Michele Curtoni heads the strategy and new business development at SDX, SIX’s regulated digital asset exchange platform, which is part of the SIX Financial Group, the financial market infrastructure of Switzerland. In this podcast we discuss a wide range of topics from wholesale CBDC projects, cryptocurrencies and a lot more from the optic of a regulated digital asset platform. What is blockchain? The first time Michele was explained what is blockchain was in 2014/15. At that time it was described to him as an append only data structure. It’s an Excel where you never can delete a row, you can only add them, but you can look up whatever you wrote before and what other people wrote before it. It has a chatter effect where you have to validate what is heard by the participants in a “room”. In terms of how it applies to the financial industries, it comes down to the ledger, the compression of the ledger, intermediaries and malicious actors onto a network and how the validation of the blocks would work. SIX and SDX SIX is the financial market infrastructure of Switzerland. SIX operates the infrastructure for the Swiss and Spanish financial centres. The BME (Bolsa de Madrid), the stock exchange of Spain, was acquired by SIX in 2020. SIX runs the CSD, central securities depository, in Spain, the clearing house called X-Clear and the listed exchange. Michele describes, SDX as a bet that SIX took a few years ago to start capitalising on the blockchain revolution. There was a recognition that SIX needed to prepare itself for this digital revolution of digital assets and crypto currencies hitting the traditional FMI space. SDX was built to cater for this new business, of both crypto and digital securities by creating a kind of CSD on blockchain to tokenise those digital regulated securities. In September 2021, FINMA, the Swiss Financial Market Supervisory Authority issued two approvals to operate financial market infrastructures based on blockchain. Specifically, FINMA has authorized SIX Digital Exchange AG to act as a central securities depository and the associated company SDX Trading AG to act as a stock exchange. This was the first time that a licence has been issued in the Swiss financial centre for infrastructures that facilitate the trading of digital securities in the form of tokens and their integrated settlement. This proved that you can build a CSD under a specific regulatory regime, using a private DLT This allows for atomic settlements, trading and settling at the same time, and for smart contract enablement. In November 2021, SIX issued its own dual tranche bond to fund the M&amp;A transaction to acquire BME. The CHF 150m ($162m) bond was composed of a CHF 100m digital bond listed on SDX and CHF 50 million conventional bond listed on the SIX Swiss Exchange. The splitting of that bond in this manner was voted by the participants. The bond was oversubscribed and the rating was equal across the two channels. Wholesale CBDC projects SDX participated in two wholesale CBDC projects. Project Helvetia, was conducted by SND, the Swiss National Bank, the Bank for International Settlements (BIS), SIX/SDX and 5 commercial banks. The project looked at introducing a Digital Swiss Franc as a CBDC in Switzerland. Project Jura, the second wholesale CBDC project involved Banque de France, BIS, SDX and the Swiss National Bank. The project aimed       to enable instant settlement of foreign currency transactions as payment versus payment (PvP) and the use of wholesale CBDC to pay for tokenized commercial paper transactions as delivery versus payment (DvP) with immediate settlement. The project also aimed to explore how cross border central bank movements of assets and money would work. It looked at the concept of DvP, of commercial paper, in this case issued under French law against a Euro CBDC and then a PvP of that Euro CBDC versus the Swiss Franc CBDC. So, a transfer of assets versus cash and then cash versus cash. The project proved that such kind of transactions were possible but achieving scale is a whole other question. For example, if assets and cash aren’t on a similar ledger you have the question of interoperability that needs to be addressed. When they are on the same ledger you enter into the topic of whether or not these assets have to be digitised? Cash is easy to digitise but for securities that’s a different question. For example, for a security where does the security sit on the CSD? Is the CSD allowing for tokens? With SDX yes, but with others, no. Thus, you need to be building more digital securities platforms than SDX. So, the benefits on cash do not really help the financial system unless you have digital securities and vice versa. SDX and crypto currencies? In December 2021, SDX announced a joint venture with SBI Digital Assets, a fully owned subsidiary of Japanese banking giant SBI Holdings. The joint venture, Asia Digital Exchange (ADX), would be set up in Singapore through a crypto issuance company and aims to launch an institutional spot crypto exchange. The new undertaking will offer a range of digital asset products and services in the form of tokenized securities such as digital bonds, digital equities and digital securitized loans. SDX sees ADX as a potential partner in the future as a consumer or as a servicer of the SDX business. SIX already has more than 60 ETPs, exchange traded products, based on cryptocurrencies. SDX, being a natively digital company as big crypto plans of its own. SDX plans for the next 12 months? SDX frames itself in three big pillars:  Digital securities: growing the FMI business Crypto Exploratory business for new business models enabled by blockchain such as a carbon registry, tokenisation of art, NFTS for institutional investors, DeFi and real estate

<p><a href="https://www.linkedin.com/in/mcurtoni/" rel="nofollow" target="_blank">Michele Curtoni</a> heads the strategy and new business development at SDX, SIX’s regulated digital asset exchange platform, which is part of the <a href="https://www.six-group.com/en/home.html" rel="nofollow" target="_blank">SIX Financial Group</a>, the financial market infrastructure of Switzerland. In this podcast we discuss a wide range of topics from wholesale CBDC projects, cryptocurrencies and a lot more from the optic of a regulated digital asset platform.</p> <h2>What is blockchain?</h2> <p>The first time Michele was explained what is blockchain was in 2014/15. At that time it was described to him as an append only data structure. It’s an Excel where you never can delete a row, you can only add them, but you can look up whatever you wrote before and what other people wrote before it. It has a chatter effect where you have to validate what is heard by the participants in a “room”.</p> <p>In terms of how it applies to the financial industries, it comes down to the ledger, the compression of the ledger, intermediaries and malicious actors onto a network and how the validation of the blocks would work.</p> <h2>SIX and SDX</h2> <p><a href="https://www.six-group.com/en/home.html" rel="nofollow" target="_blank">SIX</a> is the financial market infrastructure of Switzerland. SIX operates the infrastructure for the Swiss and Spanish financial centres. The <a href="https://www.bolsamadrid.es/ing/aspx/Portada/Portada.aspx" rel="nofollow" target="_blank">BME</a> (Bolsa de Madrid), the stock exchange of Spain, was acquired by SIX in 2020. SIX runs the CSD, central securities depository, in Spain, the clearing house called X-Clear and the listed exchange.</p> <p>Michele describes, <a href="https://www.sdx.com/" rel="nofollow" target="_blank">SDX</a> as a bet that SIX took a few years ago to start capitalising on the blockchain revolution. There was a recognition that SIX needed to prepare itself for this digital revolution of digital assets and crypto currencies hitting the traditional FMI space. SDX was built to cater for this new business, of both crypto and digital securities by creating a kind of CSD on blockchain to tokenise those digital regulated securities.</p> <p>In September 2021, <a href="https://www.finma.ch/en/" rel="nofollow" target="_blank">FINMA</a>, the Swiss Financial Market Supervisory Authority issued two approvals to operate financial market infrastructures based on blockchain. Specifically, FINMA has authorized SIX Digital Exchange AG to act as a central securities depository and the associated company SDX Trading AG to act as a stock exchange. This was the first time that a licence has been issued in the Swiss financial centre for infrastructures that facilitate the trading of digital securities in the form of tokens and their integrated settlement. This proved that you can build a CSD under a specific regulatory regime, using a private DLT</p> <p>This allows for atomic settlements, trading and settling at the same time, and for smart contract enablement.</p> <p>In November 2021, SIX issued its own dual tranche bond to fund the M&amp;A transaction to acquire BME. The CHF 150m ($162m) bond was composed of a CHF 100m digital bond listed on SDX and CHF 50 million conventional bond listed on the SIX Swiss Exchange. The splitting of that bond in this manner was voted by the participants. The bond was oversubscribed and the rating was equal across the two channels.</p> <h2>Wholesale CBDC projects</h2> <p>SDX participated in two wholesale CBDC projects. <a href="https://www.bis.org/publ/othp35.pdf" rel="nofollow" target="_blank">Project Helvetia</a>, was conducted by SND, the Swiss National Bank, the Bank for International Settlements (BIS), SIX/SDX and 5 commercial banks. The project looked at introducing a Digital Swiss Franc as a CBDC in Switzerland.</p> <p><a href="https://www.bis.org/publ/othp44.htm" rel="nofollow" target="_blank">Project Jura</a>, the second wholesale CBDC project involved Banque de France, BIS, SDX and the Swiss National Bank. The project aimed       to enable instant settlement of foreign currency transactions as payment versus payment (PvP) and the use of wholesale CBDC to pay for tokenized commercial paper transactions as delivery versus payment (DvP) with immediate settlement. The project also aimed to explore how cross border central bank movements of assets and money would work.</p> <p>It looked at the concept of DvP, of commercial paper, in this case issued under French law against a Euro CBDC and then a PvP of that Euro CBDC versus the Swiss Franc CBDC. So, a transfer of assets versus cash and then cash versus cash.</p> <p>The project proved that such kind of transactions were possible but achieving scale is a whole other question.</p> <p>For example, if assets and cash aren’t on a similar ledger you have the question of interoperability that needs to be addressed. When they are on the same ledger you enter into the topic of whether or not these assets have to be digitised? Cash is easy to digitise but for securities that’s a different question. For example, for a security where does the security sit on the CSD? Is the CSD allowing for tokens? With SDX yes, but with others, no. Thus, you need to be building more digital securities platforms than SDX. So, the benefits on cash do not really help the financial system unless you have digital securities and vice versa.</p> <h2>SDX and crypto currencies?</h2> <p>In December 2021, SDX announced a joint venture with <a href="https://sbidah.com/" rel="nofollow" target="_blank">SBI Digital Assets</a>, a fully owned subsidiary of Japanese banking giant <a href="https://www.sbigroup.co.jp/english/" rel="nofollow" target="_blank">SBI Holdings</a>.</p> <p>The joint venture, Asia Digital Exchange (ADX), would be set up in Singapore through a crypto issuance company and aims to launch an institutional spot crypto exchange.</p> <p>The new undertaking will offer a range of digital asset products and services in the form of tokenized securities such as digital bonds, digital equities and digital securitized loans.</p> <p>SDX sees ADX as a potential partner in the future as a consumer or as a servicer of the SDX business.</p> <p>SIX already has more than 60 ETPs, exchange traded products, based on cryptocurrencies. SDX, being a natively digital company as big crypto plans of its own.</p> <h2>SDX plans for the next 12 months?</h2> <p>SDX frames itself in three big pillars:</p> <ul> <li>Digital securities: growing the FMI business</li> <li>Crypto</li> <li>Exploratory business for new business models enabled by blockchain such as a carbon registry, tokenisation of art, NFTS for institutional investors, DeFi and real estate</li></ul>

Ep. 178 – SDX – SIX’s regulated digital asset exchange platform

Iota Nassr is a policy analyst at the OECD within the financial markets division. She currently manages the FinTech experts group of the OECD Committee on Financial Markets, leading the analysis around anything that has to do with digitalization of finance. The OECD Report “Why decentralised finance matters and the policy implications” is product of the committee’s expert group composed of representatives of the 38 OECD members coming from Central Banks, Ministry of Finance and other financial authorities.   What is blockchain? Iota’s definition of blockchain hasn’t changed much since her previous podcast on Insureblocks on “Tokenisation of Assets and Potential Implications for Financial Markets – OECD Report” on the 13th of June 2021. She still sees blockchain and DLT, more broadly, as a way to record, share information and to exchange value in a decentralised manner without the need for trusted central authorities or intermediaries. However now she believes the emphasis is now more on the programmable nature of decentralised distributed ledger technologies and the level of disintermediation involved in the different networks and structures that we observe in the market.   Why this report?  The Summer of 2020, also known as the DeFi summer caught the attention of the OECD. This was due to the exponential growth they were observing and the level of participation of retail investors in what is a very highly volatile market that is devoid of the traditional safeguards that are in place for investors and consumers in traditional financial markets. The feedback loops they have observed between DeFi and mainstream crypto such as Bitcoin, Ether ,the main stable coins along with the recycling of profits between the two kinds of environments, made it increasingly critical for the OECD to have a look at this space. The final reason for analysing this market was the growing institutionalisation of crypto assets, which may be increasing risks of interconnectedness between decentralised and traditional finance. This report’s objectives is to like into DeFi models to understand the risks, opportunities and implications for traditional finance.   What is Defi? DeFi, decentralised finance, claims to replicate what is known as traditional finance in a decentralised way in an open way through applications built on Ethereum and increasingly on other blockchains. There are two possible misconceptions around DeFi. The first is that not all DLT based financial applications are DeFi. So the fact that a financial application is built on the blockchain does not make it by default part of DeFi. The second misconception has to do with self proclaimed DeFi applications that may not be truly decentralised. The degree of decentralisation varies from one project to another. The report defines three key defining features:  Non-custodial: The protocols and the applications have a non-custodial nature. There is no central authority or other intermediary gains access to or control over participants’ digital assets; instead, participants manage their private keys, and therefore their digital assets, directly. Self-governed and community-driven: Most DeFi protocols are open-source and allow the community to review and further develop the code underlying the protocols. This happens through the use of governance tokens. Composable: Existing components of DeFi networks (i.e. digital assets, smart contracts, protocols and applications built on top of the protocol layer) can be combined to create new applications. The open source nature of DeFi applications is a critical enabler of this attribute, as it allows everyone to look at the code and use it to create new applications.  Source: OECD Report Author   Most popular DeFi products The concept of liquidity mining and of collateralized lending on the DeFi lending protocols was one of the most obvious ways for investors to earn yield on the back of mainstream crypto that they already held. Because of that collateralised lending rapidly became the fastest growing DeFi product followed by decentralised exchanges (DEX) while other applications such as derivates and synthetics also grew in popularity. Institutional investors alongside decentralised exchanges are also participating in collateralized lending.   Growing interconnectedness between crypto and traditional markets The OECD Committee on Financial Markets has noticed a shift in traditional financial institutions from the education phase of what is Bitcoin and what is blockchain to the investment phase where they are allocating parts of their portfolio in such assets. The Committee is looking at the potential risk of growing interconnectedness between decentralised and traditional finance which could lead to the potential spill over to the traditional financial system and the real economy. Iota gives an example that if there was a generalised distress in the crypto market, an investor who is exposed to losses on his crypto related investments may have to close his positions on other parts of his portfolio therefore propagating this kind of shock.   KYC &amp; AML this is a bit of a paradox because we know that the blockchain allows for complete transparency. And all transactions are traceable and verifiable on the chain. But they are verifiable and traceable in pseudonymous way, we don’t have recourse to the identity of the participating node. And this is what makes it complicated.   Unlimited leveraged trading of crypto-assets The possibility to engage in almost unlimited leveraged trading of crypto-assets is one of the main risks involved in DeFi. Whilst current DeFi applications benefit from high levels of over-collateralisation, it could be expected that further growth of the Defi market would bring it that level down to allow for better capital efficiency, as competition would put pressure on tokenomics involved in DeFi protocols. The volatility of crypto-asset prices intensifies the fragility of the DeFi market, and volatility spikes in the price of main crypto-assets pledged as collateral for borrowing and leverage or provided as liquidity for yield farming can induce massive automatic liquidations in DeFi protocols. Such liquidations can have a domino effect on investor holdings across the board, and may even have spill over effects in traditional financial markets.   Positives that DeFi applications can provide to financial markets DeFi applications have the potential to provide benefits to financial market participants in terms of speed of execution and transaction costs, driven by the efficiencies produced by DLT-technological innovation and disintermediation of third parties replaced by software code of smart contracts. The governance arrangements along with the open source nature of DeFi allow for possibly more equitable participation of users and the promotion of innovation in financial services.   Drivers of institutional investors in digital assets The OECD has identified three forces that underline and contribute to this increased institutional investor interest in digital assets of which the majority is in Bitcoin, followed by Ether. The first force has to do with this search for yield in what was until recently a prolonged low interest rate environment. The same kind of speculative forces, the same kind of fear of missing out that led retail investors has been driving also institutions. The second reason is the potential of crypto assets for diversification and portfolio optimization. Investors perceive as uncorrelated nature of returns, they wish to diversify their portfolio by adding this kind of non-correlated assets such as crypto. However, the OECD’s report dismisses this hypothesis as they have been seeing a growing correlation between mainstream crypto assets and the large traditional asset class. The third reason is the perceived benefit of crypto for institutional investors as an inflation hedge. However, the OECD’s analysis finds that the main crypto assets have not really performed as effective inflation hedge, but that does not prevent investors from perceiving it as a good inflation hedge which drives them demand for Bitcoin in particular   How can existing regulatory frameworks work with decentralised structures? Some of the tools that are being used in centralised settings may need to be redesigned in order to be interoperable and compatible with decentralised structures. One other approach is to re-centralise DeFi in order to get some kind of comfort from a supervisory and regulatory standpoint without necessarily completely undermining decentralisation. Some forms of centralization already exists in such networks and could be considered as this single regulatory access point. For example DAOs could play this role or majority governance token holders. Other tools could be around regulatory compliance embedded in code, allowing and or demanding the audit of smart contracts, having mandatory reporting in an automated fashion through machine readable formats.   Roles policy makers can have in DeFi The report lists a number of roles policy makers can provide:  Financial education Improved disclosures in DeFi applications can be seen as a first easy step towards greater protection of participants. For example disclosures on whether or not someone holds an admin key and what kind of rights it gives its holder. Increased regulatory clarity Identify new rules if policy gaps are found and identified.

<p><a href="https://www.linkedin.com/in/iota-kaousar-nassr-05aa66b/" rel="nofollow" target="_blank">Iota Nassr</a> is a policy analyst at the OECD within the financial markets division. She currently manages the FinTech experts group of the OECD Committee on Financial Markets, leading the analysis around anything that has to do with digitalization of finance. The OECD Report “Why decentralised finance matters and the policy implications” is product of the committee’s expert group composed of representatives of the 38 OECD members coming from Central Banks, Ministry of Finance and other financial authorities.</p> <p> </p> <h2>What is blockchain?</h2> <p>Iota’s definition of blockchain hasn’t changed much since her previous podcast on Insureblocks on “<a href="https://insureblocks.com/ep-164-tokenisation-of-assets-and-potential-implications-for-financial-markets-oecd-report/" rel="nofollow" target="_blank">Tokenisation of Assets and Potential Implications for Financial Markets – OECD Report</a>” on the 13th of June 2021. She still sees blockchain and DLT, more broadly, as a way to record, share information and to exchange value in a decentralised manner without the need for trusted central authorities or intermediaries.</p> <p>However now she believes the emphasis is now more on the programmable nature of decentralised distributed ledger technologies and the level of disintermediation involved in the different networks and structures that we observe in the market.</p> <p> </p> <h2>Why this report?</h2> <p><a href="http://insureblocks.com/wp-content/uploads/2022/03/defipulse-chart.jpeg" rel="nofollow" target="_blank"></a></p> <p>The Summer of 2020, also known as the DeFi summer caught the attention of the OECD. This was due to the exponential growth they were observing and the level of participation of retail investors in what is a very highly volatile market that is devoid of the traditional safeguards that are in place for investors and consumers in traditional financial markets.</p> <p>The feedback loops they have observed between DeFi and mainstream crypto such as Bitcoin, Ether ,the main stable coins along with the recycling of profits between the two kinds of environments, made it increasingly critical for the OECD to have a look at this space.</p> <p>The final reason for analysing this market was the growing institutionalisation of crypto assets, which may be increasing risks of interconnectedness between decentralised and traditional finance. This report’s objectives is to like into DeFi models to understand the risks, opportunities and implications for traditional finance.</p> <p> </p> <h2>What is Defi?</h2> <p>DeFi, decentralised finance, claims to replicate what is known as traditional finance in a decentralised way in an open way through applications built on Ethereum and increasingly on other blockchains.</p> <p>There are two possible misconceptions around DeFi. The first is that not all DLT based financial applications are DeFi. So the fact that a financial application is built on the blockchain does not make it by default part of DeFi. The second misconception has to do with self proclaimed DeFi applications that may not be truly decentralised. The degree of decentralisation varies from one project to another.</p> <p>The report defines three key defining features:</p> <ul> <li>Non-custodial: The protocols and the applications have a non-custodial nature. There is no central authority or other intermediary gains access to or control over participants’ digital assets; instead, participants manage their private keys, and therefore their digital assets, directly.</li> <li>Self-governed and community-driven: Most DeFi protocols are open-source and allow the community to review and further develop the code underlying the protocols. This happens through the use of governance tokens.</li> <li>Composable: Existing components of DeFi networks (i.e. digital assets, smart contracts, protocols and applications built on top of the protocol layer) can be combined to create new applications. The open source nature of DeFi applications is a critical enabler of this attribute, as it allows everyone to look at the code and use it to create new applications.</li> </ul> <a href="http://insureblocks.com/wp-content/uploads/2022/03/Main-characteristics-of-DeFi-applications.png" rel="nofollow" target="_blank"></a><p>Source: OECD Report Author</p> <p> </p> <h2>Most popular DeFi products</h2> <p>The concept of liquidity mining and of collateralized lending on the DeFi lending protocols was one of the most obvious ways for investors to earn yield on the back of mainstream crypto that they already held. Because of that collateralised lending rapidly became the fastest growing DeFi product followed by decentralised exchanges (DEX) while other applications such as derivates and synthetics also grew in popularity.</p> <p>Institutional investors alongside decentralised exchanges are also participating in collateralized lending.</p> <p> </p> <h2>Growing interconnectedness between crypto and traditional markets</h2> <p>The OECD Committee on Financial Markets has noticed a shift in traditional financial institutions from the education phase of what is Bitcoin and what is blockchain to the investment phase where they are allocating parts of their portfolio in such assets. The Committee is looking at the potential risk of growing interconnectedness between decentralised and traditional finance which could lead to the potential spill over to the traditional financial system and the real economy.</p> <p>Iota gives an example that if there was a generalised distress in the crypto market, an investor who is exposed to losses on his crypto related investments may have to close his positions on other parts of his portfolio therefore propagating this kind of shock.</p> <p> </p> <h2>KYC &amp; AML</h2> <p>this is a bit of a paradox because we know that the blockchain allows for complete transparency. And all transactions are traceable and verifiable on the chain. But they are verifiable and traceable in pseudonymous way, we don’t have recourse to the identity of the participating node. And this is what makes it complicated.</p> <p> </p> <h2>Unlimited leveraged trading of crypto-assets</h2> <p>The possibility to engage in almost unlimited leveraged trading of crypto-assets is one of the main risks involved in DeFi. Whilst current DeFi applications benefit from high levels of over-collateralisation, it could be expected that further growth of the Defi market would bring it that level down to allow for better capital efficiency, as competition would put pressure on tokenomics involved in DeFi protocols. The volatility of crypto-asset prices intensifies the fragility of the DeFi market, and volatility spikes in the price of main crypto-assets pledged as collateral for borrowing and leverage or provided as liquidity for yield farming can induce massive automatic liquidations in DeFi protocols. Such liquidations can have a domino effect on investor holdings across the board, and may even have spill over effects in traditional financial markets.</p> <p> </p> <h2>Positives that DeFi applications can provide to financial markets</h2> <p>DeFi applications have the potential to provide benefits to financial market participants in terms of speed of execution and transaction costs, driven by the efficiencies produced by DLT-technological innovation and disintermediation of third parties replaced by software code of smart contracts.</p> <p>The governance arrangements along with the open source nature of DeFi allow for possibly more equitable participation of users and the promotion of innovation in financial services.</p> <p> </p> <h2>Drivers of institutional investors in digital assets</h2> <p>The OECD has identified three forces that underline and contribute to this increased institutional investor interest in digital assets of which the majority is in Bitcoin, followed by Ether.</p> <p>The first force has to do with this search for yield in what was until recently a prolonged low interest rate environment. The same kind of speculative forces, the same kind of fear of missing out that led retail investors has been driving also institutions.</p> <p>The second reason is the potential of crypto assets for diversification and portfolio optimization. Investors perceive as uncorrelated nature of returns, they wish to diversify their portfolio by adding this kind of non-correlated assets such as crypto. However, the OECD’s report dismisses this hypothesis as they have been seeing a growing correlation between mainstream crypto assets and the large traditional asset class.</p> <p>The third reason is the perceived benefit of crypto for institutional investors as an inflation hedge. However, the OECD’s analysis finds that the main crypto assets have not really performed as effective inflation hedge, but that does not prevent investors from perceiving it as a good inflation hedge which drives them demand for Bitcoin in particular</p> <p> </p> <h2>How can existing regulatory frameworks work with decentralised structures?</h2> <p>Some of the tools that are being used in centralised settings may need to be redesigned in order to be interoperable and compatible with decentralised structures.</p> <p>One other approach is to re-centralise DeFi in order to get some kind of comfort from a supervisory and regulatory standpoint without necessarily completely undermining decentralisation. Some forms of centralization already exists in such networks and could be considered as this single regulatory access point. For example DAOs could play this role or majority governance token holders.</p> <p>Other tools could be around regulatory compliance embedded in code, allowing and or demanding the audit of smart contracts, having mandatory reporting in an automated fashion through machine readable formats.</p> <p> </p> <h2>Roles policy makers can have in DeFi</h2> <p>The report lists a number of roles policy makers can provide:</p> <ul> <li>Financial education</li> <li>Improved disclosures in DeFi applications can be seen as a first easy step towards greater protection of participants. For example disclosures on whether or not someone holds an admin key and what kind of rights it gives its holder.</li> <li>Increased regulatory clarity</li> <li>Identify new rules if policy gaps are found and identified.</li></ul>

Ep. 177 – Why decentralised finance matters and the policy implications? – OECD Report

In 2016, Etherisc was one of the first companies to launch a real world use case for a flight delay insurance policy on a public blockchain. Regulatory and lack of stable coin hindered that early solution. In 2017, they relaunched along with an insurance partner but still had challenges. In today’s podcast, Christoph Mussenbrock – CEO &amp; Founder of Etherisc shares with us what they have learned since 2016 and why their 2022 launch is going to win.   What is blockchain? Blockchain is a technology which allows you to keep a distributer ledger of transactions. It comes in two flavour as either a public or private blockchain. In a public blockchain, all participants can validate transactions independently thus creating a new level of trust. Some of these public blockchain such as Ethereum offer programmable computing, which enables the running of programs such as smart contracts. Smart contracts can be used to programme a complete insurance business process on top of blockchain which is what Etherisc is doing.   About Etherisc Over the years, Insureblocks has featured a number of Etherisc’s spokesperson such as Stephan Karpischek, Renat Khasanshyn and Michiel Berende. Etherisc was started in 2016 by Chistoph and Stephan when they develop a small prototype for flight delay insurance that they presented at DEFCON2, an Ethereum Developer conference in Shanghai. At that time it was one of the first insurance real world applications. Soon after developing this prototype the Etherisc team started encountering legal and regulatory issues. Whilst tackling those issues they decided to build a whole platform where anybody could build products on top of it, something akin to an operating system for insurance products. This platform is an open-source common infrastructure, the Generic Insurance Framework (GIF), which includes shared smart contracts, product templates, microservices and the native cryptographic token (DIP) to enable the seamless and efficient creation of decentralized insurance products, with increased transparency and fairness for all parties. Over the last few years they have developed a new legal model which for the German market and most other European countries which enables them to run insurance products without needing an insurance license which can be quite expensive with a large number of regulatory compliance issues. This new legal model enables Etherisc to design insurance products without the need of a formal insurance license with the approval of the German financial regulator. Projects currently hosted on Etherisc’s open-source Generic Insurance Framework include FlightDelay Insurance, Crop Insurance, and Hurricane Protection.   Flight delay insurance, relaunch? When Etherisc’s flight delay insurance launched as a prototype in 2016 it had no legal framework and no stable coin to leverage for it to have a compelling proposition. The lack of a stable coin meant a highly volatile risk with the use of Ethereum coin leading to insurance payout of either nothing or very large sums of money. In 2017, Etherisc partnered with Atlas Insurance PCC to address the lack of an insurance license. Etherisc could effectively rent the Atlas Insurance license. However, a Stamp Tax of $15 for each policy meant launching the flight delay proposition was not feasible as the average premium was around $15. It was only in 2022 that Etherisc could successfully launch their Flight Delay product with a solid legal framework and a stable coin like DAI with which it could run its transactions on.   Thoughts on Fizzy from AXA In August 2018, Insureblocks featured Fizzy, AXA’s flight delay insurance policy, which subsequently closed in 2020. You can listen to their learnings of that experience on an Insureblocks podcast. Christoph view on that is that AXA like other traditional financial companies, typically have very complex internal IT systems which are heavily regulated. Their IT managers and security managers, who are responsible to keep the systems running, are not comfortable with blockchains, and even less with public blockchains. Christoph states that it is completely against their thinking to have an open, anonymous platform that they can’t control and where they don’t run the nodes. Thus, it’s very complicated for a traditional financial institution to integrate with a public blockchain.   User experience A customer goes to Etherisc’s flight delay website to select airline, enter flight number and date of departure. The price is always the same, set at $15 and the payout varies according to the risk of the flight being delayed. Etherisc believes in transparency as it shoes the probability of the flight being delay in percentage terms and also the percentage of flights which have been cancelled in the last month along with the possible payout.  The purchasing process happens when the customer links their MetaMask crypto wallet. No other details is required. No need to enter name, address, passport and no KYC because the $15 premium is below the threshold of when KYC is needed. In comparison to traditional insurers, there is no personal data that is stored by Etherisc, no paper work and the customer remains anonymous. If the flight is delayed or cancelled the payout happens automatically and the funds will be placed in the customer’s MetaMask wallet. No need for the customer to file a claim as in the case with traditional insurance.   Chainlink A smart contract that lives on a blockchain has no direct connection to any external data source. For it to connect with external data you need an oracle as the ones provided by Chainlink. Insureblocks did a podcast with Sergey Nazarov, CEO of Chainlink. Chainlink provides to Etherisc decentralised networks of oracle data which is then aggregated into a single data file which can then be processed by Etherisc’s smart contracts. With Chainlink, Etherisc has access to an open data marketplace where it can select the relevant data sources such as FlightStats which has access to high quality data from all airports and all airlines.   What’s next For the flight delay insurance, Etherisc is look for distribution partners such as travel agents as flight delay insurance needs to be integrated at the point of purchase. Etherisc is launching a platform for them to launch their own risk pools and are also forging a Global Alliance for Climate related risks.

