Will the Bitcoin Blockchain Model Change Insurance?

Bitcoin, the alternative currency, is changing the way that the world operates. It uses a decentralized system to create a secure and anonymous payment system that can be used nearly anywhere in the world. The currency has not been without its ups and downs and the value of a bitcoin has become immensely volatile with a single coin being worth anything from $200 – $1,000 in the last year alone.

The Blockchain

The blockchain is a database that is shared continuously by every node within a system; it is held in a distributed form which is fully encrypted. There are no requirements for third party checks of the system to validate a transaction or coordinate interactions within that system.

In essence it provides a system which is completely secure and which requires no central authority to work effectively.

Insurers currently provide four functions (from a financial perspective) they check the existence of something to be traded (a policy), they prevent duplication of transaction (e.g. no policy is sold twice to the same person), they handle disputes that arise from transactions and acts as representatives of their clients.

All of these functions could theoretically be duplicated by a blockchain. And insurers will be concerned to learn that the functionality of a blockchain could then provide:

Smart Contracts

A smart contract is a self-administered policy; one which is fully automated and in which the owner of the policy remains fully in control of that policy at all times. They would be able to upgrade and downgrade coverage as needed and without ever consulting the insurer directly.

Decentralized Autonomous Organizations (DAOs)

Bitcoin was the first DAO. It doesn’t necessarily follow that an insurer would be happy with this model of running a business in that the insurance DAO would literally exist outside of the law. A well-developed blockchain which was self-sufficient could provide enough security for people to move to an insurance model beyond traditional regulation. This would deliver new risks for consumers of insurance but substantially reduce the operating costs of an insurance business.

Increased Security in Policy Administration

While it is impossible to say that any technology is completely secure; no-one has yet managed to break the encryption and decentralized architectural approach of a blockchain. That means an identity created within a blockchain would be completely unique and offer a higher level of security that the insured party was who they claim to be and offer a greater sense of online security in general than say authenticating with social media (which requires no such identity development and can easily be faked).


It appears that the insurance industry could reduce costs and increase reach to any market simply and easily with blockchain technology. However, it remains to be seen whether any current insurer is willing to take the leap of faith required to put this into action. If they do not; it is almost certain that a new breed of insurer will arise to do so. The reduced administration costs and increased levels of security are both major benefits to customers even if they are challenging for the current insurance model to handle.


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