Blockchain: Application to Banking & Insurance
Blockchain in the Banking & Insurance fields
Blockchain technology has been acknowledged as one of the most disruptive innovations for current business models since the advent of the Internet. It has the potential to resolve many issues across different industries.
Although, keep in mind, that blockchain is not the solution for every business and is still a premature technology that is being developed. But in order to understand the disruption this technology brings upon us, we must first understand how it works and how it stands together. A “simple” blockchain, usually has the following characteristics:
Although the last characteristic, “Hack Resistance” only applies to Blockchains that use a Proof of Work consensus algorithms and have a large mining community around them (As of now, only Bitcoin and Ethereum would fit). Even though proof of work is the “king” when it comes to being “hack-resistant”, there are also other consensus algorithms that possess the characteristic of having a minimal risk of being hacked.
While these news consensus algorithms are yet to be stress tested at a mass scale like the Proof of Work has gone through in Bitcoin & Ethereum, they have a chance to proof their robustness when dealing with millions of users. Therefore, from all this, we can say that blockchains are distributed data structures that are cryptographically secured and linked together after all the parties involved come to an agreement of the network status according to their predefined rules of the “game”.
In order for blockchain to pass from an early adopters technology to mass adoption, the right infrastructure needs to be available for companies to jump on the upcoming blockchain revolution. Basically, there are three types of networks structure a blockchain can have embedded in it: Centralized, Distributed and Decentralized networks.
As seen above, a centralized network is dependent on a single central point of information. This network is the most common one deployed by companies to function internally, as it’s much easier and cheaper for them to store all the information in a central database and distributed among different points than having multiple databases. This type of network is very vulnerable as they have one single point of failure, and once the only point of information has been breached or corrupted, the entire system is affected.
A decentralized network allows companies to defend from a central single point of failures. This type of network is more reliable than a centralized one, as the system can still function if one of the decentralized points has been compromised. A distributed network is the most secure and robust type of network we can find. There is no single point of failure, or central point to attack to bring the system down. Distributed networks resemble the greek mythological character, the hydra, when one point is removed from the network, new points arise to make the network even stronger.
This last type of network is the most used amongst cryptocurrencies. Although public blockchains are distributed systems, this does not mean that all of the blockchains projects in the market should follow that same path. It is up to the company that wants to run their business on a blockchain, to choose which type of network infrastructure suits best according to their business model.
That is why certain companies have seen this as an opportunity to provide the right tools for other companies to create their own blockchains. From our point of view these are the companies that stand out the most:
Is developing production-ready infrastructure to power the future of enterprise software. A production-ready, enterprise-grade blockchain platform, complete with an ecosystem of tools and services, enabling the next generation of blockchain functionality. Their product offers a modular architecture built and is designed thinking on security, performance, and scalability as their main features.
As an open, flexible, and scalable platform, Azure supports a rapidly growing number of distributed ledger technologies that address specific business and technical requirements for security, performance, and operational processes. Microsoft allows users to connect to the vast ecosystem their platform offers.
Is the leading provider of blockchain technologies, it is at the forefront of work in cryptography and distributed systems, their primary area of business are sidechains on top of Bitcoins Blockchains in order to increase the capabilities and create new models of trust around public blockchains . Their concept of “Confidential Assets” allows companies to use public blockchains while leaving some aspects private due to the sensibility around the information. For example, a bank could use a public blockchain but would not want to reveal the transactions details of their clients.
ConsenSys is a blockchain venture production studio that wants to harness the power of Ethereum. Our global team is building an ecosystem of consumer-centric products and enterprise solutions using blockchain technologies, primarily Ethereum. They are constantly working on building the infrastructure, applications, and practice that enable a decentralized world.
Axoni serves the world’s largest financial institutions and capital markets service providers with full stack blockchain solutions. They help companies to implement Blockchain technology within their existing organizations, with their distributed technology they provide secure, multi-party data infrastructure with unparalleled performance.
The blockchain will do to the financial system what the internet did to media. However, banks and financial institutions are still figuring out how to apply new technology to improve their core business.
Banks are eagerly desperate to join in the innovation trend going on nowadays but they do not exactly have much time for it. They are restricted to comply with an absurd amount of new regulations that have made them spend a lot of money to ensure they comply with the regulations. Thanks to blockchain, its vision became more clear, and almost all of the banks out there in the world (not to say all) have started to work with the possibilities this technology offers them.
Banks and financial institutions are still figuring out how to apply new technology to improve their core business and adapt it to the digital era. Most of the startups working to become the new retail banks of the 21st century are mainly focused on banking the 2.5 billion people out there who do not have access to financial products. Interesting times are ahead of us and so are the next generation of digital banks.