<p>In 2016, <a href="https://etherisc.com/" rel="nofollow" target="_blank">Etherisc</a> was one of the first companies to launch a real world use case for a flight delay insurance policy on a public blockchain. Regulatory and lack of stable coin hindered that early solution. In 2017, they relaunched along with an insurance partner but still had challenges. In today’s podcast, <a href="https://www.linkedin.com/in/christoph-mussenbrock/" rel="nofollow" target="_blank">Christoph Mussenbrock</a> – CEO &amp; Founder of <a href="https://etherisc.com/" rel="nofollow" target="_blank">Etherisc</a> shares with us what they have learned since 2016 and why their 2022 launch is going to win.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is a technology which allows you to keep a distributer ledger of transactions. It comes in two flavour as either a public or private blockchain. In a public blockchain, all participants can validate transactions independently thus creating a new level of trust. Some of these public blockchain such as Ethereum offer programmable computing, which enables the running of programs such as smart contracts. Smart contracts can be used to programme a complete insurance business process on top of blockchain which is what Etherisc is doing.</p> <p> </p> <h2>About Etherisc</h2> <p>Over the years, Insureblocks has featured a number of Etherisc’s spokesperson such as <a href="https://insureblocks.com/ep-17-creating-a-decentralised-insurance-model-with-blockchain-smart-contracts-etherisc/" rel="nofollow" target="_blank">Stephan Karpischek</a>, <a href="https://insureblocks.com/bonus-episode-hurricanes-vs-blockchain/" rel="nofollow" target="_blank">Renat Khasanshyn</a> and <a href="https://insureblocks.com/ep-51-blockchain-delivering-inclusive-insurance-to-sri-lanka-by-etherisc-aon/" rel="nofollow" target="_blank">Michiel Berende</a>.</p> <p>Etherisc was started in 2016 by Chistoph and Stephan when they develop a small prototype for flight delay insurance that they presented at DEFCON2, an Ethereum Developer conference in Shanghai. At that time it was one of the first insurance real world applications. Soon after developing this prototype the Etherisc team started encountering legal and regulatory issues. Whilst tackling those issues they decided to build a whole platform where anybody could build products on top of it, something akin to an operating system for insurance products.</p> <p>This platform is an open-source common infrastructure, the Generic Insurance Framework (GIF), which includes shared smart contracts, product templates, microservices and the native cryptographic token (DIP) to enable the seamless and efficient creation of decentralized insurance products, with increased transparency and fairness for all parties.</p> <p>Over the last few years they have developed a <a href="https://blog.etherisc.com/a-new-legal-model-for-blockchain-based-insurance-27c589a9f329" rel="nofollow" target="_blank">new legal model</a> which for the German market and most other European countries which enables them to run insurance products without needing an insurance license which can be quite expensive with a large number of regulatory compliance issues.</p> <p>This new legal model enables Etherisc to design insurance products without the need of a formal insurance license with the approval of the German financial regulator.</p> <p>Projects currently hosted on Etherisc’s open-source Generic Insurance Framework include <a href="https://etherisc.com/#products" rel="nofollow" target="_blank">FlightDelay Insurance, Crop Insurance, and Hurricane Protection</a>.</p> <p> </p> <h2>Flight delay insurance, relaunch?</h2> <p>When Etherisc’s flight delay insurance launched as a prototype in 2016 it had no legal framework and no stable coin to leverage for it to have a compelling proposition. The lack of a stable coin meant a highly volatile risk with the use of Ethereum coin leading to insurance payout of either nothing or very large sums of money.</p> <p>In 2017, Etherisc partnered with <a href="https://insureblocks.com/ep-85-are-insurance-cells-an-opportunity-for-blockchain-insurtechs/" rel="nofollow" target="_blank">Atlas Insurance PCC</a> to address the lack of an insurance license. Etherisc could effectively rent the Atlas Insurance license. However, a Stamp Tax of $15 for each policy meant launching the flight delay proposition was not feasible as the average premium was around $15.</p> <p>It was only in 2022 that Etherisc could successfully launch their Flight Delay product with a solid legal framework and a stable coin like DAI with which it could run its transactions on.</p> <p> </p> <h2>Thoughts on Fizzy from AXA</h2> <p>In August 2018, <a href="https://insureblocks.com/ep-22-fizzy-axas-blockchain-case-study/" rel="nofollow" target="_blank">Insureblocks featured Fizzy</a>, AXA’s flight delay insurance policy, which subsequently closed in 2020. You can listen to their learnings of that experience on an <a href="https://insureblocks.com/ep-141-how-can-blockchain-and-insurance-be-good-bedfellows-insights-from-axa/" rel="nofollow" target="_blank">Insureblocks podcast</a>.</p> <p>Christoph view on that is that AXA like other traditional financial companies, typically have very complex internal IT systems which are heavily regulated.</p> <p>Their IT managers and security managers, who are responsible to keep the systems running, are not comfortable with blockchains, and even less with public blockchains. Christoph states that it is completely against their thinking to have an open, anonymous platform that they can’t control and where they don’t run the nodes. Thus, it’s very complicated for a traditional financial institution to integrate with a public blockchain.</p> <p> </p> <h2>User experience</h2> <p>A customer goes to <a href="https://flightdelay.etherisc.com/#/" rel="nofollow" target="_blank">Etherisc’s flight delay website</a> to select airline, enter flight number and date of departure. The price is always the same, set at $15 and the payout varies according to the risk of the flight being delayed. Etherisc believes in transparency as it shoes the probability of the flight being delay in percentage terms and also the percentage of flights which have been cancelled in the last month along with the possible payout.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2022/02/Flight-Delay-source-Etherisc.png" rel="nofollow" target="_blank"></a></p> <p>The purchasing process happens when the customer links their MetaMask crypto wallet. No other details is required. No need to enter name, address, passport and no KYC because the $15 premium is below the threshold of when KYC is needed. In comparison to traditional insurers, there is no personal data that is stored by Etherisc, no paper work and the customer remains anonymous.</p> <p>If the flight is delayed or cancelled the payout happens automatically and the funds will be placed in the customer’s MetaMask wallet. No need for the customer to file a claim as in the case with traditional insurance.</p> <p> </p> <h2>Chainlink</h2> <p>A smart contract that lives on a blockchain has no direct connection to any external data source. For it to connect with external data you need an oracle as the ones provided by <a href="https://chain.link/" rel="nofollow" target="_blank">Chainlink</a>. Insureblocks did a podcast with <a href="https://insureblocks.com/ep-139-smart-contracts-oracles-insights-from-chainlink/" rel="nofollow" target="_blank">Sergey Nazarov, CEO of Chainlink</a>. Chainlink provides to Etherisc decentralised networks of oracle data which is then aggregated into a single data file which can then be processed by Etherisc’s smart contracts.</p> <p>With Chainlink, Etherisc has access to an open data marketplace where it can select the relevant data sources such as FlightStats which has access to high quality data from all airports and all airlines.</p> <p> </p> <h2>What’s next</h2> <p>For the flight delay insurance, Etherisc is look for distribution partners such as travel agents as flight delay insurance needs to be integrated at the point of purchase.</p> <p>Etherisc is launching a platform for them to launch their own risk pools and are also forging a Global Alliance for Climate related risks.</p>

Ep. 176 – Etherisc’s flight delay blockchain insurance in production

In this podcast we had the pleasure of having Dan Salmons, CEO of Coadjute and John Reynolds, COO and founder of Coadjute return to Insureblocks to share with us the launch of their real estate blockchain platform and their thoughts on a mortgage stablecoin.   What is blockchain? Dan’s definition of blockchain: In our previous podcast, Dan had used the glass box theory as an analogy to explain what is blockchain. For this podcast he uses a football match. In the old days before live TV existed, you had to rely on a newspaper reporter or a friend at a pub explaining to you what happened in a match that you had missed. In that scenario you have to rely and trust somebody else to share that information accurately and reliably to you. What blockchain does to the property market is that it introduces the possibility of live TV where you can form your own opinion as to what happened as can everybody else. Blockchain brings that sense of all its participants having the information for themselves without having to rely on some other intermediary to give them second hand information. John’s definition of blockchain: In August 2020, John saw blockchain as allowing the data to flow between the various different systems. Now for him, blockchain is fundamentally about trust. It’s the identity on the digital trust ecosystem that Coadjute has built by connecting numerous platforms and putting in a trusted identity. The data flows whilst important, can only be trusted if you know the identity of the source of the data. Digital identity and trust is fundamental.   Who is Coadjute?  Coadjute recognises that today the experience of buying and selling property in the UK, and in most other countries, is a complex and fragmented activity that takes a very long time, requires the coordination of a lot of parties and is overall a difficult, slow and frustrating experience for both the buyer and the seller.   It’s the same for the people involved in the property market whether it is for the professions involved in legal, real estate, government, financial and son on. They all have to come together on a property transaction for it to work. Today there is no market infrastructure like the ones you find for the stock exchange and others.   What Coadjute does is that it acts as a trusted network that connects all the systems of the different players in the property market in an interoperable manner. This means whether you’re a real estate agent, a legal conveyancer, a mortgage broker you can access your regular platform and yet still have access to the activities of the other parties involved in your transaction. You can see what is being done in real time, share messages, documents, identity funds and much more.   Pilot launch The housing market in UK is composed of numerous parties ranging from legal firms, estate agents, and lenders to mortgage brokers. Today’s property process involves waiting for documentation, chasing for updates, rekeying data and endless uploading of documents, all of which add to the time and cost of the property transaction. With more than 25% of deals currently falling through and billions lost in efficiencies, Coadjute is introducing R3’s enterprise blockchain technology to help solve this problem. With the Coadjute network, there is greater transparency, a reduced risk of fraud and an accelerated process with significantly less admin. Conveyancers will be able to protect sensitive client data by Coadjute’s encrypted network, which only the conveyancer and the receiving party can see. In addition, all parties involved in a property deal – including the estate agent, conveyancer, mortgage lender, and broker – can track the live progress of the transaction from their existing software. Launching in July 2021, with the first live property deal on the network, a 3-bedroom house, Kent, Coadjute has ambitions to reduce the 5-month average process for buying and selling property by half. Seven of the most respected software companies in the property industry – including Osprey Approach, Redbrick Solutions and conveyancers AVRillo – have already signed up to the Coadjute network with the full backing of the Land Registry. There are over 100 software platforms in the UK property market who each have different APIs if they have an API. They all have different data models and data schemas. So for one of those platforms to connect to every other platform it’s an enormous job. With Coadjute, they connect to one platform they connect to many. Their users can then connect, interact and collaborate with users on all other platforms. Overall each software platforms that connect with Coadjute gets new features for their users, reduced connectivity backlog, and get to control their own data. Dan also commented that he was getting feedback from their participants on the network that they were getting closer to each other as if the simple fact of looking at the same data they seem to be getting better along with others on the network. Have you seen something similar to that on your own blockchain network? If yes please do add your comment onto this post.   Top learnings The need to engage the ecosystem and the role blockchain can play in it. Coadjute has taken the view that blockchain is not a disruptive technology but a connecting technology. John’s advice is when you are looking to transform at the level of the market you really need to understand that market and its current software. Understanding how you can fit, complement and connect within that ecosystem is very important because blockchain is here to connect with it and add value to it.     A mortgage stablecoin A “stablecoin” is a type of cryptocurrency whose value is pegged to another asset class, such as a fiat currency or gold, to stabilize its price. Today the purchase of a property has numerous different money flows between the conveyancer, lawyers, estate agent, mortgage lenders of the buyer and seller. In addition to payments to HMRC for stamp duty and a whole bunch of other sort of micro payments. All of these money movements are done over the CHAPS system without any kind of orchestrating application. These movements are done as push payments followed by an email or phone call confirming the transaction has been done, which in turn is followed by a number of reconciliation exercises between the parties. This creates high levels of administration which frequently cause last-minute delays in completion, and the familiar “Friday afternoon rush”. The traditional process is also vulnerable to fraud. The promise of a stable coin is that the lender could have a node on the network, they then capture the funds within the mortgage account, and they issue a token onto the ledger. That token can freely move around within the Coadjute network. The benefit of that is that the funds are staying locked securely with the bank, the tokens move around on ledger. Everyone has transparency and visibility of how the funds are being moved around. But the token itself is a claim on the actual mortgage funds that are sitting in the bank account. The party that then ends up with the token, such as the estate agent, ends up with a token for their portion of the of the sales fee, they can then redeem the token from the lending bank. What it does is it takes out a load of risk around push payment, fraud, it creates radical transparency, so everybody knows what’s going on. But a major benefit of this system is that you can programme the movement of tokens which enables 24/7 365 days a year, programmable property transactions that happen under a certain set of rules.   New round of funding In December 2021, Coadjute raised a round of £6m from Praetura Ventures. The funds will be used for Coadjute to roll out its platform across the market. Dan shared that there has been a lot of interest abroad for Coadjute. The markets in which they are the most interested in are ones that have many of the same problems as the UK, being a highly fragmented market with a degree of digitisation and where there is a certain number of platforms for which Coadjute can connect with.   ______________________________________________________________________________________________________ This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation. Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry. Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth. Check out r3.com to find out more.

<p>In this podcast we had the pleasure of having <a href="https://www.linkedin.com/in/dansalmons/" rel="nofollow" target="_blank">Dan Salmons</a>, CEO of <a href="https://coadjute.com/" rel="nofollow" target="_blank">Coadjute</a> and <a href="https://www.linkedin.com/in/reynodes/" rel="nofollow" target="_blank">John Reynolds</a>, COO and founder of <a href="https://coadjute.com/" rel="nofollow" target="_blank">Coadjute</a> return to <a href="https://insureblocks.com/ep-122-coadjute-digitizing-the-real-estate-industry/" rel="nofollow" target="_blank">Insureblocks</a> to share with us the launch of their real estate blockchain platform and their thoughts on a mortgage stablecoin.</p> <p> </p> <h2>What is blockchain?</h2> <p>Dan’s definition of blockchain: In our <a href="https://insureblocks.com/ep-122-coadjute-digitizing-the-real-estate-industry/" rel="nofollow" target="_blank">previous podcast</a>, Dan had used the glass box theory as an analogy to explain what is blockchain. For this podcast he uses a football match. In the old days before live TV existed, you had to rely on a newspaper reporter or a friend at a pub explaining to you what happened in a match that you had missed. In that scenario you have to rely and trust somebody else to share that information accurately and reliably to you. What blockchain does to the property market is that it introduces the possibility of live TV where you can form your own opinion as to what happened as can everybody else. Blockchain brings that sense of all its participants having the information for themselves without having to rely on some other intermediary to give them second hand information.</p> <p>John’s definition of blockchain: In August 2020, John saw blockchain as allowing the data to flow between the various different systems. Now for him, blockchain is fundamentally about trust. It’s the identity on the digital trust ecosystem that Coadjute has built by connecting numerous platforms and putting in a trusted identity. The data flows whilst important, can only be trusted if you know the identity of the source of the data. Digital identity and trust is fundamental.</p> <p> </p> <h2>Who is Coadjute?</h2> <p></p> <p>Coadjute recognises that today the experience of buying and selling property in the UK, and in most other countries, is a complex and fragmented activity that takes a very long time, requires the coordination of a lot of parties and is overall a difficult, slow and frustrating experience for both the buyer and the seller.</p> <p> </p> <p>It’s the same for the people involved in the property market whether it is for the professions involved in legal, real estate, government, financial and son on. They all have to come together on a property transaction for it to work. Today there is no market infrastructure like the ones you find for the stock exchange and others.</p> <p> </p> <p>What Coadjute does is that it acts as a trusted network that connects all the systems of the different players in the property market in an interoperable manner. This means whether you’re a real estate agent, a legal conveyancer, a mortgage broker you can access your regular platform and yet still have access to the activities of the other parties involved in your transaction. You can see what is being done in real time, share messages, documents, identity funds and much more.</p> <p></p> <h2></h2> <h2>Pilot launch</h2> <p>The housing market in UK is composed of numerous parties ranging from legal firms, estate agents, and lenders to mortgage brokers. Today’s property process involves waiting for documentation, chasing for updates, rekeying data and endless uploading of documents, all of which add to the time and cost of the property transaction.</p> <p>With more than 25% of deals currently falling through and billions lost in efficiencies, Coadjute is introducing R3’s enterprise blockchain technology to help solve this problem.</p> <p>With the Coadjute network, there is greater transparency, a reduced risk of fraud and an accelerated process with significantly less admin. Conveyancers will be able to protect sensitive client data by Coadjute’s encrypted network, which only the conveyancer and the receiving party can see. In addition, all parties involved in a property deal – including the estate agent, conveyancer, mortgage lender, and broker – can track the live progress of the transaction from their existing software.</p> <p>Launching in July 2021, with the first live property deal on the network, a 3-bedroom house, Kent, Coadjute has ambitions to reduce the 5-month average process for buying and selling property by half.</p> <p>Seven of the most respected software companies in the property industry – including Osprey Approach, Redbrick Solutions and conveyancers AVRillo – have already signed up to the Coadjute network with the full backing of the Land Registry.</p> <p>There are over 100 software platforms in the UK property market who each have different APIs if they have an API. They all have different data models and data schemas. So for one of those platforms to connect to every other platform it’s an enormous job.</p> <p>With Coadjute, they connect to one platform they connect to many. Their users can then connect, interact and collaborate with users on all other platforms.</p> <p>Overall each software platforms that connect with Coadjute gets new features for their users, reduced connectivity backlog, and get to control their own data.</p> <p>Dan also commented that he was getting feedback from their participants on the network that they were getting closer to each other as if the simple fact of looking at the same data they seem to be getting better along with others on the network. Have you seen something similar to that on your own blockchain network? If yes please do add your comment onto this post.</p> <p> </p> <h2>Top learnings</h2> <p>The need to engage the ecosystem and the role blockchain can play in it. Coadjute has taken the view that blockchain is not a disruptive technology but a connecting technology. John’s advice is when you are looking to transform at the level of the market you really need to understand that market and its current software. Understanding how you can fit, complement and connect within that ecosystem is very important because blockchain is here to connect with it and add value to it.</p> <p> </p> <p> </p> <h2>A mortgage stablecoin</h2> <p>A “stablecoin” is a type of cryptocurrency whose value is pegged to another asset class, such as a fiat currency or gold, to stabilize its price. Today the purchase of a property has numerous different money flows between the conveyancer, lawyers, estate agent, mortgage lenders of the buyer and seller. In addition to payments to HMRC for stamp duty and a whole bunch of other sort of micro payments. All of these money movements are done over the <a href="https://www.bankofengland.co.uk/payment-and-settlement/chaps" rel="nofollow" target="_blank">CHAPS system</a> without any kind of orchestrating application. These movements are done as push payments followed by an email or phone call confirming the transaction has been done, which in turn is followed by a number of reconciliation exercises between the parties.</p> <p>This creates high levels of administration which frequently cause last-minute delays in completion, and the familiar “Friday afternoon rush”. The traditional process is also vulnerable to fraud.</p> <p>The promise of a stable coin is that the lender could have a node on the network, they then capture the funds within the mortgage account, and they issue a token onto the ledger. That token can freely move around within the Coadjute network.</p> <p>The benefit of that is that the funds are staying locked securely with the bank, the tokens move around on ledger. Everyone has transparency and visibility of how the funds are being moved around. But the token itself is a claim on the actual mortgage funds that are sitting in the bank account.</p> <p>The party that then ends up with the token, such as the estate agent, ends up with a token for their portion of the of the sales fee, they can then redeem the token from the lending bank. What it does is it takes out a load of risk around push payment, fraud, it creates radical transparency, so everybody knows what’s going on.</p> <p>But a major benefit of this system is that you can programme the movement of tokens which enables 24/7 365 days a year, programmable property transactions that happen under a certain set of rules.</p> <p> </p> <h2>New round of funding</h2> <p>In December 2021, Coadjute raised a round of £6m from <a href="https://www.praeturaventures.com/" rel="nofollow" target="_blank">Praetura Ventures</a>. The funds will be used for Coadjute to roll out its platform across the market. Dan shared that there has been a lot of interest abroad for Coadjute. The markets in which they are the most interested in are ones that have many of the same problems as the UK, being a highly fragmented market with a degree of digitisation and where there is a certain number of platforms for which Coadjute can connect with.</p> <p> </p> <p>______________________________________________________________________________________________________<a href="https://www.r3.com/" rel="nofollow" target="_blank"></a></p> <p>This episode is brought to you by our friends and sponsors at <a href="https://www.r3.com/" rel="nofollow" target="_blank">R3.</a> In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.</p> <p>Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.</p> <p>Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.</p> <p>Check out<a href="https://www.r3.com/" rel="nofollow" target="_blank"> r3.com</a> to find out more.</p>

Ep. 175 – Coadjute – blockchain platform launch & mortgage stablecoins

Todd McDonald is the co-founder &amp; Chief Strategy Officer at R3. In this podcast we discuss R3’s Product Vision and their views on market trends, market needs and R3’s long term product investment.   What is blockchain? Blockchain is a way for multiple participants to join a network and update the state of that network without having to trust someone to coordinate amongst them. For businesses, Todd sees blockchain as a way to connect with more customers and more businesses without having to worry as much around the trust factor.   Three market trends Back in September of this year Todd presented at CordaCon a presentation entitled “R3 Product Vision: Market Trends, Market Needs and R3’s Long-Term Product Investment.”In it he started by analysing three market trends:  “Everything is an asset”, “push-pull of (de)centralisation” “Plan ahead for regulation”.    Everything is an asset Blockchain has the ability to create digital scarcity. Essentially anything that you can prove ownership of can become an asset. Assets can be digitally mobile such as NFTs and/or they can be used as collateral for a loan. A digital asset of course can be the digital manifestation or representation of a real physical asset but equally it could also by a pure digital asset. Pure digital assets, such as the purchase of digital property in the Metaverse, have recently seen a bit of an explosive growth. Republic Realm purchased a $4.3 million 24×24 digital piece of land, whilst Metaverse Group in November made a $2.43 million purchase of parcels in Decentraland.   Push-Pull of (de)centralisation Blockchains are custody and software. They’re the ability to custody digital assets in the software layer without having the need of human beings. Todd shared with us that some of the biggest investors in this space so far have been existing intermediaries. Financial market infrastructure is heavily investing in distributed systems and blockchain. He then explains what he sees as the different facets of the decentralisation journey:  You need critical mass and become successful. There needs to be a journey to attract people to a network and distribute the roles of that network. Potentially over time the network can become more distributed to decentralised. What is interesting about the crypto side is that with tokenomics all participants can be incentivised from day one onto a decentralised network Progressive decentralisation a term coined by Jesse Walden, from Andreesen Horowitz, talks about starting out within a bootstrap minimum viable ecosystem, ie. quite centralised, which as it grows can progress into a decentralised one    Plan ahead for regulation Once regulation starts it pretty much only increases. This comment isn’t specifically related to crypto regulation but more on financial services. There is an increasing amount of regulatory imperatives  such as open banking, GDPR, and Central Securities Depository Regulation (CSDR).   Modernising market infrastructure SIX digital exchange became live on the 18th of November 2021, when SIX, launched a CHF 150 million ($162 million) tokenised digital bond with Credit Suisse, UBS Investment Bank, and Zürcher Kantonalbank acting as the joint lead managers. What is interesting about this new digital market infrastructure that SIX launched off an R3 Enterprise Corda blockchainis that it leverages an existing ecosystem that SIX had. Second it has the ability to handle an asset through its lifecycle from cradle to grave. Three the settlement process, of settling into what is in effect into a central bank digital currency. What this illustrates is a way for these new tokenized assets to have higher velocity and to be able to reach across borders in a way that regulators are ok with.   Corda &amp; Conclave Early on it with the launch of Corda, it became clear that industries wanted to bootstrap networks where the founding participants wanted to control those networks. However, transactions and data need to be shared within networks but also across networks. Corda has been investing into interoperability overall. That applies to across Corda networks, and to legacy and emerging networks. With Corda there is a growing installed base of financial services. The question that arises is what is the ability for digital assets that live outside the regulated financial services. Is there a way for them to safely interoperate and take advantage of regulated digital ecosystems like an SDX who has the foundational bedrock for these digital assets on which to operate on? Conclave is about protecting data in use from prying eyes. It enables business to perform transactions that need to leverage data in a manner where they can still adhere to regulation on the data’s sovereignty. It’s about freeing businesses up from the knots that they potentially are tied in from regulation.   Interoperability R3 is squarely focused on regulated networks. Todd mention that it’s interesting to see how crypto assets can be brought into an institutional setting, which is something that R3 is working on. There is a need for crypto assets to access settlement services which R3 can provide. Todd sees Corda as an incredibly compelling private side-chain for crypto networks.There could be a point where regulated assets could flow into permissionless systems such as Defi. Especially around the point of openness, programmability and identity. Across the crypto industry there is a trend towards openness. That however has to be balanced correctly with privacy. Openness is important as long as its accompanies with protection. Programmability another key factor has to accompanies with some form of safety. With programmability in environments such as DeFi, code is law. Transactions are fully automated. When errors happen either thought negligence or a misalignment of incentives you can have a problem which begs the question of the role regulation can take Identity can play a very important role, not necessarily in knowing the identity of all the participants but at least in knowing that the identity of a participant on the network has been validated. By bringing all these points together you can see how a regulated network can work in bringing in assets from these open networks to bring in a higher level of safety.   R3 long term vision R3’s long term vision is incredibly focused on digital assets and digital currency and how those are safely issued, settled and traded. They are investing in the future of interoperability whether it is on the networks of networks and bridging the space to open networks and crypto. They will be focusing on their sandbox for digital currencies and investing in building tools and accelerators so that R3’s customers can more easily natively issue digital assets onto Corda and more easily tokenise arbitrary assets on Corda. About to release their Corda payments capability which will be able to integrate into existing payment service providers. Investing to facilitate the creation of asset network and for existing assets networks to integrate into existing payment rails so that over time to have on chain settlement via tokens or central bank digital currencies. Corda 5 will take the existing Corda and improve its scalability, security and performance for it to provide a market infrastructure that can last decades.   ______________________________________________________________________________________________________ This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation. Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry. Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth. Check out r3.com to find out more.

<p><a href="https://www.linkedin.com/in/toddvmcdonald/" rel="nofollow" target="_blank">Todd McDonald</a> is the co-founder &amp; Chief Strategy Officer at <a href="https://www.r3.com/" rel="nofollow" target="_blank">R3</a>. In this podcast we discuss R3’s Product Vision and their views on market trends, market needs and R3’s long term product investment.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is a way for multiple participants to join a network and update the state of that network without having to trust someone to coordinate amongst them. For businesses, Todd sees blockchain as a way to connect with more customers and more businesses without having to worry as much around the trust factor.</p> <p> </p> <h2>Three market trends</h2> <p>Back in September of this year Todd presented at CordaCon a presentation entitled “R3 Product Vision: Market Trends, Market Needs and R3’s Long-Term Product Investment.”In it he started by analysing three market trends:</p> <ol> <li>“Everything is an asset”,</li> <li>“push-pull of (de)centralisation”</li> <li>“Plan ahead for regulation”.</li> </ol> <p> </p> <h2>Everything is an asset</h2> <p>Blockchain has the ability to create digital scarcity. Essentially anything that you can prove ownership of can become an asset. Assets can be digitally mobile such as NFTs and/or they can be used as collateral for a loan.</p> <p>A digital asset of course can be the digital manifestation or representation of a real physical asset but equally it could also by a pure digital asset. Pure digital assets, such as the purchase of digital property in the Metaverse, have recently seen a bit of an explosive growth. Republic Realm purchased a <a href="https://markets.businessinsider.com/news/currencies/metaverse-land-sales-valuations-republic-realm-metaverse-group-crypto-2021-12" rel="nofollow" target="_blank">$4.3 million 24×24 digital piece of land</a>, whilst Metaverse Group in November made a <a href="https://markets.businessinsider.com/news/currencies/metaverse-land-sales-valuations-republic-realm-metaverse-group-crypto-2021-12" rel="nofollow" target="_blank">$2.43 million purchase</a> of parcels in Decentraland.</p> <p> </p> <h2>Push-Pull of (de)centralisation</h2> <p>Blockchains are custody and software. They’re the ability to custody digital assets in the software layer without having the need of human beings. Todd shared with us that some of the biggest investors in this space so far have been existing intermediaries. Financial market infrastructure is heavily investing in distributed systems and blockchain.</p> <p>He then explains what he sees as the different facets of the decentralisation journey:</p> <ol> <li>You need critical mass and become successful. There needs to be a journey to attract people to a network and distribute the roles of that network. Potentially over time the network can become more distributed to decentralised. What is interesting about the crypto side is that with tokenomics all participants can be incentivised from day one onto a decentralised network</li> <li><a href="https://a16z.com/2020/01/09/progressive-decentralization-crypto-product-management/" rel="nofollow" target="_blank">Progressive decentralisation</a> a term coined by <a href="https://www.linkedin.com/in/jessewalden/" rel="nofollow" target="_blank">Jesse Walden</a>, from Andreesen Horowitz, talks about starting out within a bootstrap minimum viable ecosystem, ie. quite centralised, which as it grows can progress into a decentralised one</li> </ol> <p> </p> <h2>Plan ahead for regulation</h2> <p>Once regulation starts it pretty much only increases. This comment isn’t specifically related to crypto regulation but more on financial services. There is an increasing amount of regulatory imperatives  such as open banking, GDPR, and Central Securities Depository Regulation (CSDR).</p> <p> </p> <h2>Modernising market infrastructure</h2> <p><a href="https://www.sdx.com/" rel="nofollow" target="_blank">SIX digital exchange</a> became live on the 18th of November 2021, when SIX, launched a CHF 150 million ($162 million) tokenised digital bond with Credit Suisse, UBS Investment Bank, and Zürcher Kantonalbank acting as the joint lead managers.</p> <p>What is interesting about this new digital market infrastructure that SIX launched off an <a href="https://www.corda.net/" rel="nofollow" target="_blank">R3 Enterprise Corda blockchain</a>is that it leverages an existing ecosystem that SIX had. Second it has the ability to handle an asset through its lifecycle from cradle to grave. Three the settlement process, of settling into what is in effect into a central bank digital currency.</p> <p>What this illustrates is a way for these new tokenized assets to have higher velocity and to be able to reach across borders in a way that regulators are ok with.</p> <p> </p> <h2>Corda &amp; Conclave</h2> <p>Early on it with the launch of Corda, it became clear that industries wanted to bootstrap networks where the founding participants wanted to control those networks.</p> <p>However, transactions and data need to be shared within networks but also across networks. Corda has been investing into interoperability overall. That applies to across Corda networks, and to legacy and emerging networks.</p> <p>With Corda there is a growing installed base of financial services. The question that arises is what is the ability for digital assets that live outside the regulated financial services. Is there a way for them to safely interoperate and take advantage of regulated digital ecosystems like an SDX who has the foundational bedrock for these digital assets on which to operate on?</p> <p>Conclave is about protecting data in use from prying eyes. It enables business to perform transactions that need to leverage data in a manner where they can still adhere to regulation on the data’s sovereignty. It’s about freeing businesses up from the knots that they potentially are tied in from regulation.</p> <p> </p> <h2>Interoperability</h2> <p>R3 is squarely focused on regulated networks. Todd mention that it’s interesting to see how crypto assets can be brought into an institutional setting, which is something that R3 is working on. There is a need for crypto assets to access settlement services which R3 can provide.</p> <p>Todd sees Corda as an incredibly compelling private side-chain for crypto networks.There could be a point where regulated assets could flow into permissionless systems such as Defi. Especially around the point of openness, programmability and identity.</p> <p>Across the crypto industry there is a trend towards openness. That however has to be balanced correctly with privacy. Openness is important as long as its accompanies with protection.</p> <p>Programmability another key factor has to accompanies with some form of safety. With programmability in environments such as DeFi, code is law. Transactions are fully automated. When errors happen either thought negligence or a misalignment of incentives you can have a problem which begs the question of the role regulation can take</p> <p>Identity can play a very important role, not necessarily in knowing the identity of all the participants but at least in knowing that the identity of a participant on the network has been validated.</p> <p>By bringing all these points together you can see how a regulated network can work in bringing in assets from these open networks to bring in a higher level of safety.</p> <p> </p> <h2>R3 long term vision</h2> <p>R3’s long term vision is incredibly focused on digital assets and digital currency and how those are safely issued, settled and traded. They are investing in the future of interoperability whether it is on the networks of networks and bridging the space to open networks and crypto.</p> <p>They will be focusing on their sandbox for digital currencies and investing in building tools and accelerators so that R3’s customers can more easily natively issue digital assets onto Corda and more easily tokenise arbitrary assets on Corda.</p> <p>About to release their Corda payments capability which will be able to integrate into existing payment service providers.</p> <p>Investing to facilitate the creation of asset network and for existing assets networks to integrate into existing payment rails so that over time to have on chain settlement via tokens or central bank digital currencies.</p> <p>Corda 5 will take the existing Corda and improve its scalability, security and performance for it to provide a market infrastructure that can last decades.</p> <p> </p> <p>______________________________________________________________________________________________________<a href="https://www.r3.com/" rel="nofollow" target="_blank"></a></p> <p>This episode is brought to you by our friends and sponsors at <a href="https://www.r3.com/" rel="nofollow" target="_blank">R3.</a> In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.</p> <p>Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.</p> <p>Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.</p> <p>Check out<a href="https://www.r3.com/" rel="nofollow" target="_blank"> r3.com</a> to find out more.</p>

Ep. 174 – R3 Product Vision: Market Trends & Needs and R3’s Long-Term Product Investment

Over the last 12 months Decentralised Finance also known as DeFi has really exploded with reported total value locked reaching $250bn.  R3 who operates in the permissioned blockchain space is spinning out Obscuro into the permissionless space of DeFi. In this podcast we’re joined by James Carlyle who explains the DeFi landscape, the challenges it faces in terms of privacy and scalability and how Obscuro can address these.   What is blockchain? Blockchain is a distributed databased. Instead of one party running it, it is run as a network by a group of entities who don’t necessarily trust each other. It contains features that ensure that entities don’t need to trust each other, they can trust the infrastructure and the code itself. James has been on a blockchain journey since 2015 when he started off with permissionless public systems like Bitcoin and Ethereum prior to joining R3 in 2015 and helping to design Corda. Corda though had a very different principles than permissionless public systems as it was designed as a permissioned blockchain. The participants all have a verified identity so you know who you are dealing with, whilst on permissionless system they have a pseudonym. Now with Obscuro, James is returning to permissionless public systems.   Decentralised finance (DeFi) Over the last 12 months Decentralised Finance also known as DeFi has really exploded. A few weeks ago JP Morgan reports that total value locked (TVL) has grown from last year’s $20bn to $200bn today. For James, Defi is an expression of freedom and of innovation. It’s growing very rapidly as it’s able to innovate at lightspeed. All of these applications are open source which means that it is possible to take an existing idea to either build upon it or in some cases to steal it and simply rebrand it. These things increase the level of innovation and increase the level of take up. At the heart of DeFi is transparency. It runs on permissionless systems, which means anyone can take part, download the data and help in the validation process. The first generation of DeFi builders and users were not interested in privacy and James believes that DeFi is heading towards a new generation to builders and users who are aiming for a more mass market where privacy is important. The ECB released a report on the digital Euro where privacy is seen as a key digital enabler. Whilst privacy is important it can unfortunately also be used as a cloak for illegal behaviour. For DeFi to be picked up and used by the mass market it has to be more regulated. Regulation needs identity and KYC. R3 is uniquely placed to interact in this space as it has this rich heritage of having very strong ties with regulation and regulators   Miner extractable value (MEV) In a public blockchain system such as Ethereum there are participants who are submitting transactions. Miners who are here to confirm transactions can see the contents of the transactions that users have submitted. They can take advantage of it in some cases in what is called front running. For example, if you want to buy something on the market you don’t want someone else to bid the price up ahead of the transaction. That’s what is possible when a miner can spot that a user is trying to something and they decide to step in first and thus get the transaction before the user and the user is left behind buying it at a higher price. It has been estimated that around $1.4 billion of MEV is being taken from Ethereum blockchain users annually from a total DeFi market of around $50 billion. Global financial markets are worth $100 trillion. One of the main motivations of Obscuro is to help solve some of these issues.   Ethereum scalability issues Ethereum to some extent is a victim of its own success as it suffers from scalability issues. With the explosion of DeFi projects, and their corresponding transactions that need to be processed by all of the nodes on the Ethereum network, that has created a bottleneck issue where people have to bid more to have their transactions processed. The fees to process the transactions can start to rise very rapidly where whilst it may not be felt so much for low value transactions but for a newly minted NFT piece of art the fees can go very high. To address this issue other layer 1 networks (L1) like Ethereum, such as Solana, Cardano or Avalanche who reduce the number of validators in the work, or require the validators to run more powerful hardware. Another approach is to use the L1 as a record keeping layer where the transactions won’t actually be processed but will instead be processed on a second network (L2) and where periodically the transactions from L2 will be recorded onto the L1.   Obscuro Obscuro, whose origin is Portuguese means “obscure” in English. For James and his team they chose Obscuro due to Harry Porter as it was the incantation of a charm used to conjure a blindfold over the eyes of the victim, therefore obstructing their view of their surroundings. The objective of Obscuro is to provide confidential, smart contract execution.  It means that until now applications that may have been deployed directly onto an Ethereum distributed application or deployed onto an L2 network, they can now be deployed onto an Obscuro network. The contents of those contracts would remain secret and hidden from users. A users’ wallet encrypts the transaction and sends it to an Obscuro node on the Obscuro network. Only the Obscuro nodes themselves can understand the transaction. The transactions interact with contracts that have been deployed onto the Obscuro network and the contents of all of those contracts is also encrypted. The Obscuro network is a group of nodes that works within a gossip network, a peer to peer permissionless network. And it’s encrypted so that only the obscure nodes themselves can understand the transaction. And the transaction interacts with contracts that have been deployed onto the obscure network. And the contents of all of those contracts is also encrypted. The network processes the transaction and updates the state of the contract. To illustrate this, James provided us with an example of an auction. In an auction on Ethereum everyone can see all of the bids, they can see the addresses of the bidders and the bidding patterns. An auction contract deployed onto the Obscuro network would be hidden. It’s effectively a sealed auction with sealed bids. No one can see other bids. The bids themselves have been encrypted and the linkage of the bid to an identity is also hidden. Privacy is thus achieved for users. Whilst privacy is achieved it isn’t an ultimate form of privacy as if necessary law enforcement bodies can take action against those who would use Obscuro for illegal actions. One of the design goals of James’ team is that standard Ethereum contracts can be deployed onto the Ethereum contract without changing it.  Incentives and governance There are a set of economic incentives for people to participate in the network whether they are users or aggregators. Users get some personal benefit from transacting within these contracts whilst aggregators need to be rewarded for running infrastructure. These rewards will be some form of utility token. James expect that they will set up a decentralised autonomous organisation to govern this network.   Obscuro’s relationship with R3 Obscuro isn’t part of R3’s core business. R3’s core business is trust technology for regulated industries. Whilst the work being done at Obscuro might be very beneficial for regulated industries it isn’t aimed solely at regulated industries. Obscuro is likely to be spun out of R3. However it could actually drive utilisation and interest in R3’s confidential computing product called Conclave.

