Are blockchains insurable? This question was posed to us as a topic for presentation by the Center of Insurance Policy and Research, a research arm of the National Association of Insurance Commissioners.
The trigger appears to be that some insurance companies are being asked to insure the business operations of blockchain enterprises. This same concern would apply to legacy business operations that may choose to deploy a blockchain – basically, a shared database managed by software. If one listens to the blockchain activists, this could basically apply to everyone in the near future.
And we volunteered the following opinion to the question; Are Blockchains Insurable?
Article available here: http://www.naic.org/cipr_newsletter_archive/vol19_blockchain.pdf
This article is comprehensive and staggering in its implications. It begins by shaping the given landscape of finance and entrepreneurship in terms of insurability. It follows with, in essence, a mathematical proof that arrives at a conclusion that blockchains are insurable, but business processes using blockchains may not be. Luckily, the technology offers sufficient data to adequately pool risk exposures of its components. However, the trouble arises where digital assets can neither be treated as money nor property. This extralegal condition may exist which would be categorically non-insurable in mainstream finance.
“Extralegal” refers to a condition in which something is nether legal nor illegal. Economist Hernando De Soto writes about how the extralegal sector in many parts of the world grossly inhibits economic growth because people are unable to secure “title” to property and businesses that they create. They are unable to bridge the capitalization gap – that is, the ability to borrow “money” against tangible assets or future returns.
Blockchain technology appears to be languishing in the extralegal domain as courts and governments have little uniform ideas about how and where this tech fits in society. That is, until something goes wrong like a major hack where important people lose a lot of money. Then some patchwork of blanket legislation will likely emerge to favor those of one sector over another. The running joke in crypto-space is that any effort to control blockchain technology would negate any benefits of having it in the first place.
There is a third option.
This article raises the possibility that the pairing of blockchain tech with professional engineers (as the decentralized adjudicators of smart contracts) would achieve a state of insurability and thus bridge the capitalization gap required for mainstream financing of blockchain enterprise. This arrangement applies primarily to basic infrastructure and derivatives of basic infrastructure which may not actually be a bad thing at all.
On a critical path.
The Earth is an epic case study in deferred maintenance. There are very real and serious global problems that impact every living creature on Earth that we need to attend to immediately. Critical path methodology is a technique familiar to all builders as a set of instructions specifying where one action must precede the next in order for subsequent actions to occur. Millions of business plans that provide basic human needs and protect our natural resources, and that are currently unprofitable, will suddenly become hugely profitable.
These outcomes could be accomplished with the recommendations provided within. Please read this article and forward it to others who are interested in this technology. There is very real money to be made in the next economic paradigm that is currently at our fingertips.
Article available here: http://www.naic.org/cipr_newsletter_archive/vol19_blockchain.pdf