From our point of view, these are the companies that stand out the most in this market segment:
BaBB is a banking platform being built using Ethereum’s network, to take advantage of their Smart Contracts possibilities. BaBB also uses machine learning, Artificial Intelligence, and biometrics to create a richer and more personalized customer experience for the new micro-economy. Their banking platform will allow anyone in the world to open a bank account and crowdsource financial services.
Humaniq is a simple and secure 4th generation mobile bank. They are developing a completely new banking experience by dissolving all the barriers of actual banks such as the need to come to a physical store, doing endless paperwork, dealing with hard-to-use, bug-ridden mobile apps. Their goal is to give the uneducated the same functionalities a bank offers educated people but due to its simplicity, one would no need to be educated.
2gether Bank is the first Spanish Blockchain Bank. It allows users to get a full banking service with one single interface. Their goal is to allow any customer to hire, manage and exchange financial and non-financial assets through the use of blockchain technology. This is done by tokenizing assets (representation of a nondigital asset via a virtual coin) such as electricity, gasoline, knowledge etc and making them available at the client’s fingerprint in their account.
Bankera is building a digital bank to last for the blockchain era. As a traditional bank, Bankera’s services fit into three groups: Payments including payment accounts with personal IBAN, debit cards, interbank foreign exchange rates and payment processing.
Investments will consist of low-cost investment products such as exchange-traded funds (ETFs), crypto-funds (a portfolio of various cryptocurrencies and crypto tokens) as well as roboadvisory solutions for wealth management.
is a fully digital bank that is accessible everywhere via mobile. They are building an ecosystem that allows the user to control, manage and optimize their finances regardless of their background, and they achieve this by combining all the features modern banking should have, IoT, Big Data, and Blockchain Based technologies.
Even though retail banking is seeing the rise of many new competitors with the arrival of fintech and blockchain, it is not the only area of banking that is experiencing a massive growth of competitors. With the creation of cryptocurrencies and tokenized assets, investment firms now have a new range of “commodities, assets, tokens” to bet on. Although they may be extremely volatile, there are enormous opportunities to create wealth around this industry and take massive profits from it.
From our point of view, these are the companies that stand out the most in this market segment:
CME Bitcoin Futures
“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” said Terry Duffy CEO of the CME Group. This announcement was perceived as major news among the crypto community. Users now have access to future contracts of bitcoin. The creation of such futures allowed traditional and institutional investors to bet on bitcoins price.
Manages the world’s premier blockchain asset hedge fund. They invest in companies that are creating protocols for the web 3.0, examples of this would be Ethereum, Blockstack, Filecoin etc. This means that they do not participate in any ICO that creates a token on top of another blockchain.
Is a unique concept of investing in the finance world. They are a proprietary trading and investment company where decisions about profits or investment strategies are controlled by their token holders (using their tokens to vote on the paths the company should take). They are dedicated to create the first investment collective built through the power of blockchain and artificial intelligence.
is an investment firm that focuses exclusively on ventures, tokens and projects relation with blockchain technology, digital currencies and crypto assets. They want to become one of the important catalysts for the widespread of cryptocurrencies and blockchain technology.
Is creating what they claim to be “the world´s best framework for tokenized funds to deliver investment opportunities in both the real world and in crypto economies, which brings blockchain flexibility to fiat instruments as well as the benefits of accumulated financial wisdom to crypto investments.
Created by the company Overstock (American internet Retailer), wants to become the regulated trading system that is compliant with the SEC (Securities and Exchange Commission). They are creating a distributed ledger platform for capital markets making a reduction in settlement time and costs, as well as an increase in transparency, efficiency and auditability. The platform is modular and adaptable, and works you step by step from the pre-trade, trade, and post-trade all in one place.
Not only the financial sector is interested in the development of this technology, it is important to also keep an eye on the development of blockchain for the insurance sector. Blockchain brings in to the table many key aspects for the insurance business models. Companies will be able to have automatic payrolls, traceability of assets and risk hedging, are among the many benefits blockchain Companies around the insurance sector are taking it very seriously and trying to implement the use of blockchain as fast as possible.
A blockchain network seems to fit perfectly within the business models of insurance companies. It will allow them to offer the insurer a very tailored type of insurance for their exact needs, instead of having generic insurances for everyone. It will also allow the automation of many aspects of the industry, as well as a huge decrease in paper consumption to portray all the conditions of the contracts.
Companies around the insurance sector are taking it very seriously and trying to implement the use of blockchain as fast as possible. The largest US-based health insurer is looking to hire a new point person for blockchain development.“Here, innovation isn’t about another gadget, it’s about making health care data available wherever and whenever people need it, safely and reliably. There’s no room for error. We are about to disrupt healthcare by applying blockchain technologies.”
Here are some of the main startups trying to reinvent the insurance market space:
Dynamis wants to become the first peer-to-peer insurance company to apply the benefits of smart contracts. Users can login or identify their identity via Linkedin. Through a reputational system based on Linkedin, claimants can check the correctness of the compensation received for example.