<p>Over the last 12 months Decentralised Finance also known as DeFi has really exploded with reported total value locked reaching <a href="https://news.bitcoin.com/total-value-locked-in-defi-reaches-250-billion-uniswap-quickswap-trader-joe-dominate-dex-volumes/" rel="nofollow" target="_blank">$250bn</a>.  <a href="https://www.r3.com/" rel="nofollow" target="_blank">R3</a> who operates in the permissioned blockchain space is spinning out Obscuro into the permissionless space of DeFi. In this podcast we’re joined by <a href="https://www.linkedin.com/in/jamescarlyle/" rel="nofollow" target="_blank">James Carlyle</a> who explains the DeFi landscape, the challenges it faces in terms of privacy and scalability and how Obscuro can address these.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is a distributed databased. Instead of one party running it, it is run as a network by a group of entities who don’t necessarily trust each other. It contains features that ensure that entities don’t need to trust each other, they can trust the infrastructure and the code itself.</p> <p>James has been on a blockchain journey since 2015 when he started off with permissionless public systems like Bitcoin and Ethereum prior to joining R3 in 2015 and helping to design Corda. Corda though had a very different principles than permissionless public systems as it was designed as a permissioned blockchain. The participants all have a verified identity so you know who you are dealing with, whilst on permissionless system they have a pseudonym. Now with Obscuro, James is returning to permissionless public systems.</p> <p> </p> <h2>Decentralised finance (DeFi)</h2> <p>Over the last 12 months Decentralised Finance also known as DeFi has really exploded. A few weeks ago JP Morgan reports that total value locked (TVL) has grown from last year’s $20bn to $200bn today.</p> <p>For James, Defi is an expression of freedom and of innovation. It’s growing very rapidly as it’s able to innovate at lightspeed. All of these applications are open source which means that it is possible to take an existing idea to either build upon it or in some cases to steal it and simply rebrand it. These things increase the level of innovation and increase the level of take up.</p> <p>At the heart of DeFi is transparency. It runs on permissionless systems, which means anyone can take part, download the data and help in the validation process.</p> <p>The first generation of DeFi builders and users were not interested in privacy and James believes that DeFi is heading towards a new generation to builders and users who are aiming for a more mass market where privacy is important. The <a href="https://www.ecb.europa.eu/paym/digital_euro/html/index.en.html" rel="nofollow" target="_blank">ECB released a report on the digital Euro</a> where privacy is seen as a key digital enabler.</p> <p>Whilst privacy is important it can unfortunately also be used as a cloak for illegal behaviour. For DeFi to be picked up and used by the mass market it has to be more regulated. Regulation needs identity and KYC. R3 is uniquely placed to interact in this space as it has this rich heritage of having very strong ties with regulation and regulators</p> <p> </p> <h2>Miner extractable value (MEV)</h2> <p>In a public blockchain system such as Ethereum there are participants who are submitting transactions. Miners who are here to confirm transactions can see the contents of the transactions that users have submitted. They can take advantage of it in some cases in what is called front running. For example, if you want to buy something on the market you don’t want someone else to bid the price up ahead of the transaction. That’s what is possible when a miner can spot that a user is trying to something and they decide to step in first and thus get the transaction before the user and the user is left behind buying it at a higher price.</p> <p>It has been estimated that around <a href="https://www.coindesk.com/tech/2021/05/10/why-ethereums-miner-extractable-value-problem-is-way-worse-than-you-think/" rel="nofollow" target="_blank">$1.4 billion of MEV</a> is being taken from Ethereum blockchain users annually from a total DeFi market of around $50 billion. Global financial markets are worth $100 trillion. One of the main motivations of Obscuro is to help solve some of these issues.</p> <p> </p> <h2>Ethereum scalability issues</h2> <p>Ethereum to some extent is a victim of its own success as it suffers from scalability issues. With the explosion of DeFi projects, and their corresponding transactions that need to be processed by all of the nodes on the Ethereum network, that has created a bottleneck issue where people have to bid more to have their transactions processed.</p> <p>The fees to process the transactions can start to rise very rapidly where whilst it may not be felt so much for low value transactions but for a newly minted NFT piece of art the fees can go very high.</p> <p>To address this issue other layer 1 networks (L1) like Ethereum, such as Solana, Cardano or Avalanche who reduce the number of validators in the work, or require the validators to run more powerful hardware.</p> <p>Another approach is to use the L1 as a record keeping layer where the transactions won’t actually be processed but will instead be processed on a second network (L2) and where periodically the transactions from L2 will be recorded onto the L1.</p> <p> </p> <h2>Obscuro</h2> <p>Obscuro, whose origin is Portuguese means “obscure” in English. For James and his team they chose Obscuro due to Harry Porter as it was the incantation of a charm used to conjure a blindfold over the eyes of the victim, therefore obstructing their view of their surroundings.</p> <p>The objective of Obscuro is to provide confidential, smart contract execution.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2021/12/Screenshot-2021-12-12-at-14.27.54.png" rel="nofollow" target="_blank"></a></p> <p>It means that until now applications that may have been deployed directly onto an Ethereum distributed application or deployed onto an L2 network, they can now be deployed onto an Obscuro network. The contents of those contracts would remain secret and hidden from users.</p> <p>A users’ wallet encrypts the transaction and sends it to an Obscuro node on the Obscuro network. Only the Obscuro nodes themselves can understand the transaction. The transactions interact with contracts that have been deployed onto the Obscuro network and the contents of all of those contracts is also encrypted. The Obscuro network is a group of nodes that works within a gossip network, a peer to peer permissionless network.</p> <p>And it’s encrypted so that only the obscure nodes themselves can understand the transaction. And the transaction interacts with contracts that have been deployed onto the obscure network. And the contents of all of those contracts is also encrypted.</p> <p>The network processes the transaction and updates the state of the contract. To illustrate this, James provided us with an example of an auction. In an auction on Ethereum everyone can see all of the bids, they can see the addresses of the bidders and the bidding patterns. An auction contract deployed onto the Obscuro network would be hidden. It’s effectively a sealed auction with sealed bids. No one can see other bids. The bids themselves have been encrypted and the linkage of the bid to an identity is also hidden. Privacy is thus achieved for users. Whilst privacy is achieved it isn’t an ultimate form of privacy as if necessary law enforcement bodies can take action against those who would use Obscuro for illegal actions.</p> <p>One of the design goals of James’ team is that standard Ethereum contracts can be deployed onto the Ethereum contract without changing it.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2021/12/Screenshot-2021-12-12-at-14.27.46.png" rel="nofollow" target="_blank"></a></p> <h2>Incentives and governance</h2> <p>There are a set of economic incentives for people to participate in the network whether they are users or aggregators. Users get some personal benefit from transacting within these contracts whilst aggregators need to be rewarded for running infrastructure. These rewards will be some form of utility token.</p> <p>James expect that they will set up a decentralised autonomous organisation to govern this network.</p> <p> </p> <h2>Obscuro’s relationship with R3</h2> <p>Obscuro isn’t part of R3’s core business. R3’s core business is trust technology for regulated industries. Whilst the work being done at Obscuro might be very beneficial for regulated industries it isn’t aimed solely at regulated industries. Obscuro is likely to be spun out of R3. However it could actually drive utilisation and interest in R3’s confidential computing product called Conclave.</p>

Ep. 173 – Obscuro: a secret spell over DeFi

Tim Nelson is the CEO of Hope for Justice and is part of the founding board of the charity which exists to try and end all forms of human trafficking and modern slavery across the globe. They work alongside major multinational businesses through an organisation called the Slave Free Alliance that they set up a few years ago.    What is blockchain? Blockchain is a distributed database that is shared between the nodes of computer. It stores information electronically in a digital format. It maintains a secure and decentralised record of transactions and what differentiates it to other databases is that it guarantees the fidelity and security of a record. This generates trust without the need of a third party.   Modern Slavery According to the International Labour Organisation (ILO) there are 40.3 million people in forced labour, sexual exploitation, domestic servitude, organ harvesting and forced marriage worldwide:  Including 24.9 million in forced labour and 4 million in forced marriage. It means there are 4 victims of modern slavery for every 1,000 peoplein the world 1 in 4 victims of modern slavery are children. Out of the 9 millionpeople trapped in forced labour, 16 million people are exploited in the private sector such as domestic work, construction or agriculture; 4.8 million persons in forced sexual exploitation, and 4 million persons in forced labour imposed by state authorities. Women and girls are disproportionately affectedby forced labour, accounting for 99% of victims in the commercial sex industry, and 58% in other sectors  Global Estimates of Modern Slavery Most people think that slavery was ended with the William Wilberforce Day. However every day around the world people are being trafficked every day. They are forced to work within the supply chains of major multinational businesses, into all forms of sexual exploitation, into forced domestic servitude and in countries where there is no organ donation scheme, there is organ harvesting. Most people are shocked to know that for example in the UK, the number one place people are trafficked to the UK is actually from the UK. People are actually taken in the UK. When Hope for Justice started doing rescue and investigation in the UK, the organisation started in an area in West Yorkshire that covers 2.2m people. At that time the entire police force across England and Wales had rescued 88 individuals and said that was the extent of it through an operation called Pentameter one. Hope for Justice within its first year of operation in just West Yorkshire alone, rescued 110 victims of which the youngest was just three months old trafficked for sexual exploitation and the oldest was 58 years old for forced labour.   Impact of COVID The impact of COVID has been massive on everyone around the world. The shutting down has made a bigger impact on the most vulnerable in the world. Farmers have missed crop planting or harvesting whilst others haven’t been able to go to work putting them into a very vulnerable situation. It is in that backdrop that we see a real shift happening. Companies have rolled back efforts the they were doing globally. According to Tim, COVID has probably hit back the movement against modern slavery about 10 – 15 years. The vulnerabilities that existed in communities have been exasperated by COVID and one where traffickers have gone in to exploit those individuals who have the greatest degree of vulnerability. The degree of this impact is going to be felt for the decades to come as individuals who have had to take on debt, many of them are going to become debt bonded to the individual traffickers themselves. Whilst those who have taken loans whose interest rate is so high that the will never be able to pay off those loans. There is a quarry in India where 30,000 families are debt bonded to the quarry.   A $150 billion industry According to the International Labour Organisation (ILO) forced labour generates annual profits of US $150 billion. This makes it the second most profitable, serious and organised crime in the world after drug trafficking. What traffickers say is “if I sell a kilo of heroin, I can only sell at once. But if I can have a person who’s enslaved, I can have them held for years.” To compound this issue Tim believes less than 1% that is being spent against drug trafficking is being spent on stopping human trafficking.  Tim gives the example of a Filipino lady in Los Angeles that was held for 33 years as a domestic slave forced to sleep in a garage and now allowed to leave the house. There’s roughly 20,000 individuals who are working every day on human trafficking, globally. The majority of those organisations sit in the aftercare space or the awareness space. As a result, the response doesn’t meet the problem. From a UK perspective, last year, there were 10,613 individuals, people who presented the signs of being a traffic of victim, who were entered into the national referral mechanism. For Tim, the challenge for what they’re doing is how can they use technology to help augment the work their doing so that it amplifies and magnifies the impact that they’re making.   The Slave Free Alliance  The UN SDG 8.7 has set the goal of ending slavery in the supply chains of major multinationals. Hope for Justice realised that a number of individuals they were rescuing where from the supply chains of businesses. Hope for Justice worked with Accenture who helped them to productize what they were doing and helped them to set up the Slave Free Alliance in 2018. Businesses are invited to join a membership scheme where they are given access to the support and services from the Slave Free Alliance. Slave-Free Alliance offers a wide range of services and access to its experts, including training, gap analysis, due diligence, risk management resources, and help with investigations, crisis response, remediation and Slavery and Human Trafficking Statements Within the last 3 years they have signed up 95 major multinationals and are planning to launch in the US, Norway and Australia by the end of 2021.   Battery Whether it’s in your mobile phone, laptop or electric car, most batteries today are produced using cobalt of which 70% would have originated from mines in the Democratic Republic of Congo. These are mines are mined by children and or forced labour. The Paris Accord has set for the increase electrification of cars by car manufacturers. However, to achieve that objective in just Europe and the US would require a 30 times increase in production of cobalt mining for that to happen.   Using confidential computing to fight human trafficking Tim explains that it’s not until you look at the data that you can start to draw correlations to what needs to happen. There was a clear need to start using data and AI to drive up intelligence that can help the organisation to make the right decision. An example would be to start pulling information together from various countries to identify a particular type of person that is more susceptible to being trafficked. This can help create red flags Border Force officials to look out for a certain type of person of a certain age that is more susceptible to human trafficking. It also helps to identify regions that are more susceptible to human trafficking for example in the case of one particular country up to 95% of all victims were coming from within 35 miles of one city. The hope is to build a blockchain solution that will enable them to have a database that would benefit many industries for there to be a clear a clear understanding of who the good and bad actors are in a particular area. The key point is that when a supplier within a supply chain is identified that industry players don’t just walk away from the supplier but actually try and drive change. Because, if you walk away from that supplier, it doesn’t actually stop it from happening. Whereas if you go back to the supplier and offer to bring real systemic change to that supplier then change is possible.   R3’s Corda blockchain In terms of identifying a blockchain for Hope for Justice and the Slave Free Alliance’s requirements, Tim’s team chose R3’s Corda as it provided the combination of safety and security they needed. A lot of the trafficked victim’s data that is being stored is very sensitive. As it carries their location but also these are individuals who could potentially form part of court cases, both on civil and criminal litigation. By having a combination of both Corda and Conclave it provided them with the double level of security and safety that they required.   Plans for the future In 2020, they have helped 18,110 individuals find freedom. In terms of their plans for the future, they aim to open up another set of operational investigating hubs in the UK, expand in more states in the US and to expand into other countries so that they can operate out of every continent across the globe.   How can you help? Readers and listeners of Insureblocks can help Tim and his team in three ways: time, treasure and talent.  If you have a core skill and the time to support Hope for Justice head over to their website and tell them how you’d like to help. Firms have CSR budgets, some give financially directly to charity, some give via fundraising events. Individuals can also donate money for example if costs roughly $500 to see an individual child taken from exploitation, given trauma informed care, catch up education, medical care, clothing and food, looked after for a period and then reintegrate them with their families or foster families and were not appropriate look after them for up to 2 years in that process.  A few years ago, a 14 year old girl raised $65,000 by walking 300 miles. To donate your time and talent to Hope for Justice: https://hopeforjustice.org/ To donate treasure: https://hopeforjustice.org/donate/uk/ ___________________ This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation. Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry. Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth. Check out r3.com to find out more.

<p><a href="https://www.linkedin.com/in/tim-nelson-frsa-7996004/" rel="nofollow" target="_blank">Tim Nelson</a> is the CEO of <a href="https://hopeforjustice.org/" rel="nofollow" target="_blank">Hope for Justice</a> and is part of the founding board of the charity which exists to try and end all forms of human trafficking and modern slavery across the globe. They work alongside major multinational businesses through an organisation called the <a href="https://www.slavefreealliance.org/" rel="nofollow" target="_blank">Slave Free Alliance</a> that they set up a few years ago.</p> <p></p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is a distributed database that is shared between the nodes of computer. It stores information electronically in a digital format. It maintains a secure and decentralised record of transactions and what differentiates it to other databases is that it guarantees the fidelity and security of a record. This generates trust without the need of a third party.</p> <p> </p> <h2>Modern Slavery</h2> <p>According to the <a href="https://www.ilo.org/global/topics/forced-labour/lang--en/index.htm" rel="nofollow" target="_blank">International Labour Organisation (ILO)</a> there are 40.3 million people in forced labour, sexual exploitation, domestic servitude, organ harvesting and forced marriage worldwide:</p> <ul> <li>Including 24.9 million in forced labour and 4 million in forced marriage.</li> <li>It means there are 4 victims of modern slavery for every 1,000 peoplein the world</li> <li>1 in 4 victims of modern slavery are children.</li> <li>Out of the 9 millionpeople trapped in forced labour, 16 million people are exploited in the private sector such as domestic work, construction or agriculture; 4.8 million persons in forced sexual exploitation, and 4 million persons in forced labour imposed by state authorities.</li> <li>Women and girls are disproportionately affectedby forced labour, accounting for 99% of victims in the commercial sex industry, and 58% in other sectors</li> </ul> <p><a href="https://insureblocks.com/wp-content/uploads/2021/12/Global-Estimates-of-Modern-Slavery.pdf" rel="nofollow" target="_blank">Global Estimates of Modern Slavery<br/></a><br/> </p><p>Most people think that slavery was ended with the <a href="https://en.wikipedia.org/wiki/William_Wilberforce" rel="nofollow" target="_blank">William Wilberforce Day</a>. However every day around the world people are being trafficked every day. They are forced to work within the supply chains of major multinational businesses, into all forms of sexual exploitation, into forced domestic servitude and in countries where there is no organ donation scheme, there is organ harvesting.</p> <p>Most people are shocked to know that for example in the UK, the number one place people are trafficked to the UK is actually from the UK. People are actually taken in the UK.</p> <p>When Hope for Justice started doing rescue and investigation in the UK, the organisation started in an area in West Yorkshire that covers 2.2m people. At that time the entire police force across England and Wales had rescued 88 individuals and said that was the extent of it through an operation called <a href="https://www.theguardian.com/uk/2007/oct/03/matthewweaver" rel="nofollow" target="_blank">Pentameter one</a>. Hope for Justice within its first year of operation in just West Yorkshire alone, rescued 110 victims of which the youngest was just three months old trafficked for sexual exploitation and the oldest was 58 years old for forced labour.</p> <p> </p> <h2>Impact of COVID</h2> <p>The impact of COVID has been massive on everyone around the world. The shutting down has made a bigger impact on the most vulnerable in the world. Farmers have missed crop planting or harvesting whilst others haven’t been able to go to work putting them into a very vulnerable situation. It is in that backdrop that we see a real shift happening. Companies have rolled back efforts the they were doing globally. According to Tim, COVID has probably hit back the movement against modern slavery about 10 – 15 years.</p> <p>The vulnerabilities that existed in communities have been exasperated by COVID and one where traffickers have gone in to exploit those individuals who have the greatest degree of vulnerability. The degree of this impact is going to be felt for the decades to come as individuals who have had to take on debt, many of them are going to become debt bonded to the individual traffickers themselves. Whilst those who have taken loans whose interest rate is so high that the will never be able to pay off those loans. There is a quarry in India where 30,000 families are debt bonded to the quarry.</p> <p> </p> <h2>A $150 billion industry</h2> <p>According to the International Labour Organisation (ILO) forced labour generates annual profits of <a href="https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_243201/lang--en/index.htm" rel="nofollow" target="_blank">US $150 billion</a>. This makes it the second most profitable, serious and organised crime in the world after drug trafficking. What traffickers say is “if I sell a kilo of heroin, I can only sell at once. But if I can have a person who’s enslaved, I can have them held for years.” To compound this issue Tim believes less than 1% that is being spent against drug trafficking is being spent on stopping human trafficking.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2021/12/Annual-profits-of-exploitation.gif" rel="nofollow" target="_blank"></a></p> <p>Tim gives the example of a Filipino lady in Los Angeles that was held for 33 years as a domestic slave forced to sleep in a garage and now allowed to leave the house.</p> <p>There’s roughly 20,000 individuals who are working every day on human trafficking, globally. The majority of those organisations sit in the aftercare space or the awareness space. As a result, the response doesn’t meet the problem. From a UK perspective, last year, there were 10,613 individuals, people who presented the signs of being a traffic of victim, who were entered into the national referral mechanism. For Tim, the challenge for what they’re doing is how can they use technology to help augment the work their doing so that it amplifies and magnifies the impact that they’re making.</p> <p> </p> <h2>The Slave Free Alliance</h2> <p></p> <p>The <a href="https://unstats.un.org/sdgs/metadata/?Text=&amp;Goal=8&amp;Target=8.7" rel="nofollow" target="_blank">UN SDG 8.7</a> has set the goal of ending slavery in the supply chains of major multinationals. Hope for Justice realised that a number of individuals they were rescuing where from the supply chains of businesses. Hope for Justice worked with Accenture who helped them to productize what they were doing and helped them to set up the <a href="https://www.slavefreealliance.org/" rel="nofollow" target="_blank">Slave Free Alliance</a> in 2018.</p> <p>Businesses are invited to join a membership scheme where they are given access to the support and services from the Slave Free Alliance. Slave-Free Alliance offers a wide range of services and access to its experts, including training, gap analysis, due diligence, risk management resources, and help with investigations, crisis response, remediation and Slavery and Human Trafficking Statements</p> <p>Within the last 3 years they have signed up 95 major multinationals and are planning to launch in the US, Norway and Australia by the end of 2021.</p> <p> </p> <h2>Battery</h2> <p>Whether it’s in your mobile phone, laptop or electric car, most batteries today are produced using cobalt of which 70% would have originated from mines in the Democratic Republic of Congo. These are mines are mined by children and or forced labour.</p> <p>The Paris Accord has set for the increase electrification of cars by car manufacturers. However, to achieve that objective in just Europe and the US would require a 30 times increase in production of cobalt mining for that to happen.</p> <p> </p> <h2>Using confidential computing to fight human trafficking</h2> <p>Tim explains that it’s not until you look at the data that you can start to draw correlations to what needs to happen. There was a clear need to start using data and AI to drive up intelligence that can help the organisation to make the right decision.</p> <p>An example would be to start pulling information together from various countries to identify a particular type of person that is more susceptible to being trafficked. This can help create red flags Border Force officials to look out for a certain type of person of a certain age that is more susceptible to human trafficking.</p> <p>It also helps to identify regions that are more susceptible to human trafficking for example in the case of one particular country up to 95% of all victims were coming from within 35 miles of one city.</p> <p>The hope is to build a blockchain solution that will enable them to have a database that would benefit many industries for there to be a clear a clear understanding of who the good and bad actors are in a particular area. The key point is that when a supplier within a supply chain is identified that industry players don’t just walk away from the supplier but actually try and drive change. Because, if you walk away from that supplier, it doesn’t actually stop it from happening. Whereas if you go back to the supplier and offer to bring real systemic change to that supplier then change is possible.</p> <p> </p> <h2>R3’s Corda blockchain</h2> <p>In terms of identifying a blockchain for Hope for Justice and the Slave Free Alliance’s requirements, Tim’s team chose R3’s Corda as it provided the combination of safety and security they needed. A lot of the trafficked victim’s data that is being stored is very sensitive. As it carries their location but also these are individuals who could potentially form part of court cases, both on civil and criminal litigation.</p> <p>By having a combination of both Corda and Conclave it provided them with the double level of security and safety that they required.</p> <p> </p> <h2>Plans for the future</h2> <p>In 2020, they have helped 18,110 individuals find freedom. In terms of their plans for the future, they aim to open up another set of operational investigating hubs in the UK, expand in more states in the US and to expand into other countries so that they can operate out of every continent across the globe.</p> <p> </p> <h2>How can you help?</h2> <p>Readers and listeners of Insureblocks can help Tim and his team in three ways: time, treasure and talent.</p> <ul><br/> <li>If you have a core skill and the time to support Hope for Justice head over to their website and tell them how you’d like to help.</li> <li>Firms have CSR budgets, some give financially directly to charity, some give via fundraising events. Individuals can also donate money for example if costs roughly $500 to see an individual child taken from exploitation, given trauma informed care, catch up education, medical care, clothing and food, looked after for a period and then reintegrate them with their families or foster families and were not appropriate look after them for up to 2 years in that process.</li> </ul> <p>A few years ago, a 14 year old girl raised $65,000 by walking 300 miles.</p> <p>To donate your time and talent to Hope for Justice: <a href="https://hopeforjustice.org/" rel="nofollow" target="_blank">https://hopeforjustice.org/</a></p> <p>To donate treasure: <a href="https://hopeforjustice.org/donate/uk/" rel="nofollow" target="_blank">https://hopeforjustice.org/donate/uk/</a></p> <p><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong>_____<a href="https://www.r3.com/" rel="nofollow" target="_blank"></a></p> <p>This episode is brought to you by our friends and sponsors at <a href="https://www.r3.com/" rel="nofollow" target="_blank">R3.</a> In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.</p> <p>Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.</p> <p>Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.</p> <p>Check out<a href="https://www.r3.com/" rel="nofollow" target="_blank"> r3.com</a> to find out more.</p>

Ep. 172 – Confidential computing tackling human trafficking – insights from Hope for Justice

Central bank digital currencies (CBDCs) are increasingly being talked about in the press with announcements of initiatives from different central banks working on CBDCs coming out left right and centre. Few however are as forward thinking and embracing a collaborative approach as the Bank for International Settlements (BIS). For this podcast we are joined by Daniel Eidan,  Adviser and Solution Architect at the Bank for International Settlements (BIS) in the Innovation Hub where he builds technology solutions for the central banking community with a special focus on blockchain and CBDC. He will share with us some of the exciting work his team are doing for driving CBDC forward.   What is blockchain? Blockchain and DLT is often referred to as Web 3.0 whilst the internet of today is Web 2.0. Web 2.0 enables to globally connect communications protocol whilst blockchain and Web 3.0 isn’t just about putting communication protocols digitally but to store value digitally. What blockchain enables is to execute computations between different members and keep a record of state. Essentially as Daniel mentions we can encapsulate value. Value can be cryptocurrencies, central bank digital currencies, contracts and many other forms of value. This wasn’t something possible in the Web 2.0 because the fundamentals weren’t there.   What are CBDCs? To fully understand what CBDCs, central bank digital currency, are you first need to understand what is a currency. Money and currency in general have three attributes:  They are a unit of account A store of value A medium of exchange  What central bank digital currencies do is that they digitise those three attributes.    To explain how this happens Daniel uses the “money flower” approach which looks at its four different attributes:  Is it universally accessible? Is it electronic? Is it issued by a central bank? Is it moved around in a peer to peer way?  A retail form of CBDC will have all four of the money flower attributes. It will be universally accessible, it will be electronic, it will be issued by a central bank and contain central bank liability, and it will transact in a peer to peer way. What is important to recognise is that most of the retail monetary base is not central bank money, it’s commercial bank money. For example, when you deposit money at you bank it is likely that a large part of your fiat currency is with a claim against your commercial bank. Then through a set of mechanisms that claim is insured by potentially a central bank or a federal institution. The only claim that retail can have against a central bank is in the form of cash. Cash of course is a tiny percentage of the total amount of money individuals have. What CBDC does is takes that cash liability, in a retail context, to exist in a digital context in a way that’s accessible to anyone. The question is what happens to individuals who do not have a smart device, or electricity, or WIFI? In addition, how is universal accessibility attained to individuals with disability issues or are elderly? There are a number of technical solutions that can help to lower this barrier but it is one that is a challenge in terms of the last mile for reaching ubiquitous CBDC. In the case of wholesale, the case for CBDCs is to broaden the base of digital currency from tier one institutions that are regulated domestically to fintechs, startups and perhaps banks in other jurisdictions. So, it’s really extending the promise and the capability of central bank money.   Privacy Why is cash private? There isn’t actually a mandate for money to be private. The fact that cash is private is a consequence of the technology. Cash however isn’t always private. For example, purchasing a house in only cash cannot be done in a private privacy manner. Daniel makes the important point that CBDC will promote more privacy than digital payments of today that are motivated by commercial interests. Daniel then asks “would you be more comfortable just in terms of that privacy aspect to pay with your Visa card, knowing that visa has your data and visa can do whatever they want with your data, as long as it falls within they’re licence as a payment provider versus, something that’s issued by a central bank that the central bank has no other objective other than what’s best for the social good.”   Bank for International Settlements (BIS) The Bank for International Settlements (BIS)’s mission is to support central banks’ pursuit of monetary and financial stability through international cooperation, and to act as a bank for central banks. As individual’s lives are increasingly becoming more digital and it is increasingly apparent that any central bank whose aim it so provide financial stability has to invest in the digital space. In 2019 the BIS launched the Innovation Hub Network, to support the Innovation Hub priorities, share knowledge about technology projects and discuss innovative answers to problem statements relevant to central banks. The Innovation Hub Network is a joint partnership between the BIS and regional central banks to open innovation hubs that service the central banks their surrounding regions. The first three were in Switzerland, Hong Kong and Singapore. Now there are new hubs in London, Stockholm, Toronto and a strategic partnership has been set up with the New York Fed. They’re also planning to open hubs in Frankfurt and in Paris amongst many others. These hubs are going to engage the private sector to bring technical talent and know how to inform policy markets and the central banking community. CBDC is one of the six verticals that the Innovation Hub Network is working on: supervisory and regulatory technology, next generation financial market infrastructures, open finance, cybersecurity protocols and on green finance.   Project Inthanon-LionRock to mBridge In May 2019 the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) launched Project Inthanon-LionRock a first common platform for multiple CBDC settlement. Phase 1 of this project achieved a PoC built on R3’s Corda designed to allow the participants of each network to conduct fund transfers and foreign exchange transactions on a peer-to-peer basis, thus reducing settlement layers. Phase 2 of this project was built by ConsenSys on Hyperledger Besu to extend Phase 1 to two other jurisdictions being the Digital Currency Institute (DCI) of the People’s Bank of China (PBC) and the Central Bank of the United Arab Emirates (CBUAE). The participating central banks are able to control the flow of their CBDC on the prototype, monitor transactions and balances of their issued CBDC, utilise programmable levels of transaction privacy, and automate certain compliance functions.  The project then evolved to Phase 3 called mCBDC Bridge, “m” for multiople, or in short mBridge. As the name implies the platform is built to facilitate multiple different central digital currencies to perform cross border payments in a cheaper, faster and more efficient manner. Today is obvious that there is no public sector organisation that has the mandate to facilitate cross border payments. It is all provided by private institutions who are commercially driven. The amount charged will depend on locations, currency pairs and the amount of money being sent. Currency pairs for example that do not have a lot liquidity may have to go through a third currency pair to facilitate the transaction leading the user to have to pay 2 FX rates. This contributes to the reason on why remittances can cost 6.5% of fees on the transaction. With mBridge there is the opportunity to provide a faster, better and cheaper way settling payments in central bank money. Transactions for example have moved from a few days to within two seconds! mBridge looks to drive the use case around international trade settlements to facilitate international trade between those jurisdictions and also to open up the platform to additional central banks and also to private sector players. Inthanon-LionRock to mBridge   Electronic Hong Kong Dollar (e-HKD) e-HKD is a joint partnership between The Hong Kong Monetary Authority (HKMA) and the BIS Innovation Hub is an attempt at exploring retail CBDC. Retail CBDC is very much about the last mile solutions. It’s about the privacy, offline, how the retail space interplays with the wholesale space and how this doesn’t influence the role of commercial banks in the economy. In September a whitepaper was published entitled “e-HKD a technical perspective” that explores potential architectures and design options that could be applied to the construction of the infrastructure for distributing e-HKD, and reports the initial thoughts and findings. Specifically, it aims to explore technology solutions that address the problems of cross-ledger synchronisation, over-issuance prevention, privacy-preserving transaction traceability, and flexible instantiations of different two-tier distributions models. e-HKD_A_technical_perspective The paper displays the focal point on how money moves between two interoperable systems, one being the wholesale monetary base and the second a retail monetary base with a special focus on privacy.   7 Central Banks exploring retail CBDCs Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, Sveriges Riksbank, Swiss National Bank and BIS have joined forces to explore what a retail CBDC might look like. BIS - CBDC In their 1st report, the banks got together to create some baselines for the thinking around retail CBDC. In September 2021 a new report was published that had three categories:  systems design and interoperability. As central banks operate within a domestic agenda, the piece of interoperability is critical to ensure that they can connect to each other user needs and adoption financial stability implications  ___________________ This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation. Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry. Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth. Check out r3.com to find out more.

