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© Z/Yen Group
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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♦ 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
([email protected]) or Chiara
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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2014
Systemic Scrunch Bright Or Dark?
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2014
London Accord
Financial Centre
Futures
Meta-Commerce
Eternal Coin
Long Finance Programmes
♦ Founded 2005
♦ Focus on finance & ESG
issues
♦ New thematic strand on
finance & cities since launch
of Financing Tomorrow’s
Cities in 2013
♦ 60 contributing organisations
♦ Over 420 reports free to
access on the website
♦ Long Finance’s ‘sustainable
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
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18
September
2014
From Gold to Paper and Back Again Lecture -
24
September
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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