Is a Bitcoin-based peer-to-peer insurance platform, allows users to provide each other coverage for whatever they want, however they want, and without requiring any trusted intermediaries. Teambrella is a platform that allows people to form teams that offer each other coverage. If one person within that team requires reimbursement, the rest of the team chips in to provide it.
Is a decentralized autonomous organization (DAO) with an Insurance Protocol Crowd-sourced insurance pools discovery. A user can earn rewards from prediction markets powered by the DAO Smart contracts. It can also insure any type of IoT (Internet of Things) device, with the use of a smart contract.
Was selected by the South Korean government as the major operator of its Blockchain project. Kyobo is expected to facilitate tests and pilot experiments with the South Korean government’s Blockchain platform. includes the above-mentioned startups, will utilize the base Blockchain codebase developed by the Ministry of Science, ICT and Future Planning and implement it to a system specifically designed for insurance companies and healthcare corporations. The Consortium revealed that the organization’s project will focus on automating small amounts of insurance payments to healthcare.
Blockchain is new buzz across big established institutions; it has a market cap of roughly 23 Billion USD. Many private firms and venture capitalist are eager to enter the market and are investing in the countless number of promising startups. This is a vital part of the ecosystem since more companies are being funded and have more access to a wider range of clients they can develop products for.
Here are some of the main startups backed by “important” firms:
Rubix by Deloitte
Aims to bring start-up speed and enterprise reliability to the blockchain market. Is an Ethereum compliant software platform that allows its clients to build applications on top of blockchain infrastructure. Developed by Deloitte. Basically, they have taken a decentralized model and built a centralized model on top of it so they have control over the companies using their Blockchain.
Hyperledger Fabric by IBM
Is a business blockchain framework hosted by the Linux Foundation for developing blockchain applications or solutions with a modular architecture, it allows components such as consensus and membership services to be plug-and-play. It is developed by IBM, and it allows two or more parties to automate contractual agreement in a trusted way (manufacturing supply chain, asset depository, interoperability of assets).
Quorum by JP Morgan
Quorum is an Ethereum permissioned blockchain and distributed crypto ledger Enterprise ready distributed ledger and smart contract platform. A joint effort with ethlab, it is inspired by a consensus algorithm called tangaroa a variant of raft consensus which is said to offer improved scalability over proof of work mining. Consensus is reached through election type system that determines leader and group of followers (500 transactions per seconds and latency of 2ms).
Bletchley by Microsoft
Project bletchley is an open modular blockchain as a service fabric powered by azure. Modular blockchain fabric interacting with identity and key management.
In order to advance the development of blockchain standards across all industries, many entities have allied to create nonprofit organizations with the end goal of advancing the state of blockchain around the world. The idea is to contribute and work together to agree on standards for the industry and bring blockchain to as many business models as possible.
Here are some of the most important alliances:
Ethereum Enterprise Alliance
The Enterprise Ethereum Alliance connects Fortune 500 enterprises, startups, academics, and technology vendors with Ethereum subject matter experts.
Open source cooperative managed by Linux foundation creating permissioned distributed ledger platforms to help financial institutions mitigate settlement risk and lower reconciliation costs.
Permissioned and private blockchains technology provider leading a consortium of more than 70 financial institutions. Corda platforms allows to manage and execute financial agreements.
The Blockchain Insurance Industry Initiative B3i, which was launched in October 2016 to explore the potential use of distributed ledger technology, has grown to fifteen members from its original five. Members of the B3i Initiative are collaborating to explore the ability of blockchain technologies to increase efficiencies in the exchange of data between reinsurance and insurance companies. The current members of B3i are Achmea, Aegon, Ageas, Allianz, Generali, Hannover Re, Liberty Mutual, Munich Re, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Swiss Re, Tokio Marine Holdings, XL Catlin and Zurich Insurance Group. (The original five members were Aegon, Allianz, Munich Re, Swiss Re, and Zurich.
Alastria is a technology and knowledge platform where companies collaborate and compete at the same time. Its mission is to provide the Spanish companies with the basic Blockchain infrastructure with Alastrias network, so we can create a standard digital identity that can allow the transactions on top of the network to have legitimacy within the actual regulatory framework these companies are exposed to.
This way Spanish society can develop its own strategy when it comes to blockchain implementation. This initiative has been backed by most of the important corporations funded on Spain.
Overall, blockchain technology is going to help financial and insurance companies to cut costs and will allow them to truly become globalized and connected to the world. Although, many developments must be put in place before we can see a wide adoption among firms, we are not far away from seeing the pilot projects pass to production stages.
Up until now, many companies are researching the endless possibilities that blockchain gives them and how they can implement them in order to benefit. There is a long but exciting road ahead, where will be able to see what companies are cutting hedge and what companies are based on antique business models.
The companies that are able to innovate well enough are the ones who will be the winners, while the incumbents will be sentenced to death by this technology.