<p>Central bank digital currencies (CBDCs) are increasingly being talked about in the press with announcements of initiatives from different central banks working on CBDCs coming out left right and centre. Few however are as forward thinking and embracing a collaborative approach as the <a href="https://www.bis.org/" rel="nofollow" target="_blank">Bank for International Settlements</a> (BIS). For this podcast we are joined by <a href="https://www.linkedin.com/in/daniel-eidan/" rel="nofollow" target="_blank">Daniel Eidan</a>,  Adviser and Solution Architect at the <a href="https://www.bis.org/" rel="nofollow" target="_blank">Bank for International Settlements</a> (BIS) in the Innovation Hub where he builds technology solutions for the central banking community with a special focus on blockchain and CBDC. He will share with us some of the exciting work his team are doing for driving CBDC forward.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain and DLT is often referred to as Web 3.0 whilst the internet of today is Web 2.0.</p> <p>Web 2.0 enables to globally connect communications protocol whilst blockchain and Web 3.0 isn’t just about putting communication protocols digitally but to store value digitally. What blockchain enables is to execute computations between different members and keep a record of state. Essentially as Daniel mentions we can encapsulate value. Value can be cryptocurrencies, central bank digital currencies, contracts and many other forms of value. This wasn’t something possible in the Web 2.0 because the fundamentals weren’t there.</p> <p> </p> <h2>What are CBDCs?</h2> <p>To fully understand what CBDCs, central bank digital currency, are you first need to understand what is a currency. Money and currency in general have three attributes:</p> <ul> <li>They are a unit of account</li> <li>A store of value</li> <li>A medium of exchange</li> </ul> <p>What central bank digital currencies do is that they digitise those three attributes.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2021/11/Money-Flower-source-BIS.jpeg" rel="nofollow" target="_blank"></a></p> <p><strong> </strong></p> <p>To explain how this happens Daniel uses the “money flower” approach which looks at its four different attributes:</p> <ul> <li>Is it universally accessible?</li> <li>Is it electronic?</li> <li>Is it issued by a central bank?</li> <li>Is it moved around in a peer to peer way?</li> </ul> <p>A retail form of CBDC will have all four of the money flower attributes. It will be universally accessible, it will be electronic, it will be issued by a central bank and contain central bank liability, and it will transact in a peer to peer way.</p> <p>What is important to recognise is that most of the retail monetary base is not central bank money, it’s commercial bank money. For example, when you deposit money at you bank it is likely that a large part of your fiat currency is with a claim against your commercial bank. Then through a set of mechanisms that claim is insured by potentially a central bank or a federal institution.</p> <p>The only claim that retail can have against a central bank is in the form of cash. Cash of course is a tiny percentage of the total amount of money individuals have. What CBDC does is takes that cash liability, in a retail context, to exist in a digital context in a way that’s accessible to anyone.</p> <p>The question is what happens to individuals who do not have a smart device, or electricity, or WIFI? In addition, how is universal accessibility attained to individuals with disability issues or are elderly? There are a number of technical solutions that can help to lower this barrier but it is one that is a challenge in terms of the last mile for reaching ubiquitous CBDC.</p> <p>In the case of wholesale, the case for CBDCs is to broaden the base of digital currency from tier one institutions that are regulated domestically to fintechs, startups and perhaps banks in other jurisdictions. So, it’s really extending the promise and the capability of central bank money.</p> <p> </p> <h2>Privacy</h2> <p>Why is cash private? There isn’t actually a mandate for money to be private. The fact that cash is private is a consequence of the technology. Cash however isn’t always private. For example, purchasing a house in only cash cannot be done in a private privacy manner.</p> <p>Daniel makes the important point that CBDC will promote more privacy than digital payments of today that are motivated by commercial interests. Daniel then asks “would you be more comfortable just in terms of that privacy aspect to pay with your Visa card, knowing that visa has your data and visa can do whatever they want with your data, as long as it falls within they’re licence as a payment provider versus, something that’s issued by a central bank that the central bank has no other objective other than what’s best for the social good.”</p> <p> </p> <h2>Bank for International Settlements (BIS)</h2> <p>The <a href="https://www.bis.org/" rel="nofollow" target="_blank">Bank for International Settlements (BIS)</a>’s mission is to support central banks’ pursuit of monetary and financial stability through international cooperation, and to act as a bank for central banks. As individual’s lives are increasingly becoming more digital and it is increasingly apparent that any central bank whose aim it so provide financial stability has to invest in the digital space. In 2019 the BIS launched the <a href="https://www.bis.org/about/bisih/network.htm" rel="nofollow" target="_blank">Innovation Hub Network</a>, to support the Innovation Hub priorities, share knowledge about technology projects and discuss innovative answers to problem statements relevant to central banks.</p> <p>The Innovation Hub Network is a joint partnership between the BIS and regional central banks to open innovation hubs that service the central banks their surrounding regions. The first three were in Switzerland, Hong Kong and Singapore. Now there are new hubs in London, Stockholm, Toronto and a strategic partnership has been set up with the New York Fed. They’re also planning to open hubs in Frankfurt and in Paris amongst many others.</p> <p>These hubs are going to engage the private sector to bring technical talent and know how to inform policy markets and the central banking community.</p> <p>CBDC is one of the six verticals that the Innovation Hub Network is working on: supervisory and regulatory technology, next generation financial market infrastructures, open finance, cybersecurity protocols and on green finance.</p> <p> </p> <h2>Project Inthanon-LionRock to mBridge</h2> <p>In May 2019 the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) launched Project Inthanon-LionRock a first common platform for multiple CBDC settlement. Phase 1 of this project achieved a PoC built on R3’s Corda designed to allow the participants of each network to conduct fund transfers and foreign exchange transactions on a peer-to-peer basis, thus reducing settlement layers.</p> <p>Phase 2 of this project was built by ConsenSys on Hyperledger Besu to extend Phase 1 to two other jurisdictions being the Digital Currency Institute (DCI) of the People’s Bank of China (PBC) and the Central Bank of the United Arab Emirates (CBUAE). The participating central banks are able to control the flow of their CBDC on the prototype, monitor transactions and balances of their issued CBDC, utilise programmable levels of transaction privacy, and automate certain compliance functions.</p> <p></p> <p>The project then evolved to Phase 3 called mCBDC Bridge, “m” for multiople, or in short mBridge. As the name implies the platform is built to facilitate multiple different central digital currencies to perform cross border payments in a cheaper, faster and more efficient manner.</p> <p>Today is obvious that there is no public sector organisation that has the mandate to facilitate cross border payments. It is all provided by private institutions who are commercially driven. The amount charged will depend on locations, currency pairs and the amount of money being sent. Currency pairs for example that do not have a lot liquidity may have to go through a third currency pair to facilitate the transaction leading the user to have to pay 2 FX rates. This contributes to the reason on why remittances can cost 6.5% of fees on the transaction.</p> <p>With mBridge there is the opportunity to provide a faster, better and cheaper way settling payments in central bank money. Transactions for example have moved from a few days to within two seconds!</p> <p>mBridge looks to drive the use case around international trade settlements to facilitate international trade between those jurisdictions and also to open up the platform to additional central banks and also to private sector players.</p> <p><a href="https://insureblocks.com/wp-content/uploads/2021/11/Inthanon-LionRock-to-mBridge.pdf" rel="nofollow" target="_blank">Inthanon-LionRock to mBridge<br/></a><br/> </p><p> </p> <h2>Electronic Hong Kong Dollar (e-HKD)</h2> <p>e-HKD is a joint partnership between The Hong Kong Monetary Authority (HKMA) and the BIS Innovation Hub is an attempt at exploring retail CBDC. Retail CBDC is very much about the last mile solutions. It’s about the privacy, offline, how the retail space interplays with the wholesale space and how this doesn’t influence the role of commercial banks in the economy.</p> <p>In September a whitepaper was published entitled “e-HKD a technical perspective” that explores potential architectures and design options that could be applied to the construction of the infrastructure for distributing e-HKD, and reports the initial thoughts and findings. Specifically, it aims to explore technology solutions that address the problems of cross-ledger synchronisation, over-issuance prevention, privacy-preserving transaction traceability, and flexible instantiations of different two-tier distributions models.</p> <a href="https://insureblocks.com/wp-content/uploads/2021/11/e-HKD_A_technical_perspective.pdf" rel="nofollow" target="_blank">e-HKD_A_technical_perspective<br/></a><br/> <p>The paper displays the focal point on how money moves between two interoperable systems, one being the wholesale monetary base and the second a retail monetary base with a special focus on privacy.</p> <p> </p> <h2>7 Central Banks exploring retail CBDCs</h2> <p>Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, Sveriges Riksbank, Swiss National Bank and BIS have joined forces to explore what a retail CBDC might look like.</p> <a href="https://insureblocks.com/wp-content/uploads/2021/11/BIS-CBDC.pdf" rel="nofollow" target="_blank">BIS - CBDC<br/></a><br/> <p>In their 1st report, the banks got together to create some baselines for the thinking around retail CBDC. In September 2021 a new report was published that had three categories:</p> <ul><br/> <li>systems design and interoperability. As central banks operate within a domestic agenda, the piece of interoperability is critical to ensure that they can connect to each other</li> <li>user needs and adoption</li> <li>financial stability implications</li> </ul> <p><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong><strong><em>_</em></strong>_____<a href="https://www.r3.com/" rel="nofollow" target="_blank"></a></p> <p>This episode is brought to you by our friends and sponsors at <a href="https://www.r3.com/" rel="nofollow" target="_blank">R3.</a> In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.</p> <p>Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.</p> <p>Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.</p> <p>Check out<a href="https://www.r3.com/" rel="nofollow" target="_blank"> r3.com</a> to find out more.</p>

Ep. 171 – Exploring CBDCs – insights from the Bank for International Settlements

Leandro Nunes, Vice President, Product Development and Innovation at Mastercard, joins us to share how he leveraged Mastercard’s DNA in scalability, payment automation and governance. We also discuss the important of a data governance model and his top tips for building scalable blockchain solutions.   What is blockchain? Blockchain is a distributed ledger technology (DLT) that uses a consensus methodology to immutably record blocks in sequence in a ledger. It’s a technology that is driven by data governance. The governance is on the data side not necessarily on the blockchain. Data governance looks at the question of ownership of the data, who has visibility over it and the rights for sharing it. It allows for the creation of networks to tackle use cases where the participants can integrate their systems in a decentralised environment where they can share the data. This provides the visibility to increase the trust between the participants. Leandro also stresses what blockchain is not. It’s not the saviour of the world and shouldn’t be a solution looking for a problem. As any other technology blockchain needs to connect and be integrated with other solutions such as AI, IoT, payments and others.   Mastercard’s DNA – network builder When talking about blockchain there is this dependency on how to build and manage a network for different participants. In some ways these challenges are similar to the one of payment networks like Mastercard who has the established the credibility of having the global coverage, the need to scale, and acts as a neutral network builder not taking any sides. It is this element which is within their DNA. It is this DNA which can be leverage to build and gain adoption to new technologies such as blockchain. When you swipe your Mastercard within two seconds the user gets an approved message. Within those two seconds a lot of things happens amongst many participants to make sure the settlement is done.   Mastercard provenance solution  Mastercard’s Provenance Solution, is essentially an API layer on top of a Mastercard blockchain that serves as an orchestration hub for an entire ecosystem of partners. It bridges the supply chain traceability events with a payments network. This enables to share supply chain related data to inform the decision making process for the payment side. Decisions can be automated which in turn reduces the reconciliation costs, dispute resolution and speeds up the entire process. Leandro stressed that they’re not a tech company trying to sell blockchain. They use blockchain as a technology, the value they can bring in addition to combining supply chain traceability along with the payment side is around bringing scalability to the governance. Working with their partners to answer the questions of how do you build a network where you can be neutral within its governance structure? How do you create a governance where you don’t take sides?   Use case: Australian farmers In August 2021, Cirralto, the B2B payment services business, announced it is leveraging the Mastercard Provenance Solution, and the Fresh Supply Co digital supply chain network, to provide Australia’s farmers with better access to trade finance. The WTO estimates between 80% and 90% of global trade relies on trade finance, yet there is a $1.5 trillion gap between the market demand and supply for trade finance. Financial institutions usually don’t want to lend money to a small supply chain company that they don’t know. However when you bring traceability, you bring blockchain and you increase visibility and trust these financial institutions realise they can use this data to reduce their risk assessment to make better lending decisions. Cirralto brings the fintech side, along with local lenders in Australia, to Fresh Supply Co supply chain network who brings the traceability platform and sharing the data with the Mastercard provenance solution. Through enhanced supply chain insight, financial institutions leverage data-driven credit decisions to drive lending confidence and increase trade finance opportunities for farmers. Exporters can now know exactly what they’re receiving from the growers. They can keep their payment terms of 30 – 45 days to pay the growers, however the growers can access discounted invoice pay where they can get paid within 48 hours. The buyer knows exactly what’s going on and doesn’t need to spend a lot of money on the reconciliation process. The growers have much more confidence they are going to get paid for what they have delivered and they get paid sooner than usual thus increasing their cash flow.   Networks of networks During COVID Mastercard made an announcement with AON to introduce a new solution to provide supply chain protection for global Covid-19 vaccine shipments. The solution provides transparent cargo insurance coverage for Covid-19 vaccines by combining sensor data and analytics. The offering enhances all risk marine cargo insurance with timely payment for doses that fall outside of the agreed-upon temperature range while being transported or stored, enabling more effective risk management and claims support.  Real-time reporting of any temperature deviation will also provide for the mitigation of losses and help maximize the number of doses that are administered to the public.   The solution initially started through the partnership between Mastercard Provenance Solution and ChronosCloud alongside DW Morgan partnered to connect all partners of the supply chain with real-time IoT sensors for active condition monitoring. At this point they realised the opportunity existed not just to use supply chain data for payments but also for insurance thus bringing on AON and demonstrating the opportunity for networks of networks   Use case: Zimbabwe – cattle traceability system  In 2018, 50,000 cattle in Zimbabwe died because of a tick-borne disease. The lack of a traceability system has seen Zimbabwe unable to export beef to lucrative markets in Europe and the Middle East, reducing export earnings from beef to the tune of $50m due to sanctions. The government of Zimbabwe had the challenge to resolve this issue. E-Livestock Global solution brings end-to-end visibility to the cattle supply chain. Commercial farmers and dipping officers tag each head of cattle with a unique, ultra-high frequency RFID tag – as mandated by the Ministry of Agriculture – and register it and its owner onto the solution. Each time the animal gets dipped, vaccinated or receives medical treatment, the tag records the event onto the traceability system. Leveraging Mastercard Provenance Solution, E-Livestock Global records these events to maintain a secure and tamper-proof trail of each animal’s history. This, in turn, supports the entire supply chain with trusted, transparent and verifiable data. For farmers, it provides an irrefutable record that proves ownership, supports sales and exports, as well as allows them to obtain a loan, using their cattle as collateral. For buyers, it enables them to efficiently manage their operations and guarantee product quality to their customers. Coming back to the point about networks of networks is how this solution can enable to provide financial inclusion to the farmers in Zimbabwe by providing them with a digital wallet. It also opens up the opportunity for an insurance company to leverage the data and offer parametric insurance.   Use case: GrainChain In October 2020, Mastercard announced  a collaboration with GrainChain, a technology company that enables supply chain visibility, empowering suppliers and farmers while reducing risks to buyers in the United States, Mexico and Central America. GrainChain tracks over 24 commodities in four different countries. Together with GrainChain, Mastercard Provenance Solution delivers end-to-end visibility throughout the supply chain, allowing participants to forensically track commodities, from the initial inputs and raw materials to harvesting and processing to logistics and delivery to the consumer’s hands. Doing so enables brands and producers to proactively protect consumers and manage their brand reputation, business efficiencies and bottom line. The increase visibility enables farmers to get access to finance and also to cheaper finance as the platform can demonstrate the payment guarantees farmers get from the traders.   Key learnings for building scalable solutions Having worked on a number of use cases with Mastercard across industries Leandro has the following key learnings he shared on Insureblocks:  Build a business incentive model where the participants see the benefit for adopting the solution. It cannot be a big brand mandating them to come on board Understanding capacity of the participants. They may not have the resources to allocate for a new project Bring other assets that can enhance the core solution    Use case: Seafood traceability system Consumers increasingly want to know the story behind the food that they consume–the source of the produce, meats and seafood, and their journey to the table. In October 2019 Mastercard announced a partnership with Envisible, a supply chain visibility in food systems company, to launch a pilot with the largest United States food co-operative Topco Associates and the supermarket chain Food City for its seafood inventory. Envisible has a platform called Wholechain, a traceability platform. They provide over 10 species of frozen seafood to Topco Association of supermarkets in the US, where each of the items come equipped with a QR code. When Topco distributes the seafood to their member supermarkets they have the traceability of the seafood via the QR code. What Leandro likes about this solution is that each of the supermarkets do not need to adopt the blockchain technology they just need to adopt the Topco programme. Consumers in the supermarkets can scan the QR code and see where the seafood came from, how it came to its destination and is the sustainability of the supply chain. The solution is now in production.   Monetisation Mastercard Provenance Solution uses a SaaS model for monetisation where payment is made upon usage of the solution. When you bundle this approach with a payment component, a transaction fee is charged that comes along with provenance and traceability.

<p><a href="https://www.linkedin.com/in/lenunes/" rel="nofollow" target="_blank">Leandro Nunes</a>, Vice President, Product Development and Innovation at <a href="https://www.mastercard.com" rel="nofollow" target="_blank">Mastercard</a>, joins us to share how he leveraged Mastercard’s DNA in scalability, payment automation and governance. We also discuss the important of a data governance model and his top tips for building scalable blockchain solutions.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is a distributed ledger technology (DLT) that uses a consensus methodology to immutably record blocks in sequence in a ledger. It’s a technology that is driven by data governance. The governance is on the data side not necessarily on the blockchain. Data governance looks at the question of ownership of the data, who has visibility over it and the rights for sharing it.</p> <p>It allows for the creation of networks to tackle use cases where the participants can integrate their systems in a decentralised environment where they can share the data. This provides the visibility to increase the trust between the participants.</p> <p>Leandro also stresses what blockchain is not. It’s not the saviour of the world and shouldn’t be a solution looking for a problem. As any other technology blockchain needs to connect and be integrated with other solutions such as AI, IoT, payments and others.</p> <p> </p> <h2>Mastercard’s DNA – network builder</h2> <p>When talking about blockchain there is this dependency on how to build and manage a network for different participants. In some ways these challenges are similar to the one of payment networks like Mastercard who has the established the credibility of having the global coverage, the need to scale, and acts as a neutral network builder not taking any sides. It is this element which is within their DNA. It is this DNA which can be leverage to build and gain adoption to new technologies such as blockchain.</p> <p>When you swipe your Mastercard within two seconds the user gets an approved message. Within those two seconds a lot of things happens amongst many participants to make sure the settlement is done.</p> <p> </p> <h2>Mastercard provenance solution</h2> <p></p> <p><a href="https://www.mastercard.us/en-us/vision/who-we-are/innovation/provenance-solution.html" rel="nofollow" target="_blank">Mastercard’s Provenance Solution</a>, is essentially an API layer on top of a Mastercard blockchain that serves as an orchestration hub for an entire ecosystem of partners. It bridges the supply chain traceability events with a payments network. This enables to share supply chain related data to inform the decision making process for the payment side. Decisions can be automated which in turn reduces the reconciliation costs, dispute resolution and speeds up the entire process.</p> <p>Leandro stressed that they’re not a tech company trying to sell blockchain. They use blockchain as a technology, the value they can bring in addition to combining supply chain traceability along with the payment side is around bringing scalability to the governance. Working with their partners to answer the questions of how do you build a network where you can be neutral within its governance structure? How do you create a governance where you don’t take sides?</p> <p> </p> <h2>Use case: Australian farmers</h2> <p>In August 2021, <a href="http://www.cirralto.com.au/" rel="nofollow" target="_blank">Cirralto</a>, the B2B payment services business, <a href="https://www.cirralto.com.au/news/2021/8/2/cirralto-joins-forces-with-mastercard-and-fresh-supply-co-to-boost-cash-flow-for-australian-farmers" rel="nofollow" target="_blank">announced</a> it is leveraging the Mastercard Provenance Solution, and the<a href="https://freshsupplyco.com/" rel="nofollow" target="_blank"> Fresh Supply Co</a> digital supply chain network, to provide Australia’s farmers with better access to trade finance.</p> <p>The WTO estimates <a href="https://www.tradefinanceglobal.com/posts/the-1-5-trillion-global-finance-gap-a-tfg-summary-of-bnys-global-industry-survey/" rel="nofollow" target="_blank">between 80% and 90% of global trade relies on trade finance, yet there is a $1.5 trillion gap</a> between the market demand and supply for trade finance. Financial institutions usually don’t want to lend money to a small supply chain company that they don’t know. However when you bring traceability, you bring blockchain and you increase visibility and trust these financial institutions realise they can use this data to reduce their risk assessment to make better lending decisions.</p> <p>Cirralto brings the fintech side, along with local lenders in Australia, to Fresh Supply Co supply chain network who brings the traceability platform and sharing the data with the Mastercard provenance solution. Through enhanced supply chain insight, financial institutions leverage data-driven credit decisions to drive lending confidence and increase trade finance opportunities for farmers.</p> <p>Exporters can now know exactly what they’re receiving from the growers. They can keep their payment terms of 30 – 45 days to pay the growers, however the growers can access discounted invoice pay where they can get paid within 48 hours.</p> <p>The buyer knows exactly what’s going on and doesn’t need to spend a lot of money on the reconciliation process. The growers have much more confidence they are going to get paid for what they have delivered and they get paid sooner than usual thus increasing their cash flow.</p> <p> </p> <h2>Networks of networks</h2> <p>During COVID Mastercard made an announcement with AON to introduce a new solution to provide supply chain protection for global Covid-19 vaccine shipments.</p> <p>The solution provides transparent cargo insurance coverage for Covid-19 vaccines by combining sensor data and analytics. The offering enhances all risk marine cargo insurance with timely payment for doses that fall outside of the agreed-upon temperature range while being transported or stored, enabling more effective risk management and claims support.  Real-time reporting of any temperature deviation will also provide for the mitigation of losses and help maximize the number of doses that are administered to the public.</p> <p> </p> <p>The solution initially started through the partnership between Mastercard Provenance Solution and <a href="https://www.chronoscloud.com/" rel="nofollow" target="_blank">ChronosCloud</a> alongside <a href="https://www.dwmorgan.com/" rel="nofollow" target="_blank">DW Morgan</a> partnered to connect all partners of the supply chain with real-time IoT sensors for active condition monitoring. At this point they realised the opportunity existed not just to use supply chain data for payments but also for insurance thus bringing on AON and demonstrating the opportunity for networks of networks</p> <p> </p> <h2>Use case: Zimbabwe – cattle traceability system</h2> <p><a href="http://insureblocks.com/wp-content/uploads/2021/09/Zimbabwe.png" rel="nofollow" target="_blank"></a></p> <p>In 2018, 50,000 cattle in Zimbabwe died because of a tick-borne disease.</p> <p>The lack of a traceability system has seen Zimbabwe unable to export beef to lucrative markets in Europe and the Middle East, reducing export earnings from beef to the tune of $50m due to sanctions. The government of Zimbabwe had the challenge to resolve this issue.</p> <p>E-Livestock Global solution brings end-to-end visibility to the cattle supply chain. Commercial farmers and dipping officers tag each head of cattle with a unique, ultra-high frequency RFID tag – as mandated by the Ministry of Agriculture – and register it and its owner onto the solution. Each time the animal gets dipped, vaccinated or receives medical treatment, the tag records the event onto the traceability system.</p> <p>Leveraging Mastercard Provenance Solution, E-Livestock Global records these events to maintain a secure and tamper-proof trail of each animal’s history. This, in turn, supports the entire supply chain with trusted, transparent and verifiable data. For farmers, it provides an irrefutable record that proves ownership, supports sales and exports, as well as allows them to obtain a loan, using their cattle as collateral. For buyers, it enables them to efficiently manage their operations and guarantee product quality to their customers.</p> <p>Coming back to the point about networks of networks is how this solution can enable to provide financial inclusion to the farmers in Zimbabwe by providing them with a digital wallet. It also opens up the opportunity for an insurance company to leverage the data and offer parametric insurance.</p> <p> </p> <h2>Use case: GrainChain</h2> <p>In October 2020, Mastercard announced  a collaboration with <a href="https://www.grainchain.io/" rel="nofollow" target="_blank">GrainChain</a>, a technology company that enables supply chain visibility, empowering suppliers and farmers while reducing risks to buyers in the United States, Mexico and Central America. GrainChain tracks over 24 commodities in four different countries.</p> <p>Together with GrainChain, Mastercard Provenance Solution delivers end-to-end visibility throughout the supply chain, allowing participants to forensically track commodities, from the initial inputs and raw materials to harvesting and processing to logistics and delivery to the consumer’s hands. Doing so enables brands and producers to proactively protect consumers and manage their brand reputation, business efficiencies and bottom line.</p> <p>The increase visibility enables farmers to get access to finance and also to cheaper finance as the platform can demonstrate the payment guarantees farmers get from the traders.</p> <p> </p> <h2>Key learnings for building scalable solutions</h2> <p>Having worked on a number of use cases with Mastercard across industries Leandro has the following key learnings he shared on Insureblocks:</p> <ul> <li>Build a business incentive model where the participants see the benefit for adopting the solution. It cannot be a big brand mandating them to come on board</li> <li>Understanding capacity of the participants. They may not have the resources to allocate for a new project</li> <li>Bring other assets that can enhance the core solution</li> </ul> <p> </p> <h2>Use case: Seafood traceability system</h2> <p>Consumers increasingly want to know the story behind the food that they consume–the source of the produce, meats and seafood, and their journey to the table. In October 2019 Mastercard announced a partnership with <a href="https://envisible.co/" rel="nofollow" target="_blank">Envisible</a>, a supply chain visibility in food systems company, to launch a pilot with the largest United States food co-operative <a href="https://www.topco.com/" rel="nofollow" target="_blank">Topco Associates</a> and the supermarket chain Food City for its seafood inventory.</p> <p>Envisible has a platform called <a href="https://wholechain.com/" rel="nofollow" target="_blank">Wholechain</a>, a traceability platform. They provide over 10 species of frozen seafood to Topco Association of supermarkets in the US, where each of the items come equipped with a QR code. When Topco distributes the seafood to their member supermarkets they have the traceability of the seafood via the QR code. What Leandro likes about this solution is that each of the supermarkets do not need to adopt the blockchain technology they just need to adopt the Topco programme.</p> <p>Consumers in the supermarkets can scan the QR code and see where the seafood came from, how it came to its destination and is the sustainability of the supply chain.</p> <p>The solution is now in production.</p> <p> </p> <h2>Monetisation</h2> <p>Mastercard Provenance Solution uses a SaaS model for monetisation where payment is made upon usage of the solution. When you bundle this approach with a payment component, a transaction fee is charged that comes along with provenance and traceability.</p>

Ep. 170 – Leveraging Mastercard’s DNA onto blockchain – Mastercard Provenance Solution

Alisa DiCaprio, is the Head of Trade and Supply Chain at R3 and also facilitates a lot of R3’s research. Whilst the concept of governance is familiar to many in the business community it has proven to be quite a challenge to blockchain business networks. In this podcast we discuss with Alisa, her latest research paper on the future of enterprise blockchain governance and collaboration. We cover some of the design and implementation of new business and technical models that will ensure that your blockchain journey is a success.   What is blockchain? For Alisa, blockchain is just a database but what makes it different from other databases is that it’s decentralised that is global accessible. Like other digital technologies, blockchain requires the same adjustments to the global and commercial infrastructure.   Discussing the future of governance and collaboration In July 2021, Alisa published a white paper entitled “The Future of Governance and Collaboration”.  R3 began itself as a banking consortium and thus gained from the get go experience on how to build and manage consortiums.  A lot of their consultations with companies building on Corda was about how do you manage a consortium? What they realised is that when projects go wrong it often is not because of the technology but because of the decision making process that doesn’t work or something with regards to governance. So, the white paper was an effort to set out the different examples of where governance has worked and all the different choices that need to be made. It sets out the policies that need to be thought of, it defines what is governance, and the questions that need be asked when building on blockchain technology.   What is governance? Governance refers to the processes and the rules that determine how a system makes decisions as it evolves. It is something that needs to be thought of as early as possible as it establishes the core capability for a sustainable business network to last from its inception to the future.   Are aspects of governance unique to blockchain? In legacy technologies there are well defined areas for adjudication when things go wrong. As blockchain is a new technology it doesn’t have those well defined adjudication history nor a long lasting legal infrastructure. A lot of today’s rules and regulations don’t apply to blockchain, so for this reason, governance becomes very critical. It contributes to its reputation as a technology that works.   Why do blockchain projects fail due to governance? For Alisa, there are two types of characters that are early blockchain builders:  Entrepreneurs Established businesses that may have an innovation fund or some money to play with  Entrepreneurs who build on blockchain are usually new to the technology and are not necessarily thinking about establishing a governance structure. Established businesses which could be large companies or existing consortiums who are building on blockchain have an existing governance structure and they assume that it will work with blockchain and it doesn’t always.   How do traditional business networks differ from blockchain business networks? Traditional business networks differ from blockchain business networks in three ways:  Consortiums are considerably more common in the setup of blockchain business networks. The reason for that is because blockchain allows to innovate on a sector wide level rather than just a business level Blockchain business networks take a lot longer to implement than traditional business networks and also to change. Part of the reason is because it’s so new that it is unclear what the regulatory infrastructure is. You may need to establish a rulebook if the legislative component does not exist. And of course, there is a business culture change with suddenly the need to operate in a decentralised way. The role of the business network operator becomes a lot more important that it is in traditional networks    Moving from a small centralised consortium to a larger decentralised one. In Alisa’s experience working with a small group of companies trying to affect governance isn’t necessarily easy. Each of those companies may be doing exactly the same process but they’re calling it different thing, they may not have a shared lexicon. Establishing this shared lexicon and a flow that works for those initial companies is important but equally important is to make it palatable for every new member of the consortium that joins. Thus, it becomes very important that the decisions structure that is developed has the ability to change as the number of new members grows the consortium. It is important not to lock in too many decisions early as the goal is to grow. You want other companies who join the consortium to see that the process that has been built is easier for them than the existing one and that they have a means to contribute to it. One of the pieces of work Alisa did was to build the standards body that was initially started with the Marco Polo banks which has since been handed over to the International Chamber of Commerce, now rebranded as the Digital Standards Initiative (DSI). During her time, she surveyed all members to answer 10 – 15 questions, which included questions like:  How many people should be on the board? Should founding members have special rights once the consortium expands? Should there be a membership fee?  The output of that survey was used to help build the governance structure. What you don’t want to do is form a working group and ask these questions without having any idea what people incentives are. Because that means you’re working group meetings will take five hours and they’ll just be people yelling at each other. Having that document enabled Alisa to enter meetings knowing what each players want and have a point to discuss together to establish a common governance.   Administrative governance The administrative governance structure is the longer term business and commercial activities that are associated within the business network. The body that administers these functions can be called the Business Network Governor (BNG). This is just a name, it can be a specific company, a group of companies, a board, or any structure. That entity is meant to facilitate the contractual relationship. It is generally responsible and accountable for establishing and maintaining governance policies, and accountable for their implementation and enforcement.   Choosing a legal entity and where it is domiciled? Choosing a for profit or not for profit legal entity involves important choices such as how they generate revenue. For profits make their money by selling a product whilst a not for profit may generate its revenue from membership dues. Will membership dues be in a tiered way or just one price. Are they per individual members or via a corporate membership. Choosing what type of legal entity has implications on the jurisdiction that legal entity is in and will influence the structure of that entity.   Policies Negotiating policies amongst members of a consortium forces the entities to talk about things like how to onboard and offboard an entity. This can be very important especially when thing go wrong. Alisa gave the example with B3 (Brazilian Stock Exchange) about what happens to a misbehaving node. B3 runs a blockchain network that essentially includes the entire sector. So, if a node is misbehaving, that raises the question, do you kick that node off the network? Because then if all the other companies in that whole entire sector are on the network, can you really exclude just one because then they don’t have access something that the rest of the industry does. Offboarding is often a lot more complicated and something that isn’t thought off until something goes wrong. Other policies to look at include: data privacy, data retention, prioritization of features, dispute management, inter-network policies, service level, legal contracting model, business model, data resiliency and system availability.   Technical governance Technical governance includes the rules and processes that maintain the everyday functioning of the business network. Maintaining system integrity involves tactical decisions around shorter-term tasks like ensuring all of the nodes in the business network are upgrading at the same scheduled time. Technical governance is run by an entity called the business network which could be a number of different types of actors. Due to some of the difficult decisions that the business network has to take it’s important that this is a neutral entity.  For example the off boarding policy is made by the administrative governor but its actual execution of the off boarding will be done by the network operator.   _______________________________________________________________________________________________________ This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation. Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry. Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth. Check out r3.com to find out more.

