality checks and production processes. It can also automate time-consuming services like contracts, payments, and service schedules. It's unclear how blockchain will change the industry on a large scale, but it’s likely to cause a ripple effect. The deceased need for administrative work and in-person labor could reduce the future of workers comp coverage, P&C coverage, and HR.
Will Insurance Coverage Change Across The Board?
If blockchain lives up to the hype it's experiencing today, the insurance coverage will look quite different. On the plus side, there may be some aspects to insurance that become easier and less of a financial burden. On the other hand, policies will need to be revisited and altered to include the risks associated with blockchain. It's likely that as this technology integrates into everyday systems, other risks will arise as a result. Additionally, as computers get smart-so do people. If in the near future there appears to be more risk associated with blockchain transactions, cyber security will need to be revamped and more applicable to the current situation. Insurance is a changing industry that follows the trends of society. For now, underwriters and agents are reviewing the current needs associated with blockchain technology and advising that all users protect themself against cyber threats. At the same time, the industry is integrating the technology as a means to improve and streamline the entire process of obtaining, renewing, and claiming coverage.
Insurance with ECBM
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