<p><a href="https://www.linkedin.com/in/alisadicaprio/" rel="nofollow" target="_blank">Alisa DiCaprio</a>, is the Head of Trade and Supply Chain at <a href="https://www.r3.com/" rel="nofollow" target="_blank">R3</a> and also facilitates a lot of R3’s research. Whilst the concept of governance is familiar to many in the business community it has proven to be quite a challenge to blockchain business networks. In this podcast we discuss with Alisa, her latest research paper on the future of enterprise blockchain governance and collaboration. We cover some of the design and implementation of new business and technical models that will ensure that your blockchain journey is a success.</p> <p> </p> <h2>What is blockchain?</h2> <p>For Alisa, blockchain is just a database but what makes it different from other databases is that it’s decentralised that is global accessible. Like other digital technologies, blockchain requires the same adjustments to the global and commercial infrastructure.</p> <p> </p> <h2>Discussing the future of governance and collaboration</h2> <p>In July 2021, Alisa published a white paper entitled “<a href="https://www.r3.com/reports/enterprise-blockchain-governance-and-collaboration/" rel="nofollow" target="_blank">The Future of Governance and Collaboration</a>”. <a href="https://www.r3.com/" rel="nofollow" target="_blank"> R3</a> began itself as a banking consortium and thus gained from the get go experience on how to build and manage consortiums.  A lot of their consultations with companies building on Corda was about how do you manage a consortium?</p> <p>What they realised is that when projects go wrong it often is not because of the technology but because of the decision making process that doesn’t work or something with regards to governance. So, the white paper was an effort to set out the different examples of where governance has worked and all the different choices that need to be made. It sets out the policies that need to be thought of, it defines what is governance, and the questions that need be asked when building on blockchain technology.</p> <p> </p> <h2>What is governance?</h2> <p>Governance refers to the processes and the rules that determine how a system makes decisions as it evolves. It is something that needs to be thought of as early as possible as it establishes the core capability for a sustainable business network to last from its inception to the future.</p> <p> </p> <h2>Are aspects of governance unique to blockchain?</h2> <p>In legacy technologies there are well defined areas for adjudication when things go wrong. As blockchain is a new technology it doesn’t have those well defined adjudication history nor a long lasting legal infrastructure. A lot of today’s rules and regulations don’t apply to blockchain, so for this reason, governance becomes very critical. It contributes to its reputation as a technology that works.</p> <p> </p> <h2>Why do blockchain projects fail due to governance?</h2> <p>For Alisa, there are two types of characters that are early blockchain builders:</p> <ul> <li>Entrepreneurs</li> <li>Established businesses that may have an innovation fund or some money to play with</li> </ul> <p>Entrepreneurs who build on blockchain are usually new to the technology and are not necessarily thinking about establishing a governance structure. Established businesses which could be large companies or existing consortiums who are building on blockchain have an existing governance structure and they assume that it will work with blockchain and it doesn’t always.</p> <p> </p> <h2>How do traditional business networks differ from blockchain business networks?</h2> <p>Traditional business networks differ from blockchain business networks in three ways:</p> <ol> <li>Consortiums are considerably more common in the setup of blockchain business networks. The reason for that is because blockchain allows to innovate on a sector wide level rather than just a business level</li> <li>Blockchain business networks take a lot longer to implement than traditional business networks and also to change. Part of the reason is because it’s so new that it is unclear what the regulatory infrastructure is. You may need to establish a rulebook if the legislative component does not exist. And of course, there is a business culture change with suddenly the need to operate in a decentralised way.</li> <li>The role of the business network operator becomes a lot more important that it is in traditional networks</li> </ol> <p> </p> <h2>Moving from a small centralised consortium to a larger decentralised one.</h2> <p>In Alisa’s experience working with a small group of companies trying to affect governance isn’t necessarily easy. Each of those companies may be doing exactly the same process but they’re calling it different thing, they may not have a shared lexicon.</p> <p>Establishing this shared lexicon and a flow that works for those initial companies is important but equally important is to make it palatable for every new member of the consortium that joins. Thus, it becomes very important that the decisions structure that is developed has the ability to change as the number of new members grows the consortium.</p> <p>It is important not to lock in too many decisions early as the goal is to grow. You want other companies who join the consortium to see that the process that has been built is easier for them than the existing one and that they have a means to contribute to it.</p> <p>One of the pieces of work Alisa did was to build the standards body that was initially started with the Marco Polo banks which has since been handed over to the International Chamber of Commerce, now rebranded as the Digital Standards Initiative (DSI). During her time, she surveyed all members to answer 10 – 15 questions, which included questions like:</p> <ul> <li>How many people should be on the board?</li> <li>Should founding members have special rights once the consortium expands?</li> <li>Should there be a membership fee?</li> </ul> <p>The output of that survey was used to help build the governance structure. What you don’t want to do is form a working group and ask these questions without having any idea what people incentives are. Because that means you’re working group meetings will take five hours and they’ll just be people yelling at each other.</p> <p>Having that document enabled Alisa to enter meetings knowing what each players want and have a point to discuss together to establish a common governance.</p> <p> </p> <h2>Administrative governance</h2> <p>The administrative governance structure is the longer term business and commercial activities that are associated within the business network.</p> <p>The body that administers these functions can be called the Business Network Governor (BNG). This is just a name, it can be a specific company, a group of companies, a board, or any structure. That entity is meant to facilitate the contractual relationship. It is generally responsible and accountable for establishing and maintaining governance policies, and accountable for their implementation and enforcement.</p> <p> </p> <h2>Choosing a legal entity and where it is domiciled?</h2> <p>Choosing a for profit or not for profit legal entity involves important choices such as how they generate revenue. For profits make their money by selling a product whilst a not for profit may generate its revenue from membership dues. Will membership dues be in a tiered way or just one price. Are they per individual members or via a corporate membership.</p> <p>Choosing what type of legal entity has implications on the jurisdiction that legal entity is in and will influence the structure of that entity.</p> <p> </p> <h2>Policies</h2> <p>Negotiating policies amongst members of a consortium forces the entities to talk about things like how to onboard and offboard an entity. This can be very important especially when thing go wrong. Alisa gave the example with <a href="http://www.b3.com.br/en_us/" rel="nofollow" target="_blank">B3 (Brazilian Stock Exchange)</a> about what happens to a misbehaving node.</p> <p>B3 runs a blockchain network that essentially includes the entire sector. So, if a node is misbehaving, that raises the question, do you kick that node off the network? Because then if all the other companies in that whole entire sector are on the network, can you really exclude just one because then they don’t have access something that the rest of the industry does.</p> <p>Offboarding is often a lot more complicated and something that isn’t thought off until something goes wrong.</p> <p>Other policies to look at include: data privacy, data retention, prioritization of features, dispute management, inter-network policies, service level, legal contracting model, business model, data resiliency and system availability.</p> <p> </p> <h2>Technical governance</h2> <p>Technical governance includes the rules and processes that maintain the everyday functioning of the business network. Maintaining system integrity involves tactical decisions around shorter-term tasks like ensuring all of the nodes in the business network are upgrading at the same scheduled time. Technical governance is run by an entity called the business network which could be a number of different types of actors.</p> <p>Due to some of the difficult decisions that the business network has to take it’s important that this is a neutral entity.  For example the off boarding policy is made by the administrative governor but its actual execution of the off boarding will be done by the network operator.</p> <p> </p> <p>_______________________________________________________________________________________________________<a href="https://www.r3.com/" rel="nofollow" target="_blank"></a></p> <p>This episode is brought to you by our friends and sponsors at <a href="https://www.r3.com/" rel="nofollow" target="_blank">R3.</a> In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.</p> <p>Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability.  And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.</p> <p>Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.</p> <p>Check out<a href="https://www.r3.com/" rel="nofollow" target="_blank"> r3.com</a> to find out more.</p>

Ep. 169 – The future of governance and collaboration – insights from R3

blockchain &amp; smart contracts in industries across the world

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Great podcast that is based on real views of industry participants

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For most firms getting a good understanding of what is blockchain and its possible use is a challenging exercise. Once that has been established a further decision has to be made regarding whether or not to build their blockchain solution on a public or private blockchain system. Within the first two weeks of January 2019, both the public and private blockchain proponents expressed their views on the merits of their systems. For this podcast we had the pleasure of having Richard Brown, Chief Technology Officer at R3, the builders of Corda, a private blockchain system, express his views.   Who is R3? R3 is an enterprise software company that produces an open-source blockchain called Corda. Corda was first launched in 2016, initially for financial services sectors, mainly banks. However, it was the insurance industry that helped broaden Corda’s view and utility as a blockchain for other industries. Now in 2019, Corda has launched the 4thversion of Corda which has already been adopted by finance, insurance, healthcare, government, and the oil and gas industry.   What is blockchain? What is interesting to know is that in the early days of R3 they didn’t begin with the ambition or the intention of building a blockchain platform. R3 began as a collaborative exercise between a large number of large firms to try and figure out what is blockchain and what the opportunities and implications it might have. The conclusion they came out with regarding “What is blockchain?” is that blockchain is a technology or an approach to building systems that allows multiple parties who want to transact, but who don’t fully trust each other to do so in a way that allows each and every one of them to know what they see on their computer is exactly the same as what their counterparts sees on theirs. This massively drives down duplication costs, errors, inconsistencies and the need for reconciliation which allows firms to focus on solving business problems and transacting with their counterparts. Essentially, once you know what you see is accurate, that you know the information you’re working on is correct, you can make decisions more quickly and with more confidence.   Busting the myth of private blockchains – Consensys  On the 3rdof January an author at Consensys, an Ethereum based blockchain technology company, published a blog post entitled “Busting the Myth of Private Blockchains”, whose main point was to explain why enterprises shouldn’t use private blockchains in business: Business networks need resilience, interoperability, permissioning, and privacy to succeed. These requirements, however, are out of scope for proprietary distributed ledgers, let alone traditional database technologies. The Ethereum blockchain’s granular privacy layers and public-first approach make it a powerful enterprise solution for organizations that need the flexibility of an in-house platform and that want the global reach to participate in economies of scale.     The Rebutal – Busting the myth of public blockchains for business On the 14th of January, Richard wrote a blog post “Busting the myth of public blockchains for business”. In this blog post he debunks three of the main arguments the Ethereum community makes on why business should build on Ethereum:  Ethereum has the largest community of developers. For any firm new to blockchain deciding which platform to use can be complicated. A common argument used by the Ethereum blockchain community was to go to the platform with the most developers. Ethereum has the most advanced tools and the best technology. This argument essentially builds on the first since Ethereum has the largest community of developers. Anchoring your private transactions onto a public chain is more secure. Public chains are more immutable than ‘insecure’ private networks and so you should ‘anchor’ your private transactions to prevent malicious parties rolling back your transactions behind your back.”  What is meant by “anchoring” isn’t quite clear, Richard’s interpretation of it is that you take a fingerprint of a snapshot of the private network and then embed that fingerprint into the public chain. The idea being that as long as that fingerprint is in the public chain it will remain secure no matter what happens to the private chain.   Debunking – Ethereum has the largest community of developers The Ethereum development community claims there are about 250,000 Ethereum developers. Presumably this is the number of people who can code using Solidity, the language in which almost all Ethereum apps are coded. Richard estimates that the number of downloads of the Solidity tool is around 500,000. Corda runs on the java virtual machine. There are as of today about 12 million java programmers in the world from a base of 250 million downloads of the java development tool set. That’s a factor of 1/20 between actual java programmers to individuals who have downloaded the tool set. If we take that same factor and apply it to the number of solidity downloads of 500,000 you end up with 25,000 solidity developers instead of 250,000. Richard is quick to point out that he doesn’t want to dismiss the efforts. Java has been around for a very long time whilst the Etherium community is far newer and have achieved some phenomenal things such as getting a production network online.   Debunking – Ethereum has the most advanced tools and the best technology By building onto the Ethereum blockchain you will inherit and benefit from all the innovation that happen within Ethereum. Richard’s debunk mainly focused on the Ethereum Virtual Machine (EVM). A team from Kadena documented, the EVM is “fundamentally unsafe” And the team at Aion also independently reached a similar conclusion and have written eloquently why they didn’t use the EVM and chosen the Java ecosystem instead. To top it off Ethereum is due to move away from EVM to something called eWASM or if you want an EVM 2.0 EWASM is just ethereum’s version of the WASM (which stands for WebAssembly) code, created by the World Wide Web Consortium (W3C), the team of developers responsible for maintaining and standardizing the web. – Coindesk. Richard’s point was that whilst companies who may be developing on the existing EVM run the risk of finding themselves left behind when eWASM launches, and having to deal with potential compatibility issues. Richard would recommend any firms looking to develop on blockchain should pay attention to that platform’s roadmap and the compatibility promises of that platform. Corda uses the java virtual machine which is used by million of developers and has developed an extensive collection of libraries. Equally the Hyperledger Fabric, which is written in Go, has a million developers.   Debunking – Anchoring your private transactions onto a public chain is more secure The way public blockchains, like Bitcoin and Ether, work is through proof of work. Miners are people who spend significant amount of computational power and energy to solving difficult problems. The reward for solving that problem is that they get the chance to propose the next block in a blockchain and in so doing get a reward of some bitcoin or some ether. This however is an inherently probabilistic process. This is because, two miners may find the same solution at the same time and only the longest chain will win out. During that period of time when the longest chain is identified there is a period of uncertainty as there is a nonzero probability the transactions that look as though they have been confirmed may get unconfirmed if they were built on the smaller chain. The trap many people have fallen into was that there’s some number that’s for all intents and purposes is safe. Whether that is six, twelve or fifty levels of confirmations (ie. new blocks added to a chain) that the chance of a reversal is effectively zero and of course that’s not true. On the 7thof January,Ethereum Classic, got a “51% attack”, were up to 100 blocks were reversed – Coin Telegraph. What this means was that all transactions that happened within those 100 blocks, that may have been safe and confirmed, became unconfirmed. To make matters worse the attacker was able to execute a double spend. What is important to remember is that Ethereum main net (ie. Ethereum proper and not Ethereum classic) is much larger than Ethereum Classic and is thus less prone to a 51% attack. Richard’s point though is that this can happen and if the probability is nonzero firms need to make sure that their business process and the way they design their application take that point into account. Additionally, the public blockchain sphere is one of anonymity whilst in business blockchains you need to know the identity of the entities who are forming the consensus such as the notaries in Corda. You want to know who is providing your firm’s transaction finality.   How to avoid collusion in private blockchains? Public blockchain communities point out to the risk that key players within a private blockchain may choose to collude between each other and rewrite a block and impose it on the rest of the participants. On the Corda blockchain, they have set up the Corda Network Foundation (this was discussed in Ep.47 – Building effective governance in a blockchain ecosystem – insights from Corda Network). The key about the Corda Network Foundation is that it is responsible for the governance of that network and it is not controlled by R3 and it can’t be taken over by any one entity or any two colluding entities. In a subsequent release version of Corda and of the Corda Network there will be segregated sub zones where firms can run mini private networks within the main network. Richard emphasize the need for a clear governance framework, a verting framework, a way to check that the right algorithm is being run. There is the need to deal with dispute resolution, the need to know who to serve legal notices. It is important to accept upfront that these are problems that have to be solved and plan for them rather than just making that claim that miners will resolve those problems.   Your Turn Thank you Richard for sharing your views on why public blockchains aren’t suitable for the enterprise world. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Richard a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.

<p>For most firms getting a good understanding of what is blockchain and its possible use is a challenging exercise. Once that has been established a further decision has to be made regarding whether or not to build their blockchain solution on a public or private blockchain system.</p> <p>Within the first two weeks of January 2019, both the public and private blockchain proponents expressed their views on the merits of their systems. For this podcast we had the pleasure of having <a href="https://www.linkedin.com/in/gendal/" rel="nofollow" target="_blank">Richard Brown</a>, Chief Technology Officer at <a href="http://r3.com/" rel="nofollow" target="_blank">R3</a>, the builders of <a href="https://www.corda.net/" rel="nofollow" target="_blank">Corda</a>, a private blockchain system, express his views.</p> <p> </p> <h2>Who is R3?</h2> <p><a href="http://r3.com/" rel="nofollow" target="_blank">R3</a> is an enterprise software company that produces an open-source blockchain called Corda. Corda was first launched in 2016, initially for financial services sectors, mainly banks. However, it was the insurance industry that helped broaden Corda’s view and utility as a blockchain for other industries. Now in 2019, Corda has launched the <a href="https://docs.corda.net/head/release-notes.html" rel="nofollow" target="_blank">4thversion of Corda</a> which has already been adopted by finance, insurance, healthcare, government, and the oil and gas industry.</p> <p> </p> <h2>What is blockchain?</h2> <p>What is interesting to know is that in the early days of R3 they didn’t begin with the ambition or the intention of building a blockchain platform. R3 began as a collaborative exercise between a large number of large firms to try and figure out what is blockchain and what the opportunities and implications it might have.</p> <p>The conclusion they came out with regarding “What is blockchain?” is that blockchain is a technology or an approach to building systems that allows multiple parties who want to transact, but who don’t fully trust each other to do so in a way that allows each and every one of them to know what they see on their computer is exactly the same as what their counterparts sees on theirs. This massively drives down duplication costs, errors, inconsistencies and the need for reconciliation which allows firms to focus on solving business problems and transacting with their counterparts. Essentially, once you know what you see is accurate, that you know the information you’re working on is correct, you can make decisions more quickly and with more confidence.</p> <p> </p> <h2>Busting the myth of private blockchains – Consensys</h2> <p><a href="http://insureblocks.com/wp-content/uploads/2019/03/Consensys.png" rel="nofollow" target="_blank"></a></p> <p>On the 3rdof January an author at <a href="https://consensys.net/" rel="nofollow" target="_blank">Consensys</a>, an <a href="https://www.ethereum.org/" rel="nofollow" target="_blank">Ethereum</a> based blockchain technology company, published a blog post entitled “<a href="https://media.consensys.net/busting-the-myth-of-private-blockchains-9ae0ed058b0d" rel="nofollow" target="_blank">Busting the Myth of Private Blockchains</a>”, whose main point was to explain why enterprises shouldn’t use private blockchains in business:</p> <blockquote><p>Business networks need resilience, interoperability, permissioning, and privacy to succeed. These requirements, however, are out of scope for proprietary distributed ledgers, let alone traditional database technologies. The Ethereum blockchain’s granular privacy layers and public-first approach make it a powerful enterprise solution for organizations that need the flexibility of an in-house platform and that want the global reach to participate in economies of scale.</p></blockquote> <p> </p> <p> </p> <h2>The Rebutal – Busting the myth of public blockchains for business</h2> <p>On the 14th of January, Richard wrote a blog post “<a href="https://gendal.me/2019/01/14/busting-the-myth-of-public-blockchains-for-business/" rel="nofollow" target="_blank">Busting the myth of public blockchains for business”.</a> In this blog post he debunks three of the main arguments the Ethereum community makes on why business should build on Ethereum:</p> <ol> <li><strong>Ethereum has the largest community of developers</strong>. For any firm new to blockchain deciding which platform to use can be complicated. A common argument used by the Ethereum blockchain community was to go to the platform with the most developers.</li> <li><strong>Ethereum has the most advanced tools and the best technology</strong>. This argument essentially builds on the first since Ethereum has the largest community of developers.</li> <li><strong>Anchoring your private transactions onto a public chain is more secure</strong>. Public chains are more immutable than ‘insecure’ private networks and so you should ‘anchor’ your private transactions to prevent malicious parties rolling back your transactions behind your back.”</li> </ol> <p>What is meant by “anchoring” isn’t quite clear, Richard’s interpretation of it is that you take a fingerprint of a snapshot of the private network and then embed that fingerprint into the public chain. The idea being that as long as that fingerprint is in the public chain it will remain secure no matter what happens to the private chain.</p> <p> </p> <h2>Debunking – Ethereum has the largest community of developers</h2> <p>The Ethereum development community claims there are about <a href="https://media.consensys.net/the-state-of-the-ethereum-network-949332cb6895" rel="nofollow" target="_blank">250,000 Ethereum developers</a>. Presumably this is the number of people who can code using <a href="https://github.com/ethereum/solidity" rel="nofollow" target="_blank">Solidity</a>, the language in which almost all Ethereum apps are coded. Richard estimates that the number of downloads of the Solidity tool is around 500,000.</p> <p>Corda runs on the java virtual machine. There are as of today about <a href="https://www.oracle.com/corporate/pressrelease/java-11-092518.html" rel="nofollow" target="_blank">12 million java programmers</a> in the world from a base of 250 million downloads of the java development tool set. That’s a factor of 1/20 between actual java programmers to individuals who have downloaded the tool set. If we take that same factor and apply it to the number of solidity downloads of 500,000 you end up with 25,000 solidity developers instead of 250,000.</p> <p>Richard is quick to point out that he doesn’t want to dismiss the efforts. Java has been around for a very long time whilst the Etherium community is far newer and have achieved some phenomenal things such as getting a production network online.</p> <p> </p> <h2>Debunking – Ethereum has the most advanced tools and the best technology</h2> <p>By building onto the Ethereum blockchain you will inherit and benefit from all the innovation that happen within Ethereum. Richard’s debunk mainly focused on the <a href="https://www.bitrates.com/guides/ethereum/what-is-the-unstoppable-world-computer" rel="nofollow" target="_blank">Ethereum Virtual Machine</a> (EVM). A team from <a href="https://kadena.io/" rel="nofollow" target="_blank">Kadena</a> documented, the EVM is “<a href="https://medium.com/kadena-io/the-evm-is-fundamentally-unsafe-ba486cb17f1f" rel="nofollow" target="_blank">fundamentally unsafe</a>” And the team at <a href="https://aion.network/" rel="nofollow" target="_blank">Aion</a> also independently reached a similar conclusion and have <a href="https://blog.aion.network/aion-virtual-machine-avm-why-java-and-the-jvm-240b78ad8a77" rel="nofollow" target="_blank">written eloquently why they didn’t use the EVM</a> and chosen the Java ecosystem instead.</p> <p>To top it off Ethereum is due to move away from EVM to something called <a href="https://ethereum.stackexchange.com/questions/45043/what-is-ewasm-and-why-is-it-the-direction-for-the-next-version-of-the-evm" rel="nofollow" target="_blank">eWASM</a> or if you want an EVM 2.0</p> <p><em>EWASM is just ethereum’s version of the WASM (which stands for WebAssembly) code, created by the World Wide Web Consortium (W3C), the team of developers responsible for maintaining and standardizing the web. – <a href="https://www.coindesk.com/open-heart-surgery-inside-ethereums-crucial-replacement-of-the-evm" rel="nofollow" target="_blank">Coindesk.</a></em></p> <p>Richard’s point was that whilst companies who may be developing on the existing EVM run the risk of finding themselves left behind when eWASM launches, and having to deal with potential compatibility issues. Richard would recommend any firms looking to develop on blockchain should pay attention to that platform’s roadmap and the compatibility promises of that platform.</p> <p>Corda uses the java virtual machine which is used by million of developers and has developed an extensive collection of libraries. Equally the Hyperledger Fabric, which is written in Go, has a <a href="https://research.swtch.com/gophercount" rel="nofollow" target="_blank">million developers</a>.</p> <p> </p> <h2>Debunking – Anchoring your private transactions onto a public chain is more secure</h2> <p>The way public blockchains, like Bitcoin and Ether, work is through <a href="https://cointelegraph.com/explained/proof-of-work-explained" rel="nofollow" target="_blank">proof of work</a>. Miners are people who spend significant amount of computational power and energy to solving difficult problems. The reward for solving that problem is that they get the chance to propose the next block in a blockchain and in so doing get a reward of some bitcoin or some ether. This however is an inherently probabilistic process. This is because, two miners may find the same solution at the same time and only the longest chain will win out. During that period of time when the longest chain is identified there is a period of uncertainty as there is a nonzero probability the transactions that look as though they have been confirmed may get unconfirmed if they were built on the smaller chain.</p> <p>The trap many people have fallen into was that there’s some number that’s for all intents and purposes is safe. Whether that is six, twelve or fifty levels of confirmations (ie. new blocks added to a chain) that the chance of a reversal is effectively zero and of course that’s not true.</p> <p>On the 7thof January,<a href="https://ethereumclassic.org/" rel="nofollow" target="_blank">Ethereum Classic</a>, got a “<a href="https://medium.com/coinmonks/what-is-a-51-attack-or-double-spend-attack-aa108db63474" rel="nofollow" target="_blank">51% attack</a>”, were up to 100 blocks were reversed – <a href="https://cointelegraph.com/news/ethereum-classic-51-attack-the-reality-of-proof-of-work" rel="nofollow" target="_blank">Coin Telegraph</a>. What this means was that all transactions that happened within those 100 blocks, that may have been safe and confirmed, became unconfirmed. To make matters worse the attacker was able to execute a double spend.</p> <p>What is important to remember is that Ethereum main net (ie. Ethereum proper and not Ethereum classic) is much larger than Ethereum Classic and is thus less prone to a 51% attack.</p> <p>Richard’s point though is that this can happen and if the probability is nonzero firms need to make sure that their business process and the way they design their application take that point into account. Additionally, the public blockchain sphere is one of anonymity whilst in business blockchains you need to know the identity of the entities who are forming the consensus such as the notaries in Corda. You want to know who is providing your firm’s transaction finality.</p> <p> </p> <h3>How to avoid collusion in private blockchains?</h3> <p>Public blockchain communities point out to the risk that key players within a private blockchain may choose to collude between each other and rewrite a block and impose it on the rest of the participants.</p> <p>On the Corda blockchain, they have set up the Corda Network Foundation (this was discussed in <a href="https://insureblocks.com/ep-47-building-effective-governance-in-a-blockchain-ecosystem-insights-from-corda-network/" rel="nofollow" target="_blank">Ep.47 – Building effective governance in a blockchain ecosystem – insights from Corda Network</a>). The key about the Corda Network Foundation is that it is responsible for the governance of that network and it is not controlled by R3 and it can’t be taken over by any one entity or any two colluding entities. In a subsequent release version of Corda and of the Corda Network there will be segregated sub zones where firms can run mini private networks within the main network.</p> <p>Richard emphasize the need for a clear governance framework, a verting framework, a way to check that the right algorithm is being run. There is the need to deal with dispute resolution, the need to know who to serve legal notices. It is important to accept upfront that these are problems that have to be solved and plan for them rather than just making that claim that miners will resolve those problems.</p> <p> </p> <h2>Your Turn</h2> <p>Thank you Richard for sharing your views on why public blockchains aren’t suitable for the enterprise world. If you liked this episode, <a href="https://itunes.apple.com/gb/podcast/insureblocks/id1361820676?mt=2" rel="nofollow" target="_blank">please do review it on iTunes</a>. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Richard a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.</p>

Ep.48 – Are public blockchains suitable for the enterprise world? – Insights from R3

Trade associations play a leading role in educating the business community on the opportunities of blockchain. In this podcast we had the pleasure of interviewing Patrick South, Vice President of Development at the Digital Chamber of Commerce in Washington D.C. The Chamber of Digital Commerce is the world’s leading trade association representing the digital asset and blockchain industry.   What is blockchain? Blockchain is a combinatorial innovation. Think of it like a Lego bucket in which people are pulling existing Lego pieces and piecing them together in new innovative ways. Blockchain is leveraging existing proven technologies such as linked lists, asymmetric key parenting and hash functions in new and innovative ways. Blockchain is a distributed ledger is a distributed ledger that records and maintains data in a manner that allows multiple stakeholders to securely share access to the same information in digital aspects. In today’s environment we have all these disparate databases that require constant reconciliation and messaging. A lot of existing technology is simply applying digital overlays to analog processes. What blockchain offers is the true business transformation. Instead of having to reconcile siloed databases, blockchain creates a single source of truth that enables all parties to operate from of that mutualised data store.   What is the Digital Chamber of Commerce? The Digital Chamber of Commerce is a 501(c)(6) trade association whose mission is to promote the acceptance and use of digital assets and blockchain based technologies. Through education, advocacy and working closely with policymakers, regulatory agencies and industry, their goal is to develop an environment that fosters innovation, jobs and investment. They are made up of over 200 members:  60% are startups varying from blockchain platforms to cryptocurrency exchanges to ones operating in the security token space 40% are composed of large financial institutions, consultancies, service providers, law firms, accounting and advisory firms  The Chamber has five working groups to promote the acceptance and use of digital assets and blockchain based technologies:  Token alliance:which is co-chaired by the former SEC commissioner Paul Atkins and former CFTC chairman James Newsome. Last year this working group wrote a white a paper on what constitutes a non-security or utility token entitled – “Introducing: Understanding Digital Tokens: Market Overviews and Proposed Guidelines for Policymakers and Practitioners” Smart contracts alliance: which focuses on the existing legal framework and how smart contracts can be used to enforce that. This working group has a white paper entitled: “Legislator’s Toolkit for Blockchain Technology” and “Smart Contracts: Is the Law Ready?” Digital asset accounting consortium: as there are no accounting standings in the digital asset space. Developing accounting and reporting standards for digital assets and blockchain-based technologies. Blockchain intellectual property council: Balances the protection of proprietary information with the openness necessary for innovation. State working group: Engages with state and local governments on the regulation and implementation of blockchain technology.    US Congress engagement with blockchain The Digital Chamber of Commerce regularly engages with the Congressional Blockchain Caucus which is co-chaired by Congressman David Schweikert, Congressman Bill Foster, Congressman Tom Emmer and Congressman Darren Soto. It represents a good mix of Democrats and Republicans. This caucus is composed of men and women who dedicate their time and energy to learning more about blockchain. In addition numerous congressmen and congresswomen attend  blockchain events both run by the Digital Chamber of Commerce and by other leading industry players.   Smart contracts alliance In their white paper “Smart Contracts: Is the Law Ready?”the Smart contracts alliancewas looking at the broad questions around is there existing laws in place that enables both the use of smart contracts and more importantly the enforcement of smart contracts from a legale perspective. The conclusion of that white paper was that between the ESIGN Actand the uniform electronic transactions act, UETA, they believe that the current legal framework enables the use and the enforcement of smart contracts. In other words, smart contracts can be created, executed and enforced in the same manner as existing contracts are today. Today’s contracts are rather probabilistic in the sense that you aren’t always guaranteed the results of the outcome. With smart contracts you have deterministic digital agreements that guarantee that code is going to execute the deterministic outcome. The smart contracts alliance focus was on bridging the gap between what they think the technology enables and what they believe the current legal framework enables in the United States.   National Action Plan for Blockchain  The National Action Plan for Blockchain is part of the Chamber’s ongoing mission to promote the acceptance and use of digital assets and blockchain technologies. The Chamber is encouraging U.S. leaders to recognize and incentivize the development of blockchain solutions. The Chamber is calling on the US government to publicly support the development of blockchain technology in the United States and for the Chamber to provide the US government with a set of guiding principles on how best to support blockchain technology. At the moment in the US there is a fair amount of regulatory uncertainty which has led firms to go to other jurisdictions such as in Asia, UK, Malta and Gibraltar that are providing friendlier treatment and guidance. The Chamber would love to encourage a top-down narrative for blockchain in which the government publicly recognises the innovation and investment that this technology can bring.   Key regulatory challenges with blockchain There are a number of conversations that happen within the chamber around regulation:  Financial institutions look at the broader question around the application of the custody rule in the blockchain and crypto space Tax treatment Accounting treatment of digital assets Digital securities and their tokenisation. Possible implications this may have regarding dis-intermediating transfer agents    The new stack – convergence of blockchain, AI, IoT, big data and other new technologies Patrick reminds us that TCP/IP was the underlaying protocol that enabled the internet. Blockchain is seen as the underlaying technology that enables Web 3.0. It is this underlaying layer of trust on which new applications will be built upon. Patrick brings the analogy with how the Nokia phone helped to democratize commercial phones in making them accessible to everyone. It was a game changer at that time until the iPhone arrived and offered a whole range of new applications not accessible to Nokia phones. Blockchain is similar in that sense to the change the iPhone brought. Data is the new oil and blockchain offers everyone the opportunity to control, own and capatalise their data in a manner they couldn’t before. With blockchain we will see the creation of data market places in which individuals will have more control over their own data and be able to selectively disclose information to the relevant parties and monetize it too. This can involve the use of zero knowledge proof. The simplest way of explaining what it is, is through an example. In the US you have to be over 21 to drink at a bar. To prove that you are over 21 you share your identification card that carries a lot of information in addition to your age. It carries you full address, weight, height and other personal information you may not wish to share with a bouncer at a bar. Zero knowledge proof is to be able to prove that you are over 21 without sharing your ID with an attestation against the ID from a valid entity such as a state or federal one.   What’s next for the Chamber? In the short term the Chamber is going to continue pushing forward their national action plan for blockchain. Patrick would love to see the Chamber take a more global perspective in working with jurisdictions globally to help foster an environment for innovation and investment in blockchain technology.   Your Turn Thank you Patrick for telling us about the Digital Chamber of Commerce and the exciting work you do. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Patrick a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.

<p>Trade associations play a leading role in educating the business community on the opportunities of blockchain. In this podcast we had the pleasure of interviewing <a href="https://www.linkedin.com/in/patricksouth/" rel="nofollow" target="_blank">Patrick South</a>, Vice President of Development at the <a href="https://digitalchamber.org/" rel="nofollow" target="_blank">Digital Chamber of Commerce</a> in Washington D.C. The Chamber of Digital Commerce is the world’s leading trade association representing the digital asset and blockchain industry.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is a combinatorial innovation. Think of it like a Lego bucket in which people are pulling existing Lego pieces and piecing them together in new innovative ways. Blockchain is leveraging existing proven technologies such as linked lists, asymmetric key parenting and hash functions in new and innovative ways.</p> <p>Blockchain is a distributed ledger is a distributed ledger that records and maintains data in a manner that allows multiple stakeholders to securely share access to the same information in digital aspects.</p> <p>In today’s environment we have all these disparate databases that require constant reconciliation and messaging. A lot of existing technology is simply applying digital overlays to analog processes. What blockchain offers is the true business transformation. Instead of having to reconcile siloed databases, blockchain creates a single source of truth that enables all parties to operate from of that mutualised data store.</p> <p> </p> <h2>What is the Digital Chamber of Commerce?</h2> <p>The Digital Chamber of Commerce is a 501(c)(6) trade association whose mission is to promote the acceptance and use of digital assets and blockchain based technologies. Through education, advocacy and working closely with policymakers, regulatory agencies and industry, their goal is to develop an environment that fosters innovation, jobs and investment.</p> <p>They are made up of over 200 members:</p> <ul> <li>60% are startups varying from blockchain platforms to cryptocurrency exchanges to ones operating in the security token space</li> <li>40% are composed of large financial institutions, consultancies, service providers, law firms, accounting and advisory firms</li> </ul> <p>The Chamber has five working groups to promote the acceptance and use of digital assets and blockchain based technologies:</p> <ul> <li><a href="https://digitalchamber.org/initiatives/token-alliance/" rel="nofollow" target="_blank">Token alliance</a>:which is co-chaired by the former SEC commissioner <a href="https://www.sec.gov/about/commissioner/atkins.htm" rel="nofollow" target="_blank">Paul Atkins</a> and former CFTC chairman <a>James Newsome</a>. Last year this working group wrote a white a paper on what constitutes a non-security or utility token entitled – “<a href="https://digitalchamber.org/token-alliance-paper/" rel="nofollow" target="_blank">Introducing: Understanding Digital Tokens: Market Overviews and Proposed Guidelines for Policymakers and Practitioners</a>”</li> <li><a href="https://digitalchamber.org/initiatives/smart-contracts-alliance/" rel="nofollow" target="_blank">Smart contracts alliance</a>: which focuses on the existing legal framework and how smart contracts can be used to enforce that. This working group has a white paper entitled: “<a href="https://digitalchamber.org/smart-contracts-whitepaper/" rel="nofollow" target="_blank">Legislator’s Toolkit for Blockchain Technology</a>” and “<a href="https://digitalchamber.org/smart-contracts-whitepaper/" rel="nofollow" target="_blank">Smart Contracts: Is the Law Ready?”</a></li> <li><a href="https://digitalchamber.org/initiatives/digital-assets-accounting-consortium/" rel="nofollow" target="_blank">Digital asset accounting consortium</a>: as there are no accounting standings in the digital asset space. Developing accounting and reporting standards for digital assets and blockchain-based technologies.</li> <li><a href="https://digitalchamber.org/initiatives/blockchain-intellectual-property-council/" rel="nofollow" target="_blank">Blockchain intellectual property council</a>: Balances the protection of proprietary information with the openness necessary for innovation.</li> <li><a href="https://digitalchamber.org/initiatives/state-working-group/" rel="nofollow" target="_blank">State working group</a>: Engages with state and local governments on the regulation and implementation of blockchain technology.</li> </ul> <p> </p> <h2>US Congress engagement with blockchain</h2> <p>The Digital Chamber of Commerce regularly engages with the <a href="https://www.congressionalblockchaincaucus.com/" rel="nofollow" target="_blank">Congressional Blockchain Caucus</a> which is co-chaired by Congressman David Schweikert, Congressman Bill Foster, Congressman Tom Emmer and Congressman Darren Soto. It represents a good mix of Democrats and Republicans.</p> <p>This caucus is composed of men and women who dedicate their time and energy to learning more about blockchain. In addition numerous congressmen and congresswomen attend  blockchain events both run by the Digital Chamber of Commerce and by other leading industry players.</p> <p> </p> <h2>Smart contracts alliance</h2> <p>In their white paper “<a href="https://digitalchamber.org/smart-contracts-whitepaper/" rel="nofollow" target="_blank">Smart Contracts: Is the Law Ready?”</a>the <a href="https://digitalchamber.org/initiatives/smart-contracts-alliance/" rel="nofollow" target="_blank">Smart contracts alliance</a>was looking at the broad questions around is there existing laws in place that enables both the use of smart contracts and more importantly the enforcement of smart contracts from a legale perspective. The conclusion of that white paper was that between the <a href="https://www.fdic.gov/regulations/compliance/manual/10/x-3.1.pdf" rel="nofollow" target="_blank">ESIGN Act</a>and the uniform electronic transactions act, <a href="https://en.wikipedia.org/wiki/Uniform_Electronic_Transactions_Act" rel="nofollow" target="_blank">UETA</a>, they believe that the current legal framework enables the use and the enforcement of smart contracts. In other words, smart contracts can be created, executed and enforced in the same manner as existing contracts are today.</p> <p>Today’s contracts are rather probabilistic in the sense that you aren’t always guaranteed the results of the outcome. With smart contracts you have deterministic digital agreements that guarantee that code is going to execute the deterministic outcome. The smart contracts alliance focus was on bridging the gap between what they think the technology enables and what they believe the current legal framework enables in the United States.</p> <p> </p> <h2>National Action Plan for Blockchain</h2> <p></p> <p><a href="https://digitalchamber.org/blockchain-national-action-plan/" rel="nofollow" target="_blank">The National Action Plan for Blockchain</a> is part of the Chamber’s ongoing mission to promote the acceptance and use of digital assets and blockchain technologies. The Chamber is encouraging U.S. leaders to recognize and incentivize the development of blockchain solutions.</p> <p>The Chamber is calling on the US government to publicly support the development of blockchain technology in the United States and for the Chamber to provide the US government with a set of guiding principles on how best to support blockchain technology.</p> <p>At the moment in the US there is a fair amount of regulatory uncertainty which has led firms to go to other jurisdictions such as in Asia, UK, Malta and Gibraltar that are providing friendlier treatment and guidance.</p> <p>The Chamber would love to encourage a top-down narrative for blockchain in which the government publicly recognises the innovation and investment that this technology can bring.</p> <p> </p> <h2>Key regulatory challenges with blockchain</h2> <p>There are a number of conversations that happen within the chamber around regulation:</p> <ul> <li>Financial institutions look at the broader question around the application of the custody rule in the blockchain and crypto space</li> <li>Tax treatment</li> <li>Accounting treatment of digital assets</li> <li>Digital securities and their tokenisation. Possible implications this may have regarding dis-intermediating transfer agents</li> </ul> <p> </p> <h2>The new stack – convergence of blockchain, AI, IoT, big data and other new technologies</h2> <p>Patrick reminds us that TCP/IP was the underlaying protocol that enabled the internet. Blockchain is seen as the underlaying technology that enables Web 3.0. It is this underlaying layer of trust on which new applications will be built upon.</p> <p>Patrick brings the analogy with how the Nokia phone helped to democratize commercial phones in making them accessible to everyone. It was a game changer at that time until the iPhone arrived and offered a whole range of new applications not accessible to Nokia phones. Blockchain is similar in that sense to the change the iPhone brought.</p> <p>Data is the new oil and blockchain offers everyone the opportunity to control, own and capatalise their data in a manner they couldn’t before. With blockchain we will see the creation of data market places in which individuals will have more control over their own data and be able to selectively disclose information to the relevant parties and monetize it too. This can involve the use of <a href="https://en.wikipedia.org/wiki/Zero-knowledge_proof" rel="nofollow" target="_blank">zero knowledge proof</a>. The simplest way of explaining what it is, is through an example. In the US you have to be over 21 to drink at a bar. To prove that you are over 21 you share your identification card that carries a lot of information in addition to your age. It carries you full address, weight, height and other personal information you may not wish to share with a bouncer at a bar. Zero knowledge proof is to be able to prove that you are over 21 without sharing your ID with an attestation against the ID from a valid entity such as a state or federal one.</p> <p> </p> <h2>What’s next for the Chamber?</h2> <p>In the short term the Chamber is going to continue pushing forward their national action plan for blockchain. Patrick would love to see the Chamber take a more global perspective in working with jurisdictions globally to help foster an environment for innovation and investment in blockchain technology.</p> <p> </p> <h2>Your Turn</h2> <p>Thank you Patrick for telling us about the Digital Chamber of Commerce and the exciting work you do. If you liked this episode, <a href="https://itunes.apple.com/gb/podcast/insureblocks/id1361820676?mt=2" rel="nofollow" target="_blank">please do review it on iTunes</a>. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Patrick a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.</p>

Ep.55 – The Digital Chamber of Commerce – Insights on Blockchain

Dustin Helland is blockchain product strategy and implementation manager at State Farm. In this exciting episode he talks to us about the auto claims subrogation implementation on blockchain by State Farm and USAA. What is interesting about this implementation is that it was done on a Quorum blockchain, which is a first on Insureblocks.   What is blockchain? Blockchain is a distributed ledger, which enables members of a business network to execute transactions in a peer to peer fashion. Distributed ledger technology (DLT) essentially means that each of the network participants has a copy of the shared information. And by leveraging some complicated mathematical algorithms, the blockchain technology ensures that each of the participants can trust that the copy they have, or have access to, is the same as all the others. What this means is that when each of the participants can trust the information that they have, it allows them to perform business transactions in a peer to peer fashion. Rather than depending upon a third party or intermediary for validating that the information is actually correct.   Who is State Farm? State Farm was founded in 1922 by retired farmer and insurance salesman George Jacob “G.J.” Mecherle. State Farm now insures more cars and homes than any other insurer in the United States while also providing a few other products such as life insurance, ifnanical services and a litany of others. As a mutual company, State Farms is focused on their policyholders and is currently ranked number 36 on the Fortune 500 list of largest companies.   State Farm’s blockchain journey State Farm’s blockchain journey started in late 2016 when Bitcoin started to get on the attention radar of financial institutions and other large enterprises. State Farm established a group in their labs department to explore and priorities blockchain opportunities. The team initially focused on working across the multiple business lines such as the claims department, underwriting and financial services. The objective was to educate them on the capabilities of the technology and identify and evaluate possible blockchain use cases that State Farm thought could be of value. In the spirit of learning by doing, they aligned a few of the identified business opportunities with some development teams to create early prototypes. Since then their work has evolved towards a focus on product delivery and realisation of business value. The current flagship project is the net subrogation product that they have built in collaboration with USAA (United Services Automobile Association).   Large consortium approach or co-founder one for blockchain? State Farm rapidly realised that blockchain is a team sport. For many of the blockchain use cases, to realise the potential of that use case requires a certain level of market adoption. The value is typically in the network. There are a couple of emerging patterns for driving blockchain solutions from concept through development and industry adoption. State Farm has invested and participated in each to really understand them. One of those models is the co-founder based approach that typically involves a small number of firms or companies that focus on developing a single product or use case. They build it out, prove it out and invite others to join in. The other model is the consortium approach such as RiskStream Collaborative (previously known as the RiskBlock Alliance) where you start off with a larger number of network participants, utilising this neutral third party to facilitate the collaboration, drive out product ideation, assist with product development, and then eventual implementation and support. The benefits of this type of approach is that it is mainly viewed by most as a more neutral environment for competitors to start working together. The neutral third party can facilitate conversations and the initial cost can be spread across multiple parties. The main challenge is one you typically get when a large number of decision makers need to collaborate and reach consensus when they have different opinions and points of view. Deciding on which approach to be taken is really down to the identified use case. Some use cases can achieve value very rapidly with a small number of participants whilst others may require a large buy in from the market’s participants.   Why auto subrogation use case? Leveraging blockchain for netting of subrogation payments between insurers has been one of State Farm’s top use cases from the very beginning for the following reasons:  The solution will benefit from leveraging the strengths of blockchain technology What kind of data is going to be involved in processing the risk. Net subrogation includes data that organisations are primarily already sharing and it doesn’t include highly sensitive customer information. Business value. The US auto insurance industry today exchanges, thousands and thousands of individual claims, subrogation payments each day, in the form of paper checks, snail mail, through highly manual processes. Using blockchain they were able to digitise this process by tracking transactions electronically, proof of agreement, and calculate a net for the organisation’s existing electronic payment system to enable an electronic payment exchange.  Dustin recognises that for most use cases, such as this one, it could be done by a centralised third party managing a shared database, instead of a blockchain. That is the old traditional way of handling these things. However, Dustin believes that giving direct insights into the transactions, accessing auditability, being tamper proof on a distributed ledger that is on site and managed by the participating organisations, instead of a centralise neutral third party, has business value.   Getting buy-in for the solution The auto claims subrogation blockchain project required a very different type of thinking as you’re working directly with competitors. It involved team from legal, security, risk, compliance, public affairs, the business and the IT departments that are supporting the existing processes. Getting that support and buy-in required education, collaboration and consistent transparency.   Iterative approach to development and business case in ROI The project was broken down in phases. The phases were aligned with ROI and business value projections. Each phase provided additional insights on the realisation of their initial projections and assumptions. First phase was prototype phase which was completed in 2018 and both State Farm and USAA agreed that they were on track to achieving the business value to proceed to the next phase. Phase two, which they are now completing, is their shadow network phase. The blockchain solutions is implemented in production in parallel to the existing processes, but without the exchanging of payments. This phase is proving out the business processes, confirming the expected efficiency gains, and understanding the integration points needed to existing systems to better understand the costs. At the end of this phase both State Farm and USAA will have a clear understanding of the ROI and value of the blockchain solution, and decide on whether or not to move to the next phase which will include develop the proper integrations and turning on the exchange of payments. It is important to note that any aspiring blockchain project have to appreciate that in the short term there will be extra costs involved in running a blockchain system concurrently to the existing one to be able to compare and contrast the benefits of the blockchain solution.   State Farm’s blockchain projects in the pipeline State Farm has two blockchain projects in the pipeline. One involves the exchange of information between insurers and state motor vehicle department, for the purpose of insurance tracking. The opportunity here is to provide efficiency gains and quicker validation of data with the promise of making the policy experience a better one. The second project is around improving efficiency and reducing the cost associated with insures sharing information during the claims process. Improvements there could shorten timelines and improve the customer claims.   Building on a Quorum blockchain  State Farm’s blockchain solution is built on a Quorum blockchain that is governed by JP Morgan. Based on Ethereum, Quorum is an open source blockchain platform that combines the innovation of the public Ethereum community with enhancements to support enterprise needs. It has permission implementation and supports transactions, privacy and smart contracts. Early 2018 was the time when State Farm had to make a decision on the blockchain platform it would develop its auto claims subrogation solution. They needed a permission based blockchain with transaction privacy. At that time Quorum, Corda and Hyperledger Fabric were all in their early days. However they felt that as Quorum is Ethereum based and the public Ethereum had been put through its spaces that it would be a more robust platform. The other interest factor was when they talked to their developers the developers had analysed the level of documentation and number of contributors. Dustin does recognise that either Quorum, Corda or Hyperledger Fabric could easily have been used for building out their solution. But the one slight difference in the overall architecture approach that Dustin sees is that high level blockchain processing sits in three phases:  Validation of the transaction or execution of the smart contract Consensus portion Block creation and storing of the final block  In Corda you have the concept of the notary node where one of the network participants has a node, have a certain higher level of responsibility and potentially even data insights. Hyperledger Fabric, on the other hand has a modular architecture where different nodes are involved in different parts of the blockchain process. That architecture also includes an order node, which similarly has a greater responsibility and potential authority in the network itself. Quorum, which is Ethereum based, for the most part, a node is a node is a node. So, in early 2018, State Farm felt that a Quorum type of architecture would be a best fit as it helps to avoid any perceptions that one network participant is trying to gain some sort of advantage over the other one. However, Dustin confirmed that at State Farm his teams maintain a constant level of expertise and experience in both Hyperledger Fabric and Corda so that when other use cases come up and they need to pivot to another blockchain platform that they wouldn’t be starting from ground zero.   Expanding the adoption of net subrogation on the blockchain State Farm and USAA are having numerous initial conversations with a number of large US insurance organisations. To facilitate those conversations, they’ve enabled other insurers to get involved easily and at a low entry investment through a beta test. This involves providing them with access to a node where they can they can exercise the application and run through some test scenarios with State Farm and USAA. They also provide them with a full copy of the code if they’d like to set up their own node and run the same test scenarios.   Your turn Thank you, Dustin, for talking to us about your auto subrogation blockchain implementation at State Farm. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Dustin a question, feel free to add a comment below and we’ll get him over to our site to answer your questions

<p><a href="https://www.linkedin.com/in/dustin-helland-031b924b/" rel="nofollow" target="_blank">Dustin Helland</a> is blockchain product strategy and implementation manager at State Farm. In this exciting episode he talks to us about the auto claims subrogation implementation on blockchain by <a href="https://www.statefarm.com/" rel="nofollow" target="_blank">State Farm</a> and <a href="https://www.usaa.com/" rel="nofollow" target="_blank">USAA</a>. What is interesting about this implementation is that it was done on a <a href="https://www.goquorum.com/" rel="nofollow" target="_blank">Quorum blockchain</a>, which is a first on Insureblocks.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is a distributed ledger, which enables members of a business network to execute transactions in a peer to peer fashion.</p> <p>Distributed ledger technology (DLT) essentially means that each of the network participants has a copy of the shared information. And by leveraging some complicated mathematical algorithms, the blockchain technology ensures that each of the participants can trust that the copy they have, or have access to, is the same as all the others.</p> <p>What this means is that when each of the participants can trust the information that they have, it allows them to perform business transactions in a peer to peer fashion. Rather than depending upon a third party or intermediary for validating that the information is actually correct.</p> <p> </p> <h2>Who is State Farm?</h2> <p><a href="https://www.statefarm.com/" rel="nofollow" target="_blank">State Farm</a> was founded in 1922 by retired farmer and insurance salesman George Jacob “G.J.” Mecherle. State Farm now insures more cars and homes than any other insurer in the United States while also providing a few other products such as life insurance, ifnanical services and a litany of others. As a mutual company, State Farms is focused on their policyholders and is currently ranked number 36 on the Fortune 500 list of largest companies.</p> <p> </p> <h2>State Farm’s blockchain journey</h2> <p>State Farm’s blockchain journey started in late 2016 when Bitcoin started to get on the attention radar of financial institutions and other large enterprises.</p> <p>State Farm established a group in their labs department to explore and priorities blockchain opportunities. The team initially focused on working across the multiple business lines such as the claims department, underwriting and financial services. The objective was to educate them on the capabilities of the technology and identify and evaluate possible blockchain use cases that State Farm thought could be of value. In the spirit of learning by doing, they aligned a few of the identified business opportunities with some development teams to create early prototypes.</p> <p>Since then their work has evolved towards a focus on product delivery and realisation of business value. The current flagship project is the net subrogation product that they have built in collaboration with <a href="https://www.usaa.com/" rel="nofollow" target="_blank">USAA (United Services Automobile Association).</a></p> <p> </p> <h2>Large consortium approach or co-founder one for blockchain?</h2> <p>State Farm rapidly realised that blockchain is a team sport. For many of the blockchain use cases, to realise the potential of that use case requires a certain level of market adoption. The value is typically in the network.</p> <p>There are a couple of emerging patterns for driving blockchain solutions from concept through development and industry adoption. State Farm has invested and participated in each to really understand them. One of those models is the co-founder based approach that typically involves a small number of firms or companies that focus on developing a single product or use case. They build it out, prove it out and invite others to join in.</p> <p>The other model is the consortium approach such as <a href="https://www.theinstitutes.org/guide/riskstream-collaborative" rel="nofollow" target="_blank">RiskStream Collaborative</a> (previously known as the RiskBlock Alliance) where you start off with a larger number of network participants, utilising this neutral third party to facilitate the collaboration, drive out product ideation, assist with product development, and then eventual implementation and support.</p> <p>The benefits of this type of approach is that it is mainly viewed by most as a more neutral environment for competitors to start working together. The neutral third party can facilitate conversations and the initial cost can be spread across multiple parties. The main challenge is one you typically get when a large number of decision makers need to collaborate and reach consensus when they have different opinions and points of view.</p> <p>Deciding on which approach to be taken is really down to the identified use case. Some use cases can achieve value very rapidly with a small number of participants whilst others may require a large buy in from the market’s participants.</p> <p> </p> <h2>Why auto subrogation use case?</h2> <p>Leveraging blockchain for netting of subrogation payments between insurers has been one of State Farm’s top use cases from the very beginning for the following reasons:</p> <ul> <li>The solution will benefit from leveraging the strengths of blockchain technology</li> <li>What kind of data is going to be involved in processing the risk. Net subrogation includes data that organisations are primarily already sharing and it doesn’t include highly sensitive customer information.</li> <li>Business value. The US auto insurance industry today exchanges, thousands and thousands of individual claims, subrogation payments each day, in the form of paper checks, snail mail, through highly manual processes. Using blockchain they were able to digitise this process by tracking transactions electronically, proof of agreement, and calculate a net for the organisation’s existing electronic payment system to enable an electronic payment exchange.</li> </ul> <p>Dustin recognises that for most use cases, such as this one, it could be done by a centralised third party managing a shared database, instead of a blockchain. That is the old traditional way of handling these things. However, Dustin believes that giving direct insights into the transactions, accessing auditability, being tamper proof on a distributed ledger that is on site and managed by the participating organisations, instead of a centralise neutral third party, has business value.</p> <p> </p> <h2>Getting buy-in for the solution</h2> <p>The auto claims subrogation blockchain project required a very different type of thinking as you’re working directly with competitors. It involved team from legal, security, risk, compliance, public affairs, the business and the IT departments that are supporting the existing processes.</p> <p>Getting that support and buy-in required education, collaboration and consistent transparency.</p> <p> </p> <h2>Iterative approach to development and business case in ROI</h2> <p>The project was broken down in phases. The phases were aligned with ROI and business value projections. Each phase provided additional insights on the realisation of their initial projections and assumptions.</p> <p>First phase was prototype phase which was completed in 2018 and both State Farm and USAA agreed that they were on track to achieving the business value to proceed to the next phase. Phase two, which they are now completing, is their shadow network phase. The blockchain solutions is implemented in production in parallel to the existing processes, but without the exchanging of payments.</p> <p>This phase is proving out the business processes, confirming the expected efficiency gains, and understanding the integration points needed to existing systems to better understand the costs. At the end of this phase both State Farm and USAA will have a clear understanding of the ROI and value of the blockchain solution, and decide on whether or not to move to the next phase which will include develop the proper integrations and turning on the exchange of payments.</p> <p>It is important to note that any aspiring blockchain project have to appreciate that in the short term there will be extra costs involved in running a blockchain system concurrently to the existing one to be able to compare and contrast the benefits of the blockchain solution.</p> <p> </p> <h2>State Farm’s blockchain projects in the pipeline</h2> <p>State Farm has two blockchain projects in the pipeline. One involves the exchange of information between insurers and state motor vehicle department, for the purpose of insurance tracking. The opportunity here is to provide efficiency gains and quicker validation of data with the promise of making the policy experience a better one.</p> <p>The second project is around improving efficiency and reducing the cost associated with insures sharing information during the claims process. Improvements there could shorten timelines and improve the customer claims.</p> <p> </p> <h2>Building on a Quorum blockchain</h2> <p><a href="http://insureblocks.com/wp-content/uploads/2019/08/Quorum-logo.png" rel="nofollow" target="_blank"></a></p> <p>State Farm’s blockchain solution is built on a <a href="https://www.goquorum.com/" rel="nofollow" target="_blank">Quorum blockchain</a> that is governed by JP Morgan.</p> <p>Based on Ethereum, Quorum is an open source blockchain platform that combines the innovation of the public Ethereum community with enhancements to support enterprise needs.</p> <p>It has permission implementation and supports transactions, privacy and smart contracts.</p> <p>Early 2018 was the time when State Farm had to make a decision on the blockchain platform it would develop its auto claims subrogation solution. They needed a permission based blockchain with transaction privacy.</p> <p>At that time Quorum, Corda and Hyperledger Fabric were all in their early days. However they felt that as Quorum is Ethereum based and the public Ethereum had been put through its spaces that it would be a more robust platform. The other interest factor was when they talked to their developers the developers had analysed the level of documentation and number of contributors.</p> <p>Dustin does recognise that either Quorum, Corda or Hyperledger Fabric could easily have been used for building out their solution.</p> <p>But the one slight difference in the overall architecture approach that Dustin sees is that high level blockchain processing sits in three phases:</p> <ul> <li>Validation of the transaction or execution of the smart contract</li> <li>Consensus portion</li> <li>Block creation and storing of the final block</li> </ul> <p>In Corda you have the concept of the notary node where one of the network participants has a node, have a certain higher level of responsibility and potentially even data insights.</p> <p>Hyperledger Fabric, on the other hand has a modular architecture where different nodes are involved in different parts of the blockchain process. That architecture also includes an order node, which similarly has a greater responsibility and potential authority in the network itself.</p> <p>Quorum, which is Ethereum based, for the most part, a node is a node is a node.</p> <p>So, in early 2018, State Farm felt that a Quorum type of architecture would be a best fit as it helps to avoid any perceptions that one network participant is trying to gain some sort of advantage over the other one.</p> <p>However, Dustin confirmed that at State Farm his teams maintain a constant level of expertise and experience in both Hyperledger Fabric and Corda so that when other use cases come up and they need to pivot to another blockchain platform that they wouldn’t be starting from ground zero.</p> <p> </p> <h2>Expanding the adoption of net subrogation on the blockchain</h2> <p>State Farm and USAA are having numerous initial conversations with a number of large US insurance organisations. To facilitate those conversations, they’ve enabled other insurers to get involved easily and at a low entry investment through a beta test. This involves providing them with access to a node where they can they can exercise the application and run through some test scenarios with State Farm and USAA.</p> <p>They also provide them with a full copy of the code if they’d like to set up their own node and run the same test scenarios.</p> <p> </p> <h2>Your turn</h2> <p>Thank you, Dustin, for talking to us about your auto subrogation blockchain implementation at State Farm. If you liked this episode, <a href="https://itunes.apple.com/gb/podcast/insureblocks/id1361820676?mt=2" rel="nofollow" target="_blank">please do review it on iTunes</a>. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Dustin a question, feel free to add a comment below and we’ll get him over to our site to answer your questions</p>

Ep. 69 – State Farm’s blockchain – Auto Claims Subrogation

Addenda is the first insurance blockchain solution we have recently covered on Insureblocks from the Middle East.. For this podcast we were joined by Walid Daniel Dib CEO and co-founder of Addenda, the blockchain for insurance subrogation ecosystem in the UAE. In September 2018 Walid and his co-founders registered the company in the UAE and in the Dubai International Financial Centre (IFC). They set out to build a few prototype which didn’t quite work including a life insurance solution that was more of a solution looking for a problem. However as Walid puts it, they “struck gold” with the motor insurance subrogation solution that they’re currently working on.   What is blockchain? Blockchain is essentially a decentralised network. Where information that’s shared between two participants is also shared across the board and everybody else in the room. Depending on whether it’s a private blockchain or a public blockchain, that data could be encrypted, and or shared with others without them knowing the content of that data. Within an “old school” blockchain the public blockchain rely on certain consensus mechanisms, such as proof of work, and proof of stake to operate but more enterprise friendly blockchains rely on different types of consensus such as Byzantine fault tolerance.   The road to motor insurance subrogation The focus on subrogation came be seeing the issues that exist in the UAE and in the MENA region in general with regards to how manual certain insurance processes are. Walid and his team wanted to start with something that’s both high volume and low value in claims. Property insurance has very high value but low volume. Medical insurance has a lot of personally identifiable information which can be tricky in the UAE. Motor insurance ticked all the boxes. July 2018, Walid and his co-founders quit their jobs to focus building on their blockchain motor insurance which was ready by December 2018. They signed their first client in July 2019 and within the following month signed up seven more insurance companies.   Lack of Insurtechs in the Middle East? There are four or five Insurtechs in the Middle East, but most are aggregators in the space. In Walid’s opinion, the Middle East is still a few years away from having some deep tech startups. There is more demand for technical talent than there is supply. However with the recent exit of large startups such as Careem sold to Uber in March 2019 for $3.1 billion and Souq sold to Amazon for $580m in July 2017. There’s now a bigger appetite for both investors, governmental entities and even clients to take Insurtechs, whether blockchain or otherwise more seriously.   Insurance market in the UAE In spite of being a relatively small country the UAE has more than 60 insurance companies. The top 5 insurers control more than 50% of the overall gross written premium whilst the vast majority control single digit percentages if not less of the market. There is now increasing activity in terms of mergers and acquisitions with a lot of gossip regarding a larger merger between Takaful.   The motor subrogation opportunity in the UAE If Car A hits Car B, and Car A is at fault and assuming both have comprehensive insurance policies. Both respective insurance companies will fix the cars, but as Car A was at fault, Car B’s insurance will chase Car A’s insurance for payment. A large number of documents will then need to be exchanged:  Three competitive quotations to show the cost of repairing the car A policy report copy Copy of the insurance policy Copy of the discharged receipts to show the repair has happened  On average over 20 documents need to be exchanged per claim. With over 2000 claims happening per day that’s 40,000 documents flying back and force via courier between the insurance companies. The more “technologically advanced” insurers are using fax. In the UAE the governmental side of things are pretty advanced, such as the Dubai police. If two parties who crashed together can agree on who is liable, they each take a couple of pictures, a police report is issued within half an hour via an URL and is sent along with the pictures to the insurance company. Staff in insurance subrogation departments lack resources and human error results in an inefficient process where a $1000 claim can take between 3 months and 2.5 years to reconcile on the back end. What blockchain does is provide transparency on how much each participant owes the other. Every single insurance company has access to a single point of truth where there is no need for reconciliation.   Did you really need a blockchain? Around 2010 there was an attempt for a non for profit identity to launch a centralised solution to help insurance companies reconcile their motor insurance subrogation. However there wasn’t much appetite for this solution due to the concern insurance companies had over their data. Addenda provides insurance companies with the option to host their data on their own nodes. Addenda is the custodian of the network but insurance companies control their private and public keys. Any documents are encrypted and stored on a Microsoft Azure UAE cloud. Blockchain provides a decentralised point of truth where there is no need to trust a third party such as a non for profit entity. There is a lot of competition between the players. What blockchain provides them is the opportunity to collaborate.   Signing up their first client Convincing the first insurance company to work with Addanda was difficult. However like in most innovation curve you’ve got the crazy early adopters who are willing to spend $40,000 on the first LCD TV, followed by the early adopters, the late adopters and the laggards. The first company that signed up with Addenda was called Watania. Their motor books aren’t the biggest but the desire to join Addenda was out of a desire to want to try this out and a need for innovation. Addenda’s intention was to show them an ROI at the beginning by not charging any licencing fees, set up fees, API integration fees, just a per transaction charge. API integration is a whole can of worms on its own.  It’s incredibly complex to integrate with  insurance companies existing legacy systems because they use Old School databases like Oracle databases.   Calculating the ROI Similarly to Patrick Schmid, at RiskStream Collaborative, who built an ROI on blockchain, Walid and his team built a ROI calculator on Excel. They put the insurance companies into three different buckets, small, medium and large depending on the number of subrogation claims per month. The team then sat down with the IT teams, of those insurance companies and understood on a high level, what the average salaries are. The paper processing costs, the paper printing costs, archiving rooms, infrastructure for saving data on servers, and combined all of these costs to come up with an ROI calculator that showed some serious cost savings. The ROI calculator varies a lot depending on each company’s internal costs. Addenda provided the ROI calculator for them and they measured the costs   Early results Since the 16th of October, Addenda has had 8 companies on their blockchain transacting on it. They’ve done $215,000 worth of transactions over 300 actual transactions. The 8 companies who have signed up to Addenda, of which the vast majority are based out of Abu Dhabi. Launching a blockchain solution in the UAE had its challenges. A crossing of minds was required, where Walid and his team educated insurers on the tech potential, whilst the insurers educated Walid and his team on the realities on the ground for motor subrogation. To manage the ‘user community” (consortium) of the Addenda ecosystem, they have the CEOs of all the companies on board who meet on a regular basis to decide what the next features should be.   Plans for 2020 Walid sees the opportunity to expand his product and geographical reach. Addenda can reskin their subrogation tool to make it a co-insurance tool, both for claims and premiums. Local insurance has the same issue that recoveries and subrogation have, who owes who, what and how much and when. Addenda can deploy it to the same clients they presently have on the platform. Gulf Cooperation Council (GCC), intercountry subrogation is a big challenge as you can have subrogation between Saudi Arabia and Kuwait or between Oman and the UAE. This is an opportunity Walid is looking forwad to sinking his teeth into.

<p><a href="https://www.addenda.tech/" rel="nofollow" target="_blank">Addenda</a> is the first insurance blockchain solution we have recently covered on Insureblocks from the Middle East.. For this podcast we were joined by <a href="https://www.linkedin.com/in/wdanieldib/" rel="nofollow" target="_blank">Walid Daniel Dib</a> CEO and co-founder of Addenda, the blockchain for insurance subrogation ecosystem in the UAE.</p> <p>In September 2018 Walid and his co-founders registered the company in the UAE and in the Dubai International Financial Centre (IFC). They set out to build a few prototype which didn’t quite work including a life insurance solution that was more of a solution looking for a problem. However as Walid puts it, they “struck gold” with the motor insurance subrogation solution that they’re currently working on.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is essentially a decentralised network. Where information that’s shared between two participants is also shared across the board and everybody else in the room. Depending on whether it’s a private blockchain or a public blockchain, that data could be encrypted, and or shared with others without them knowing the content of that data. Within an “old school” blockchain the public blockchain rely on certain consensus mechanisms, such as proof of work, and proof of stake to operate but more enterprise friendly blockchains rely on different types of consensus such as Byzantine fault tolerance.</p> <p> </p> <h2>The road to motor insurance subrogation</h2> <p>The focus on subrogation came be seeing the issues that exist in the UAE and in the MENA region in general with regards to how manual certain insurance processes are. Walid and his team wanted to start with something that’s both high volume and low value in claims. Property insurance has very high value but low volume. Medical insurance has a lot of personally identifiable information which can be tricky in the UAE. Motor insurance ticked all the boxes.</p> <p>July 2018, Walid and his co-founders quit their jobs to focus building on their blockchain motor insurance which was ready by December 2018. They signed their first client in July 2019 and within the following month signed up seven more insurance companies.</p> <p> </p> <h2>Lack of Insurtechs in the Middle East?</h2> <p>There are four or five Insurtechs in the Middle East, but most are aggregators in the space. In Walid’s opinion, the Middle East is still a few years away from having some deep tech startups. There is more demand for technical talent than there is supply. However with the recent exit of large startups such as <a href="https://www.uber.com/newsroom/uber-careem/" rel="nofollow" target="_blank">Careem sold to Uber</a> in March 2019 for $3.1 billion and <a href="https://techcrunch.com/2017/07/03/amazon-souq-com-completed/" rel="nofollow" target="_blank">Souq sold to Amazon</a> for $580m in July 2017. There’s now a bigger appetite for both investors, governmental entities and even clients to take Insurtechs, whether blockchain or otherwise more seriously.</p> <p> </p> <h2>Insurance market in the UAE</h2> <p>In spite of being a relatively small country the UAE has more than 60 insurance companies. The top 5 insurers control more than 50% of the overall gross written premium whilst the vast majority control single digit percentages if not less of the market. There is now increasing activity in terms of mergers and acquisitions with a lot of gossip regarding a larger merger between <a href="https://www.investopedia.com/terms/t/takaful.asp" rel="nofollow" target="_blank">Takaful</a>.</p> <p> </p> <h2>The motor subrogation opportunity in the UAE</h2> <p>If Car A hits Car B, and Car A is at fault and assuming both have comprehensive insurance policies. Both respective insurance companies will fix the cars, but as Car A was at fault, Car B’s insurance will chase Car A’s insurance for payment. A large number of documents will then need to be exchanged:</p> <ul> <li>Three competitive quotations to show the cost of repairing the car</li> <li>A policy report copy</li> <li>Copy of the insurance policy</li> <li>Copy of the discharged receipts to show the repair has happened</li> </ul> <p>On average over 20 documents need to be exchanged per claim. With over 2000 claims happening per day that’s 40,000 documents flying back and force via courier between the insurance companies. The more “technologically advanced” insurers are using fax.</p> <p>In the UAE the governmental side of things are pretty advanced, such as the Dubai police. If two parties who crashed together can agree on who is liable, they each take a couple of pictures, a police report is issued within half an hour via an URL and is sent along with the pictures to the insurance company.</p> <p>Staff in insurance subrogation departments lack resources and human error results in an inefficient process where a $1000 claim can take between 3 months and 2.5 years to reconcile on the back end.</p> <p>What blockchain does is provide transparency on how much each participant owes the other. Every single insurance company has access to a single point of truth where there is no need for reconciliation.</p> <p> </p> <h2>Did you really need a blockchain?</h2> <p>Around 2010 there was an attempt for a non for profit identity to launch a centralised solution to help insurance companies reconcile their motor insurance subrogation. However there wasn’t much appetite for this solution due to the concern insurance companies had over their data.</p> <p>Addenda provides insurance companies with the option to host their data on their own nodes. Addenda is the custodian of the network but insurance companies control their private and public keys. Any documents are encrypted and stored on a Microsoft Azure UAE cloud.</p> <p>Blockchain provides a decentralised point of truth where there is no need to trust a third party such as a non for profit entity. There is a lot of competition between the players. What blockchain provides them is the opportunity to collaborate.</p> <p> </p> <h2>Signing up their first client</h2> <p>Convincing the first insurance company to work with Addanda was difficult. However like in most innovation curve you’ve got the crazy early adopters who are willing to spend $40,000 on the first LCD TV, followed by the early adopters, the late adopters and the laggards. The first company that signed up with Addenda was called <a href="http://www.watania.ae/" rel="nofollow" target="_blank">Watania</a>. Their motor books aren’t the biggest but the desire to join Addenda was out of a desire to want to try this out and a need for innovation.</p> <p>Addenda’s intention was to show them an ROI at the beginning by not charging any licencing fees, set up fees, API integration fees, just a per transaction charge.</p> <p>API integration is a whole can of worms on its own.  It’s incredibly complex to integrate with  insurance companies existing legacy systems because they use Old School databases like Oracle databases.</p> <p> </p> <h2>Calculating the ROI</h2> <p>Similarly to <a href="https://www.linkedin.com/in/patschmid/" rel="nofollow" target="_blank">Patrick Schmid</a>, at <a href="https://www.theinstitutes.org/guide/riskstream-collaborative?page=1" rel="nofollow" target="_blank">RiskStream Collaborative</a>, who built an <a href="https://insureblocks.com/ep-60-calculating-roi-on-blockchain-insights-from-riskstream-collaborative/" rel="nofollow" target="_blank">ROI on blockchain</a>, Walid and his team built a ROI calculator on Excel. They put the insurance companies into three different buckets, small, medium and large depending on the number of subrogation claims per month.</p> <p>The team then sat down with the IT teams, of those insurance companies and understood on a high level, what the average salaries are. The paper processing costs, the paper printing costs, archiving rooms, infrastructure for saving data on servers, and combined all of these costs to come up with an ROI calculator that showed some serious cost savings.</p> <p>The ROI calculator varies a lot depending on each company’s internal costs. Addenda provided the ROI calculator for them and they measured the costs</p> <p> </p> <h2>Early results</h2> <p>Since the 16th of October, Addenda has had 8 companies on their blockchain transacting on it. They’ve done $215,000 worth of transactions over 300 actual transactions. The 8 companies who have signed up to Addenda, of which the vast majority are based out of Abu Dhabi.</p> <p>Launching a blockchain solution in the UAE had its challenges. A crossing of minds was required, where Walid and his team educated insurers on the tech potential, whilst the insurers educated Walid and his team on the realities on the ground for motor subrogation.</p> <p>To manage the ‘user community” (consortium) of the Addenda ecosystem, they have the CEOs of all the companies on board who meet on a regular basis to decide what the next features should be.</p> <p> </p> <h2>Plans for 2020</h2> <p>Walid sees the opportunity to expand his product and geographical reach. Addenda can reskin their subrogation tool to make it a co-insurance tool, both for claims and premiums. Local insurance has the same issue that recoveries and subrogation have, who owes who, what and how much and when. Addenda can deploy it to the same clients they presently have on the platform.</p> <p><a href="https://en.wikipedia.org/wiki/Gulf_Cooperation_Council" rel="nofollow" target="_blank">Gulf Cooperation Council</a> (GCC), intercountry subrogation is a big challenge as you can have subrogation between Saudi Arabia and Kuwait or between Oman and the UAE. This is an opportunity Walid is looking forwad to sinking his teeth into.</p>

Ep. 83 – Addenda – a blockchain motor insurance subrogation ecosystem in the UAE

John Reynolds is the CEO and founder of Coadjute. John has a background in enterprise technology and helping organisations optimize internally. In this podcast he talks to us about the exciting blockchain opportunity they’ve unlocked in the real estate and construction industry which is worth $10 trillion globally!   What is blockchain? John perspective on blockchain is from a workflow and synchronization angel. Blockchain enables different companies to work together by keeping their different databases to stay synchronized, thus enabling everyone to have the same version of the truth. Coadjute looks at blockchain as an inter-organizational workflow that allows organisations to stay in sync.   Property marketplaces around the world are broken In April 2019, John wrote an article entitled “Transforming the Real Estate Value Chain: Collaborative Innovation and Co-Operative Delivery”. In the article he states “Property marketplaces around the world are broken. It is slow, complex, confusing and costly to buy and sell both residential and commercial property.” Anybody who has bought a house would recognize that it is a complex process because the consumer has to engage multiple businesses:  Visit an estate agent to view a house Visit a bank to see how much you can afford Visit a mortgage broker Visit a conveyancing lawyer Visit a surveyor  Whilst each of those verticals have digitized and perform their job correctly the process itself is broken because the entire value chain is fragmented and it is down to the consumer to knit it all together. This can take four to five months and could cost 4% of the property value. It is an expensive, frustrating and time-consuming experience for most consumers. At Coadjute they believe that distributed ledgers and decentralized workflows can fix this problem.   Do you really need a decentralized solution? There has been attempts to build a centralized platform fo the marketplace. In April 2007 the Land Registry invested £4.6m to the “Chain Matrix” a e-conveyancing type platform. It didn’t get the necessary adoption and was ultimately closed down in 2009.  Whilst in Australia the government mandated a e-conveyancing platform called PLEXA which was successfully launched in 2010 and has had over 4m property transactions of a combined value of $622bn go through it. In the UK and other jurisdictions estate agents have invested heavily in their workflow tool and their internal business processes. Surveyors and conveyancers have their own tools that they have built up over 10 years. Banks have their internal systems. Taking a centralized platform approach would cost significant amounts of money, require heavy regulation which in turn could lead to a number of businesses shutting down. Because of these reasons a centralized approach probably wouldn’t work in the UK. The API approach is an interesting one but one that still has challenges. How do you synchronize those APIs? How do you set the standards and processes to facilitate the synchronization of those APIs within a group of companies wishing to collaborate? DLT and smart contracts allows those companies to orchestrate workflow across organisations and then use APIs to connect into their core systems. Essentially the APIs open up the data from the company’s internal systems, DLT keeps the data in synch and enables the automated execution of workflows.   What is Coadjute?  Coadjute initially started off as a research project trading cryptocurrency in an amateur way to understand the underlying technology. John has spent a considerable amount of time in helping businesses and the UK government digitally transform itself. He and the Coadjute team had a hypothesis which was, could they create a distributed ledger that kept government in sync and kept their databases in sync? To answer that hypothesis they started a research project in 2017, spoke at Parliament, presented at the Lords, spoke to many government departments. At the beginning of 2018, the UK Land Registry ran a public procurement to which Coadjute in partnership with R3 and a UK public sector digital consultancy called Methods, placed a bid along with 22 other companies. The challenge the Land Registry had was how can blockchain and DLT technology and smart contracts make the home buying process simpler, smarter and cheaper. The approach Coadjute took wasn’t to put the Land Registry onto the blockchain but instead to put the workflow between all the parties involved in the home buying process onto the blockchain. Coadjute, R3 and Methods won the bid for this procurement, built a number of PoCs and were delivery partners for the UK Land Registry Digital Street project.    A Global Trial – Instant Property Network In Q1 2019, Coadjute ran the Instant Property Network trial with 40 organisations in 23 countries across five continents. Organisations such as Ashurst, Baker McKenzie, Barclays, Clifford Chance, AXA XL, Even, Royal Bank of Scotland, Raiffeisen Bank International, Commerz Real, SBI Nihon SSI, SBI Holdings, BBVA, Search Acumen, Shieldpay, Squire Patton Boggs, Davivienda, Swiss Re and SiriVentures participated in this trial. For the purpose of this trial a PoC test was done to see if there is value in a shared ledger for the whole home buying process. Coadjute built nodes for an estate agent, mortgage lender, legal firm, Land Registry, Tax office, and a node right along the value chain. Dummy properties were created and transacted across the value chain. The learnings from this trial were prepared into a full report. This trial was financed through a joint effort. Coadjute invested their own resources into the trial, R3 invested development resources and Microsoft Azure provided them with a free license to all the participants who all also chipped in to the overall cost of the trial.   Moving from a trial to live production John explains how the gap from trial to live production is massive because it is all about adoption. One of the participants in the trial, who is one of the largest global estate agents in the world, shared that they had just recently refreshed an internal software platform, thus making it hard for them to move to another platform. John visited that estate agency software and realized that they had a workflow tool which involved a lot of telephone usage and chasing around of the participants in the whole value chain for buying a property. That’s the moment that John had the idea of becoming a network of platform, of leading platform providers in estate agency, in conveyancing, in mortgage lending and brokering.  In September this year Coadjute built a consortium together of the leading platform providers in the industry with Natwest being the lender to build a non-production MVP. The Instant Property Consortium has been formed with leading software providers from each stage of the home buying process – Dezrez Estate Agency Software, used by 3000 estate agents, Redbrick Solutions Conveyancing Software, has 1000 conveyancers, eTech Surveyor Software, Search Acumen Property Data, has 80% of the market using it, Conveyancing Data Services Property Data, LMS Panel Management Software and Natwest Bank which has 12% of the mortgage market. All this will be available as a mobile banking app with the promise that you can get a mortgage and move home in one simple online journey. The Instant Property Consortium is going to do a big industry showcase in February 2020. John states that through the power of consortium you can really drive adoption as he is under no illusion that they could not have brought 3000 estate agents on their own. In January 2020 they will go back to the consumer to test out their newly designed digital experience with a view to run a pilot with the members of the consortium. The pilot will run shadow transactions. They will run shadow transactions of a consumer going through the home moving experience on a real market infrastructure. This will take about 6 months of building and testing with a view to go live by the end of 2020.   Quality chain During the original trail in Q1 2019, one of the participants was a housing association who liked the concept of having a digital identity of the property. Coadjute has a smart property record which gets sent to the estate agent, the conveyancer and the rest of the ecosystem. After the Grenfell Tower disaster and the Hackitt report, a regulator is being set up in the UK for monitoring building safety. The housing association stated that they will need a facility to monitor the gold thread of quality through the construction process. John states that the process for building a home is very similar to the one of buying a home where you have multiple organisations interacting between each other without there being a one stop shop. John realized that the Instant Property workflow engine and smart property record could be tweaked to address the need of the construction industry. This new product became known as the “Quality Chain” which they prototyped with the housing association and formed a working group called the UK Housing Association Working Group with five housing associations. Quality Chain is a decentralised workflow tool for the build ecosystem, enabling businesses across the construction industry to collaborate and manage development projects by tracking obligations and delivery along the project lifecycle from inception to occupation. This shared immutable data record provides a single source of the truth as a foundation for trust. The immutable provenance of construction documentation, records and certificates serves to evidence regulatory compliance and facilitate smooth handover to the Owner and Occupier.   Vision for the future Data is lost, archived or left in siloed databases which means it isn’t being fed into AIs or machine learning algorithms. Liberating that data onto a share ledger enables AIs and machine learning algorithms to develop valuable insights and automation for all participants in the value chain. This data will not only be available in one vertical but along the lifecycle of the property as an asset from building it, buying it and occupying it can be really transformative. The global construction industry is a $10 trillion industry which in the UK alone employs 1.3m people. Yet as an industry it is far behind in its digitization effort. This represents a very large opportunity for Coadjute and PropTech startups.

<p><a href="https://www.linkedin.com/in/reynodes/" rel="nofollow" target="_blank">John Reynolds</a> is the CEO and founder of <a href="https://coadjute.com/" rel="nofollow" target="_blank">Coadjute</a>. John has a background in enterprise technology and helping organisations optimize internally. In this podcast he talks to us about the exciting blockchain opportunity they’ve unlocked in the real estate and construction industry which is worth $10 trillion globally!</p> <p> </p> <h2>What is blockchain?</h2> <p>John perspective on blockchain is from a workflow and synchronization angel. Blockchain enables different companies to work together by keeping their different databases to stay synchronized, thus enabling everyone to have the same version of the truth. Coadjute looks at blockchain as an inter-organizational workflow that allows organisations to stay in sync.</p> <p> </p> <h2>Property marketplaces around the world are broken</h2> <p>In April 2019, John wrote an article entitled “<a href="https://www.linkedin.com/pulse/transforming-real-estate-value-chain-collaborative-john-reynolds/" rel="nofollow" target="_blank">Transforming the Real Estate Value Chain: Collaborative Innovation and Co-Operative Delivery</a>”. In the article he states “Property marketplaces around the world are broken. It is slow, complex, confusing and costly to buy and sell both residential and commercial property.”</p> <p>Anybody who has bought a house would recognize that it is a complex process because the consumer has to engage multiple businesses:</p> <ul> <li>Visit an estate agent to view a house</li> <li>Visit a bank to see how much you can afford</li> <li>Visit a mortgage broker</li> <li>Visit a conveyancing lawyer</li> <li>Visit a surveyor</li> </ul> <p>Whilst each of those verticals have digitized and perform their job correctly the process itself is broken because the entire value chain is fragmented and it is down to the consumer to knit it all together. This can take four to five months and could cost 4% of the property value. It is an expensive, frustrating and time-consuming experience for most consumers. At Coadjute they believe that distributed ledgers and decentralized workflows can fix this problem.</p> <p> </p> <h2>Do you really need a decentralized solution?</h2> <p>There has been attempts to build a centralized platform fo the marketplace. In April 2007 the <a href="http://www.landregistry.gov.uk/" rel="nofollow" target="_blank">Land Registry</a> invested £4.6m to the “<a href="https://www.theguardian.com/technology/2007/apr/12/comment.egovernment" rel="nofollow" target="_blank">Chain Matrix</a>” a e-conveyancing type platform. It didn’t get the necessary adoption and was ultimately <a href="https://www.theguardian.com/technology/2009/feb/19/land-registry-data" rel="nofollow" target="_blank">closed down in 2009</a>.</p> <p><strong><a href="http://insureblocks.com/wp-content/uploads/2019/11/PEXA-Australias-e-conveyancing-platform.png" rel="nofollow" target="_blank"></a></strong></p> <p>Whilst in Australia the government mandated a e-conveyancing platform called <a href="https://www.pexa.com.au/" rel="nofollow" target="_blank">PLEXA</a> which was successfully launched in 2010 and has had over 4m property transactions of a combined value of $622bn go through it.</p> <p>In the UK and other jurisdictions estate agents have invested heavily in their workflow tool and their internal business processes. Surveyors and conveyancers have their own tools that they have built up over 10 years. Banks have their internal systems. Taking a centralized platform approach would cost significant amounts of money, require heavy regulation which in turn could lead to a number of businesses shutting down. Because of these reasons a centralized approach probably wouldn’t work in the UK.</p> <p>The API approach is an interesting one but one that still has challenges. How do you synchronize those APIs? How do you set the standards and processes to facilitate the synchronization of those APIs within a group of companies wishing to collaborate?</p> <p>DLT and smart contracts allows those companies to orchestrate workflow across organisations and then use APIs to connect into their core systems. Essentially the APIs open up the data from the company’s internal systems, DLT keeps the data in synch and enables the automated execution of workflows.</p> <p> </p> <h2>What is Coadjute?</h2> <p></p> <p>Coadjute initially started off as a research project trading cryptocurrency in an amateur way to understand the underlying technology. John has spent a considerable amount of time in helping businesses and the UK government digitally transform itself. He and the Coadjute team had a hypothesis which was, could they create a distributed ledger that kept government in sync and kept their databases in sync? To answer that hypothesis they started a research project in 2017, spoke at Parliament, presented at the Lords, spoke to many government departments. At the beginning of 2018, the <a href="https://www.gov.uk/government/organisations/land-registry" rel="nofollow" target="_blank">UK Land Registry</a> ran a public procurement to which Coadjute in partnership with <a href="https://www.r3.com/" rel="nofollow" target="_blank">R3</a> and a UK public sector digital consultancy called <a href="https://methods.co.uk/" rel="nofollow" target="_blank">Methods</a>, placed a bid along with 22 other companies. The challenge the Land Registry had was how can blockchain and DLT technology and smart contracts make the home buying process simpler, smarter and cheaper.</p> <p>The approach Coadjute took wasn’t to put the Land Registry onto the blockchain but instead to put the workflow between all the parties involved in the home buying process onto the blockchain. <a href="https://www.gov.uk/government/news/hm-land-registry-to-explore-the-benefits-of-blockchain" rel="nofollow" target="_blank">Coadjute, R3 and Methods won the bid</a> for this procurement, built a number of PoCs and were delivery partners for the UK Land Registry <a href="https://www.gov.uk/government/publications/hm-land-registry-annual-report-and-accounts-2017-to-2018/performance-report#digital-street--creating-positive-digital-disruption" rel="nofollow" target="_blank">Digital Street</a> project.</p> <p></p> <p> </p> <h2>A Global Trial – Instant Property Network</h2> <p>In Q1 2019, Coadjute ran the Instant Property Network trial with 40 organisations in 23 countries across five continents. Organisations such as Ashurst, Baker McKenzie, Barclays, Clifford Chance, AXA XL, Even, Royal Bank of Scotland, Raiffeisen Bank International, Commerz Real, SBI Nihon SSI, SBI Holdings, BBVA, Search Acumen, Shieldpay, Squire Patton Boggs, Davivienda, Swiss Re and SiriVentures participated in this trial.</p> <p>For the purpose of this trial a PoC test was done to see if there is value in a shared ledger for the whole home buying process. Coadjute built nodes for an estate agent, mortgage lender, legal firm, Land Registry, Tax office, and a node right along the value chain. Dummy properties were created and transacted across the value chain. The learnings from this trial were prepared into a <a href="https://www.linkedin.com/posts/coadjute_coadjute-industry-poc-q1-2019-activity-6606870179794169856-SeRK/" rel="nofollow" target="_blank">full report</a>.</p> <p>This trial was financed through a joint effort. Coadjute invested their own resources into the trial, R3 invested development resources and Microsoft Azure provided them with a free license to all the participants who all also chipped in to the overall cost of the trial.</p> <p> </p> <h2>Moving from a trial to live production</h2> <p>John explains how the gap from trial to live production is massive because it is all about adoption. One of the participants in the trial, who is one of the largest global estate agents in the world, shared that they had just recently refreshed an internal software platform, thus making it hard for them to move to another platform.</p> <p>John visited that estate agency software and realized that they had a workflow tool which involved a lot of telephone usage and chasing around of the participants in the whole value chain for buying a property. That’s the moment that John had the idea of becoming a network of platform, of leading platform providers in estate agency, in conveyancing, in mortgage lending and brokering.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2019/11/Coadjute-forms-consortium-with-Natwest.png" rel="nofollow" target="_blank"></a></p> <p>In September this year Coadjute built a <a href="https://www.forbes.com/sites/darrynpollock/2019/11/28/natwest-forms-blockchain-consortium-to-streamline-home-buying-in-uk/#17151c812759" rel="nofollow" target="_blank">consortium together of the leading platform providers in the industry with Natwest</a> being the lender to build a non-production MVP.</p> <p>The Instant Property Consortium has been formed with leading software providers from each stage of the home buying process – <a href="https://www.dezrez.com/uk/" rel="nofollow" target="_blank">Dezrez Estate Agency Software</a>, used by 3000 estate agents, <a href="https://www.redbricksolutions.co.uk/our-products-legal-case-management-software/legal-case-management/conveyancing-case-management" rel="nofollow" target="_blank">Redbrick Solutions Conveyancing Software</a>, has 1000 conveyancers, <a href="https://www.etech.net/services/surveyors/" rel="nofollow" target="_blank">eTech Surveyor Software</a>, <a href="https://www.search-acumen.co.uk/" rel="nofollow" target="_blank">Search Acumen Property Data</a>, has 80% of the market using it, <a href="https://www.conveyancingdata.com/" rel="nofollow" target="_blank">Conveyancing Data Services Property Data</a>, <a href="https://corporate.lms.com/" rel="nofollow" target="_blank">LMS Panel Management Software</a> and <a href="https://personal.natwest.com/personal/mortgages.html" rel="nofollow" target="_blank">Natwest Bank</a> which has 12% of the mortgage market.</p> <p>All this will be available as a mobile banking app with the promise that you can get a mortgage and move home in one simple online journey.</p> <p>The Instant Property Consortium is going to do a big industry showcase in February 2020. John states that through the power of consortium you can really drive adoption as he is under no illusion that they could not have brought 3000 estate agents on their own.</p> <p>In January 2020 they will go back to the consumer to test out their newly designed digital experience with a view to run a pilot with the members of the consortium. The pilot will run shadow transactions. They will run shadow transactions of a consumer going through the home moving experience on a real market infrastructure. This will take about 6 months of building and testing with a view to go live by the end of 2020.</p> <p> </p> <h2>Quality chain</h2> <p>During the original trail in Q1 2019, one of the participants was a housing association who liked the concept of having a digital identity of the property. Coadjute has a smart property record which gets sent to the estate agent, the conveyancer and the rest of the ecosystem.</p> <p>After the <a href="https://www.bbc.co.uk/news/uk-40301289" rel="nofollow" target="_blank">Grenfell Tower disaster</a> and the <a href="https://www.gov.uk/government/publications/independent-review-of-building-regulations-and-fire-safety-final-report" rel="nofollow" target="_blank">Hackitt report</a>, a regulator is being set up in the UK for monitoring building safety. The housing association stated that they will need a facility to monitor the gold thread of quality through the construction process. John states that the process for building a home is very similar to the one of buying a home where you have multiple organisations interacting between each other without there being a one stop shop.</p> <p>John realized that the Instant Property workflow engine and smart property record could be tweaked to address the need of the construction industry. This new product became known as the “Quality Chain” which they prototyped with the housing association and formed a working group called the UK Housing Association Working Group with five housing associations.</p> <p>Quality Chain is a decentralised workflow tool for the build ecosystem, enabling businesses across the construction industry to collaborate and manage development projects by tracking obligations and delivery along the project lifecycle from inception to occupation. This shared immutable data record provides a single source of the truth as a foundation for trust. The immutable provenance of construction documentation, records and certificates serves to evidence regulatory compliance and facilitate smooth handover to the Owner and Occupier.</p> <p> </p> <h2>Vision for the future</h2> <p>Data is lost, archived or left in siloed databases which means it isn’t being fed into AIs or machine learning algorithms. Liberating that data onto a share ledger enables AIs and machine learning algorithms to develop valuable insights and automation for all participants in the value chain. This data will not only be available in one vertical but along the lifecycle of the property as an asset from building it, buying it and occupying it can be really transformative. The global construction industry is a $10 trillion industry which in the UK alone employs 1.3m people. Yet as an industry it is far behind in its digitization effort. This represents a very large opportunity for Coadjute and PropTech startups.</p>

Ep.86 – Real estate on the blockchain – insights from Coadjute

Dr. Marcus Schmalbach is the CEO and co-founder of Ryskex, a provider of a blockchain-based ecosystem for alternative risk transfers and innovative insurance solutions. In this podcast we discuss Risk Transfer 2.0 from a perspective of how to use blockchain and AI solutions for new and emerging risks.   What is blockchain? Candidly, Marcus, Googled what is blockchain to get the following definition: “a decentralised distributed and public digital ledger that is use to record transactions across many computers”. However from his personal point of view, blockchain is an upcoming and interesting technology for the insurance market that will have a great impact on that industry.   What is Ryskex and what is its vision?  Ryskex stands for risk exchange. It offers a hedging platform focusing on emergent and non-insurable risk in a b2b ecosystem. They bring together risk managers of traditional insurance companies or captive owning companies and institutional investors who have a risk appetite. Ryskex uses both blockchain, a private version of Ethereum, and AI technology in running its platform.   What is Risk Transfer 2.0? Risk Transfer 2.0 is fundamentally two points:  Covering risks in innovative ways such as the use of parametric based solutions Covering new upcoming risks like globalisation and ones engendered by digitisations such as cyber risks  Cyber insurance for example is very difficult to price and to understand the real risks associated to cyber. As it’s a relatively new risk there isn’t sufficient data on the kind of exposures that could happen that weren’t conceived of. New solutions have to be designed based on this limited set of data. However Cyber risk is only one example of such new risks, we have reputational risk and especially climate change risk that can have a large impact on the corporate risk landscape. All of these new emerging risks cannot be tackled using traditional approaches and thus require new solutions.   What role does data play? The question thus comes to mind is that does the data exist or are insurance companies simply not capturing the right kind of data? Marcus agrees that the data is existing but isn’t necessarily being captured by insurance companies. Parametric insurance has a trigger that initiates a claim process. Having the right data to act as the trigger is critical. Ryskex works with insurance companies to help determine what is the right trigger for a parametric insurance. In the case of cyber insurance a trigger can be agreed between the policy owner and the risk taker. For example a double trigger model can be used when there is a data breach (1st trigger), which when reported by the press will ultimately lead to a fall in their share price (2nd trigger). Ryskex is working with some syndicates in the London market to design these kinds of solutions over the next few months and offer them in a parametric solution.   New risks require new infrastructures Marcus recognises that there is a lot of scepticism in the insurance industry with regards to both AI and blockchain technology. However, in addition to the recognised benefits that blockchain can bring, Marcus believes that blockchain helps to make claim adjustments and parametric payments a lot more cost effective. The AI component will have a large impact on the underwriting or the risk and its pricing.   PRICE (political sanctions, reputation damage, innovation failure, cyber-attacks and equity) model At the moment there are risk which are hard to cover or who are insurable on the market. Reputational risk in an era of social media is increasingly difficult to manage when CEOs or politicians can turn to Twitter to express their views whether personal or not. This is an example of an emerging risk that is in great demand but in low supply on the market. Ryskex was in the 2ndcohort at Lloyd’s Lab over the last 4 months working on covering cyber in a parametric way (parametric cyber cover). They worked very closely with Akash Bharadia and his team from AXIS Capital, on designing parametric cyber cover.   The captive insurance opportunity Earlier this year Marcus received a call from the Governor in Vermont as they were planning to set up the DLGA in order to remain the number one captive domiciled in the world. He recognised the need to look for new technologies and new opportunities for their clients and he believed that blockchain is an integral part of that opportunity.  Ryskex isnowa member of the Distributed Ledger Governance Association (DLGA) and the Vermont Captive Insurance Association (VCIA) there. 60% of Lloyd’s business comes from the US and most of it is from captive related one. Vermont being the number one captive domiciled in the world and Ryskex being in the Lloyd’s Lab puts them in a prime position to develop parametric insurance solutions for captives for those two markets.   New business models?  via GIPHY   Marcus responded to the question that the data being used to develop new parametric solutions could be used to develop new business models that moves from risk transfer to risk mitigation. He believes this is a fantastic opportunity that kind of reminds him on the movie: Minority Report. Marcus believes that in some areas we could use the power of AI to predict forthcoming risks in order to develop mitigation strategies to avoid it.

<p><a href="https://www.linkedin.com/in/dr-marcus-schmalbach-02667746/" rel="nofollow" target="_blank">Dr. Marcus Schmalbach</a> is the CEO and co-founder of <a href="https://ryskex.com/" rel="nofollow" target="_blank">Ryskex</a>, a provider of a blockchain-based ecosystem for alternative risk transfers and innovative insurance solutions. In this podcast we discuss Risk Transfer 2.0 from a perspective of how to use blockchain and AI solutions for new and emerging risks.</p> <p> </p> <h2>What is blockchain?</h2> <p>Candidly, Marcus, Googled what is blockchain to get the following definition: “a decentralised distributed and public digital ledger that is use to record transactions across many computers”. However from his personal point of view, blockchain is an upcoming and interesting technology for the insurance market that will have a great impact on that industry.</p> <p> </p> <h2>What is Ryskex and what is its vision?</h2> <p></p> <p><a href="https://ryskex.com/" rel="nofollow" target="_blank">Ryskex</a> stands for risk exchange. It offers a hedging platform focusing on emergent and non-insurable risk in a b2b ecosystem.</p> <p>They bring together risk managers of traditional insurance companies or captive owning companies and institutional investors who have a risk appetite. Ryskex uses both blockchain, a private version of Ethereum, and AI technology in running its platform.</p> <p> </p> <h2>What is Risk Transfer 2.0?</h2> <p>Risk Transfer 2.0 is fundamentally two points:</p> <ul> <li>Covering risks in innovative ways such as the use of parametric based solutions</li> <li>Covering new upcoming risks like globalisation and ones engendered by digitisations such as cyber risks</li> </ul> <p>Cyber insurance for example is very difficult to price and to understand the real risks associated to cyber. As it’s a relatively new risk there isn’t sufficient data on the kind of exposures that could happen that weren’t conceived of. New solutions have to be designed based on this limited set of data. However Cyber risk is only one example of such new risks, we have reputational risk and especially climate change risk that can have a large impact on the corporate risk landscape. All of these new emerging risks cannot be tackled using traditional approaches and thus require new solutions.</p> <p> </p> <h2>What role does data play?</h2> <p>The question thus comes to mind is that does the data exist or are insurance companies simply not capturing the right kind of data? Marcus agrees that the data is existing but isn’t necessarily being captured by insurance companies.</p> <p>Parametric insurance has a trigger that initiates a claim process. Having the right data to act as the trigger is critical. Ryskex works with insurance companies to help determine what is the right trigger for a parametric insurance. In the case of cyber insurance a trigger can be agreed between the policy owner and the risk taker. For example a double trigger model can be used when there is a data breach (1st trigger), which when reported by the press will ultimately lead to a fall in their share price (2nd trigger).</p> <p>Ryskex is working with some syndicates in the London market to design these kinds of solutions over the next few months and offer them in a parametric solution.</p> <p> </p> <h2>New risks require new infrastructures</h2> <p>Marcus recognises that there is a lot of scepticism in the insurance industry with regards to both AI and blockchain technology. However, in addition to the recognised benefits that blockchain can bring, Marcus believes that blockchain helps to make claim adjustments and parametric payments a lot more cost effective. The AI component will have a large impact on the underwriting or the risk and its pricing.</p> <p> </p> <h2>PRICE (political sanctions, reputation damage, innovation failure, cyber-attacks and equity) model</h2> <p>At the moment there are risk which are hard to cover or who are insurable on the market.</p> <p>Reputational risk in an era of social media is increasingly difficult to manage when CEOs or politicians can turn to Twitter to express their views whether personal or not. This is an example of an emerging risk that is in great demand but in low supply on the market.</p> <p>Ryskex was in the 2ndcohort at Lloyd’s Lab over the last 4 months working on covering cyber in a parametric way (parametric cyber cover). They worked very closely with <a href="https://www.linkedin.com/in/akash-bharadia-56aba862/" rel="nofollow" target="_blank">Akash Bharadia</a> and his team from <a href="https://www.axiscapital.com/" rel="nofollow" target="_blank">AXIS Capital</a>, on designing parametric cyber cover.</p> <p> </p> <h2>The captive insurance opportunity</h2> <p>Earlier this year Marcus received a call from the Governor in Vermont as they were planning to set up the DLGA in order to remain the number one captive domiciled in the world. He recognised the need to look for new technologies and new opportunities for their clients and he believed that blockchain is an integral part of that opportunity.  Ryskex isnowa member of the <a href="https://dlga.org/" rel="nofollow" target="_blank">Distributed Ledger Governance Association</a> (DLGA) and the <a href="http://www.vcia.com/" rel="nofollow" target="_blank">Vermont Captive Insurance Association</a> (VCIA) there.</p> <p>60% of Lloyd’s business comes from the US and most of it is from captive related one. Vermont being the number one captive domiciled in the world and Ryskex being in the Lloyd’s Lab puts them in a prime position to develop parametric insurance solutions for captives for those two markets.</p> <p> </p> <h2>New business models?</h2> <p></p> <p><a href="https://giphy.com/gifs/minority-report-zg0IO38HIOH8k" rel="nofollow" target="_blank">via GIPHY</a></p> <p> </p> <p>Marcus responded to the question that the data being used to develop new parametric solutions could be used to develop new business models that moves from risk transfer to risk mitigation. He believes this is a fantastic opportunity that kind of reminds him on the movie: <a href="https://www.youtube.com/watch?v=lG7DGMgfOb8" rel="nofollow" target="_blank">Minority Report</a>.</p> <p>Marcus believes that in some areas we could use the power of AI to predict forthcoming risks in order to develop mitigation strategies to avoid it.</p>

Ep. 70 – Risk Transfer 2.0 – insights from Ryskex

Inga Beale

This week we bring you a very special episode, straight from the heart of London’s insurance industry. Our guest has provided leadership, inspiration, innovation and the embracing of all communities irrespective of gender, race or religious affiliation. We are proud to have with us Inga Beale, CEO of Lloyd’s of London. We will be discussing blockchain and the future of Lloyd’s. As Insureblocks is based on community, Inga will also be answering the questions you submitted over the past weeks.   Blockchain in two minutes A blockchain is a shared, immutable record of transactions. Blockchain’s traceability and cryptographic verification make it an exciting prospect for the insurance industry. Transactions can become particularly complex and involve numerous parties. A claim, for example, usually involves the claimant, the policyholder and the customer. However, it can also involve a third-party loss adjuster, a lawyer, an underwriter, a company claims adjuster, brokers and so on. The beauty of blockchain is that it creates a single, shared, transparent record that every party in the transaction can rely on.   Lloyd’s of London Lloyd’s is an insurance market comprised of over 80 insurance syndicates. Lloyd’s is unique as these syndicates are competitors but also collaborate in sharing the bigger risks. In its 330 year history Lloyd’s has always been there to ensure risk never came in the way of human ingenuity and support human progress through the good and the bad, whether that was launching a satellite into space or the Titanic’s fateful voyage.  Lloyd’s in the changing landscape The insurance industry has found itself at a point of unprecedented change. On the technology front blockchain, IoT, AI and robotics are ready to drastically update the industry. Incumbents also face a huge number of new entrants including insuretechs and their innovative, customer-centric propositions, Amazon and possibly even Chinese firms like Zhong An and Ping An. As Inga mentioned at the Dubai World Insurance Congress, the insurance sector risks “sleepwalking” in this new world if it remains complacent. Inga has therefore taken active steps to ensure Lloyd’s remains a leader through this changing environment. While Lloyd’s has been known to be very traditional in some ways, such as being very paper-based, Inga informs us Lloyd’s has turned a corner and is on its way to being a leader in the new world. Unlike startups, whether insuretechs or fintechs, which usually focus on a single solution, Lloyd’s is focusing on the whole industry. It is working together with new entrants to make sure it is getting the best of these new ideas and piece them together to complete the bigger picture.   Driving change within Lloyd’s Inga Beale and Shirine Khoury-Haq, Lloyd’s COO, have shown a keen interest in blockchain since 2015. This resulted to the London Market Target Operating Model (TOM) initiative launching in 2016, which now runs a major consultation to see how blockchain can improve the industry. Here is a copy of their whitepaper. However, bringing change in an organisation as large and unique as Lloyd’s can be challenging. Change disrupts people’s lives, who can often feel threatened by it and worry about how it will affect their jobs. It is not easy, therefore, to convince all 34,000 people engaged in Lloyd’s that change is a good thing. Inga tells us the secret lies in getting other people excited and open to seeing the benefits blockchain and other innovative technologies can bring.   Blockchain investment in the insurance industry The multiple blockchain PoCs and pilots multiple blockchain PoCs and pilots in the insurance industry  are valuable but timid steps compared to the $1.7billion annually invested by the financial industry in blockchain technology. Will the insurance industry have to wait until faced with a crisis before moving forward? Inga informs us embracing change when the industry is doing well can be more difficult due to a fear of the unknown. She recalls how in the ‘90s people were resisting outsourcing the processing of catastrophic modelling to India. The industry’s appetite for change has not changed much since. Even the reinsurance industry, whose finite group of participants make it well suited to testing blockchain, has been hesitant in its adoption. Inga believes the best way to combat the complacency is to focus on improving the customer experience. Lloyd’s TOM is now focusing on claims and how to make claim payments in a quicker, easier and more transparent way. Improving the customer experience is a common theme with our previous episodes, such as our episode with AXA’s Laurent Benichou. However, the definition of who the customer is can vary. It can include the broker, the underwriter or the policyholder. For Inga, the defining feature of a customer is having the willingness to buy a service and the money to do so, ruling out intermediaries.   Placing Platform Limited (PPL) In an effort to promote innovation in the insurance industry, Lloyd’s has launched a major initiative called PPL. PPL is an electronic platform that aims to replace paper with fully auditable electronic records, providing features such as real-time confirmation of cover. While PPL has not been implemented using blockchain, Inga informs us Lloyd’s is open to utilising new technologies to improve PPL. Blockchain’s shared ledger can fit perfectly in an environment where many underwriters share the same risk. It is therefore particularly well suited to tracking the placement of risk in Lloyd’s, a subscription market involving numerous stakeholders.     Inclusion@Lloyd’s  We at Insureblocks strongly believe in promoting diversity and inclusion, with one of our previous episodes exploring the issue of diversity in blockchain. Inga is a champion of diversity and Lloyd’s has made great progress under her leadership thanks to the Inclusion@Lloyd’s initiative. While the business case of having a diverse team is well established in terms of innovation and penetrating new markets, Inclusion@Lloyd’s has higher aspirations. Its aim is to create an inclusive workplace where everyone is embraced and respected regardless of their background. Lloyd’s Dive In festival, part of Inclusion@Lloyd’s, is a celebration of diversity and inclusion. This is the festival’s fourth year and this year’s theme is about taking action. This can take many forms:  Including somebody in a conversation. Addressing or calling out inappropriate behaviour. Challenging existing policies, processes or procedures at work. Empathising with people from a different background.  A distinguishing feature of Inclusion@Lloyd’s is that it is led from the top of the hierarchy, making sure CEOs and senior management understand the importance of diversity and are open to sharing their real-life experiences about diversity and inclusion. Inga admits there is still a long way to go but Lloyd’s is well on its way to leading the way in diversity and inclusion.     Insureblock’s community questions – YOUR questions! Here at Insureblocks we believe blockchain is all about community. This is why we gave you the chance to join us in this episode by asking Inga your questions.    1. “What has your experience as CEO of Lloyd’s taught you about transforming an industry and how will this guide you in the future?” Tom Davies, Marsh Transforming Lloyd’s is particularly challenging because Lloyd’s is a market with a large number of independent stakeholders. However, Inga notes there are two particular qualities that help transform an industry:  While people are now getting more receptive to blockchain and innovation, it has been important to be patient and understanding of people’s issues when bringing them onboard with new ideas. Influencing such a large market is incredibly challenging but being excited and showing people how innovation will improve their companies will get them excited too.     2. “The US and European carriers seem to be coming to terms with the commercial need for financial and crypto insurance products. Are Lloyd’s ready to support this growth market? Can we expect to see increased levels of enthusiasm towards Lloyd’s insurers considering this space?” Georgia Gough, Paragon Brokers When cryptocurrency was newer, Inga admits Lloyd’s was having reservations about how reputable, safe and useful it was going to be. Now, however, Lloyd’s has become more open to providing crypto insurance products. The global leaders of banking and finance have been experimenting with cryptocurrency and Lloyd’s is ready to follow the market and play a bigger part in the crypto insurance space.    3. “According to Insurance Business UK, PPL is now used on 16% of policies written ever since February. A significant surge in the last couple years since the platform has been introduced. What do you feel is the reason for the sudden surge and do you feel there is room for PPL in a possible future blockchain world?” Natalia Zurowsky, PremFina  PPL was launched in phases, focusing on a single area at a time. It started with terrorism because it involves a smaller community of brokers and underwriters. Gradually, it launched new products every few months and now PPL covers nearly all the policies underwriters cover in Lloyd’s and the broader London market. This is why it was not possible to get a high level of adoption to begin with. The second step has been to set market adoption targets for PPL. The target for the second quarter of 2018 was a 10% adoption rate, which Lloyd’s exceeded. The target for the next quarter is 20% and Inga is hoping the PPL adoption rate will reach 30% by the end of the year. As far as blockchain is concerned, the support is definitely there. Inga informs us PPL is a live platform Lloyd’s will keep modernising, so perhaps blockchain will become part of PPL in the coming years.    4. “Given that human is centric to the Lloyd’s value proposition. Do you feel PPL is taking away from what differentiates Lloyd’s from other providers of risk capital and do you see a future where Lloyd’s becomes a fully electronic platform?” Rahul Mathur, Willis Tower Watson Lloyd’s is focused on becoming digital and will soon provide a host of products that can be traded, placed and accepted electronically. However, the essence of Lloyd’s will always be its people and the relationships of trust they form. Lloyd’s brokers and underwriters have always been there to listen and help people with their innovative endeavours. These conversations will continue to happen face to face. In this sense, the physical aspect will remain. Inga draws an example from the Netherlands. When an insurance market decided to go fully digital, they decided to close the market and send everybody to their offices. However, in the following years the need for a physical space and meeting people in person became apparent. In the end they reopened the market but in a different format. Lloyd’s is also keen on modernising and the underwriting room will definitely look different in five years. However, people will still be its defining element. The relationships, discussions and negotiations are at the heart of Lloyd’s success and the cluster effect all around Lloyd’s in the City of London is part of what makes it unique.    5. “As a champion for diversity and inclusion efforts in the risk and insurance industry. With you stepping down at Lloyd’s what work can we carry forward to keep your legacy alive?” Dante Disparte, Risk Cooperative Diversity and inclusion are here to stay. Thousands of people from the insurance industry have come together to fight for diversity and Lloyd’s Dive In festival has engaged people across the entire insurance sector including life assurers, brokers, consulting firms, lawyers and more. Thanks to all these people Dive In has gained a lot of momentum, with a presence in 27 countries and over 50 cities, including a gender-focused event in Saudi Arabia. Inga tells us this all became possible because the industry is full of wonderful people who are willing to fight for change. Embracing diversity is necessary for insurance to become a more modern, dynamic environment that people want to join regardless of their background. We know that here at Insureblocks, all of us will do our best to keep Inga’s legacy alive.   Your turn! This has been a truly special episode for us. We got to discuss the future of the insurance industry and Lloyd’s of London, focusing not only on innovation but also on diversity and inclusion. We hope you enjoyed this episode as much as we did. If you liked this episode please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. We are sad to hear Inga will soon be leaving Lloyd’s but wish her best of luck with her next endeavour.   Thank you Inga!

<p>This week we bring you a very special episode, straight from the heart of London’s insurance industry. Our guest has provided leadership, inspiration, innovation and the embracing of all communities irrespective of gender, race or religious affiliation. We are proud to have with us <a href="https://www.linkedin.com/in/ingabeale/" rel="nofollow" target="_blank">Inga Beale</a>, CEO of <a href="https://www.lloyds.com" rel="nofollow" target="_blank">Lloyd’s of London</a>. We will be discussing blockchain and the future of Lloyd’s. As Insureblocks is based on community, Inga will also be answering the questions you submitted over the past weeks.</p> <p> </p> <h2><strong>Blockchain in two minutes</strong></h2> <p>A blockchain is a shared, immutable record of transactions. Blockchain’s traceability and cryptographic verification make it an exciting prospect for the insurance industry.</p> <p>Transactions can become particularly complex and involve numerous parties. A claim, for example, usually involves the claimant, the policyholder and the customer. However, it can also involve a third-party loss adjuster, a lawyer, an underwriter, a company claims adjuster, brokers and so on. The beauty of blockchain is that it creates a single, shared, transparent record that every party in the transaction can rely on.</p> <p> </p> <h2><strong>Lloyd’s of London</strong></h2> <p>Lloyd’s is an insurance market comprised of over 80 insurance syndicates. Lloyd’s is unique as these syndicates are competitors but also collaborate in sharing the bigger risks. In its 330 year history Lloyd’s has always been there to ensure risk never came in the way of human ingenuity and support human progress through the good and the bad, whether that was launching a satellite into space or the Titanic’s fateful voyage.</p> <p></p> <h2><strong>Lloyd’s in the changing landscape</strong></h2> <p>The insurance industry has found itself at a point of unprecedented change. On the technology front blockchain, IoT, AI and robotics are ready to drastically update the industry. Incumbents also face a huge number of new entrants including insuretechs and their innovative, customer-centric propositions, Amazon and possibly even Chinese firms like <a href="https://www.the-digital-insurer.com/dia/zhong-an-chinas-first-complete-online-insurance-company/" rel="nofollow" target="_blank">Zhong An</a> and <a href="http://pingan.cn/en/ir/summary.shtml" rel="nofollow" target="_blank">Ping An</a>. As Inga mentioned at the <a href="https://www.globalreinsurance.com/dwic-insurance-sector-is-sleepwalking-into-new-world--lloyds-inga-beale-dbe/1421067.article" rel="nofollow" target="_blank">Dubai World Insurance Congress</a>, the insurance sector risks “sleepwalking” in this new world if it remains complacent.</p> <p>Inga has therefore taken active steps to ensure Lloyd’s remains a leader through this changing environment. While Lloyd’s has been known to be very traditional in some ways, such as being very paper-based, Inga informs us Lloyd’s has turned a corner and is on its way to being a leader in the new world. Unlike startups, whether insuretechs or fintechs, which usually focus on a single solution, Lloyd’s is focusing on the whole industry. It is working together with new entrants to make sure it is getting the best of these new ideas and piece them together to complete the bigger picture.</p> <p> </p> <h2><strong>Driving change within Lloyd’s</strong></h2> <p>Inga Beale and Shirine Khoury-Haq, Lloyd’s COO, have shown a keen interest in blockchain since 2015. This resulted to the London Market Target Operating Model (<a href="https://www.lloyds.com/market-directory/london-market-group/target-operating-model-tom" rel="nofollow" target="_blank">TOM</a>) initiative launching in 2016, which now runs a major consultation to see how blockchain can improve the industry. Here is a copy of their <a href="https://tomsupports.london/news/lm-tom-innovation-explores-decentralising-accounting-and-claims" rel="nofollow" target="_blank">whitepaper</a>.</p> <p>However, bringing change in an organisation as large and unique as Lloyd’s can be challenging. Change disrupts people’s lives, who can often feel threatened by it and worry about how it will affect their jobs. It is not easy, therefore, to convince all 34,000 people engaged in Lloyd’s that change is a good thing. Inga tells us the secret lies in getting other people excited and open to seeing the benefits blockchain and other innovative technologies can bring.</p> <p> </p> <h2><strong>Blockchain investment in the insurance industry</strong></h2> <p>The <a href="http://insureblocks.com/category/poc-pilot/" rel="nofollow" target="_blank">multiple blockchain PoCs and pilots</a> multiple blockchain PoCs and pilots in the insurance industry  are valuable but timid steps compared to the $1.7billion annually invested by the financial industry in blockchain technology. Will the insurance industry have to wait until faced with a crisis before moving forward?</p> <p>Inga informs us embracing change when the industry is doing well can be more difficult due to a fear of the unknown. She recalls how in the ‘90s people were resisting outsourcing the processing of catastrophic modelling to India. The industry’s appetite for change has not changed much since. Even the reinsurance industry, whose finite group of participants make it well suited to testing blockchain, has been hesitant in its adoption.</p> <p>Inga believes the best way to combat the complacency is to focus on improving the customer experience. Lloyd’s TOM is now focusing on claims and how to make claim payments in a quicker, easier and more transparent way.</p> <p>Improving the customer experience is a common theme with our previous episodes, such as our <a href="http://insureblocks.com/ep-22-fizzy-axas-blockchain-case-study/" rel="nofollow" target="_blank">episode</a> with AXA’s Laurent Benichou. However, the definition of who the customer is can vary. It can include the broker, the underwriter or the policyholder. For Inga, the defining feature of a customer is having the willingness to buy a service and the money to do so, ruling out intermediaries.</p> <p> </p> <h2><strong>Placing Platform Limited (PPL)</strong></h2> <p>In an effort to promote innovation in the insurance industry, Lloyd’s has launched a major initiative called <a href="https://www.lloyds.com/market-resources/market-communications/regulatory-communications/regulatory-communications/regulatory-news-articles/2016/08/placing-platform-limited" rel="nofollow" target="_blank">PPL</a>. PPL is an electronic platform that aims to replace paper with fully auditable electronic records, providing features such as real-time confirmation of cover.</p> <p>While PPL has not been implemented using blockchain, Inga informs us Lloyd’s is open to utilising new technologies to improve PPL. Blockchain’s shared ledger can fit perfectly in an environment where many underwriters share the same risk. It is therefore particularly well suited to tracking the placement of risk in Lloyd’s, a subscription market involving numerous stakeholders.</p> <p></p> <h2></h2> <p> </p> <h2><strong>Inclusion@Lloyd’s</strong></h2> <p><a href="https://www.lloyds.com/about-lloyds/diversity-and-inclusion-at-lloyds" rel="nofollow" target="_blank"></a></p> <p>We at Insureblocks strongly believe in promoting diversity and inclusion, with one of our previous <a href="https://insureblocks.com/bonus-episode-diversity-in-blockchain/" rel="nofollow" target="_blank">episodes</a> exploring the issue of diversity in blockchain. Inga is a champion of diversity and Lloyd’s has made great progress under her leadership thanks to the <a href="https://www.lloyds.com/about-lloyds/diversity-and-inclusion-at-lloyds" rel="nofollow" target="_blank">Inclusion@Lloyd’s</a> initiative.</p> <p>While the business case of having a diverse team is well established in terms of innovation and penetrating new markets, Inclusion@Lloyd’s has higher aspirations. Its aim is to create an inclusive workplace where everyone is embraced and respected regardless of their background.</p> <p>Lloyd’s <a href="https://diveinfestival.com/" rel="nofollow" target="_blank">Dive In festival</a>, part of Inclusion@Lloyd’s, is a celebration of diversity and inclusion. This is the festival’s fourth year and this year’s theme is about taking action. This can take many forms:</p> <ul> <li>Including somebody in a conversation.</li> <li>Addressing or calling out inappropriate behaviour.</li> <li>Challenging existing policies, processes or procedures at work.</li> <li>Empathising with people from a different background.</li> </ul> <p>A distinguishing feature of Inclusion@Lloyd’s is that it is led from the top of the hierarchy, making sure CEOs and senior management understand the importance of diversity and are open to sharing their real-life experiences about diversity and inclusion. Inga admits there is still a long way to go but Lloyd’s is well on its way to leading the way in diversity and inclusion.</p> <p></p> <h2></h2> <p> </p> <h2><strong>Insureblock’s community questions – YOUR questions!</strong></h2> <p>Here at Insureblocks we believe blockchain is all about community. This is why we gave you the chance to join us in this episode by asking Inga your questions.</p> <p> </p> <p><a href="https://www.linkedin.com/in/tom-m-davies1/" rel="nofollow" target="_blank"></a></p> <p><strong>1. “What has your experience as CEO of Lloyd’s taught you about transforming an industry and how will this guide you in the future?” <a href="https://www.linkedin.com/in/tom-m-davies1/" rel="nofollow" target="_blank">Tom Davies</a>, <a href="https://www.marsh.com" rel="nofollow" target="_blank">Marsh</a></strong></p> <p>Transforming Lloyd’s is particularly challenging because Lloyd’s is a market with a large number of independent stakeholders. However, Inga notes there are two particular qualities that help transform an industry:</p> <ul> <li>While people are now getting more receptive to blockchain and innovation, it has been important to be patient and understanding of people’s issues when bringing them onboard with new ideas.</li> <li>Influencing such a large market is incredibly challenging but being excited and showing people how innovation will improve their companies will get them excited too.</li> </ul> <p> </p> <p><a href="https://www.linkedin.com/in/georgia-gough-6049b79a/" rel="nofollow" target="_blank"></a></p> <p><strong>2. “The US and European carriers seem to be coming to terms with the commercial need for financial and crypto insurance products. Are Lloyd’s ready to support this growth market? Can we expect to see increased levels of enthusiasm towards Lloyd’s insurers considering this space?” <a href="https://www.linkedin.com/in/georgia-gough-6049b79a/" rel="nofollow" target="_blank">Georgia Gough</a>, <a href="https://www.paragonbrokers.com" rel="nofollow" target="_blank">Paragon Brokers</a></strong></p> <p>When cryptocurrency was newer, Inga admits Lloyd’s was having reservations about how reputable, safe and useful it was going to be. Now, however, Lloyd’s has become more open to providing crypto insurance <a href="https://www.coindesk.com/lloyds-of-london-makes-quiet-entrance-into-crypto-insurance-market/" rel="nofollow" target="_blank">products</a>. The global leaders of banking and finance have been experimenting with cryptocurrency and Lloyd’s is ready to follow the market and play a bigger part in the crypto insurance space.</p> <p> </p> <p><a href="https://www.linkedin.com/in/natalia-zurowski/" rel="nofollow" target="_blank"></a></p> <p><strong>3. “According to Insurance Business UK, PPL is now used on 16% of policies written ever since February. A significant surge in the last couple years since the platform has been introduced. What do you feel is the reason for the sudden surge and do you feel there is room for PPL in a possible future blockchain world?” <a href="https://www.linkedin.com/in/natalia-zurowski/" rel="nofollow" target="_blank">Natalia Zurowsky</a>, <a href="http://www.premfina.com" rel="nofollow" target="_blank">PremFina</a></strong><strong> </strong></p> <p>PPL was launched in phases, focusing on a single area at a time. It started with terrorism because it involves a smaller community of brokers and underwriters. Gradually, it launched new products every few months and now PPL covers nearly all the policies underwriters cover in Lloyd’s and the broader London market. This is why it was not possible to get a high level of adoption to begin with.</p> <p>The second step has been to set market adoption targets for PPL. The target for the second quarter of 2018 was a 10% adoption rate, which Lloyd’s exceeded. The target for the next quarter is 20% and Inga is hoping the PPL adoption rate will reach 30% by the end of the year.</p> <p>As far as blockchain is concerned, the support is definitely there. Inga informs us PPL is a live platform Lloyd’s will keep modernising, so perhaps blockchain will become part of PPL in the coming years.</p> <p> </p> <p><a href="https://www.linkedin.com/in/rahul-jaideep-mathur/" rel="nofollow" target="_blank"></a></p> <p><strong>4. “Given that human is centric to the Lloyd’s value proposition. Do you feel PPL is taking away from what differentiates Lloyd’s from other providers of risk capital and do you see a future where Lloyd’s becomes a fully electronic platform?” <a href="https://www.linkedin.com/in/rahul-jaideep-mathur/" rel="nofollow" target="_blank">Rahul Mathur</a>, <a href="https://www.willistowerswatson.com" rel="nofollow" target="_blank">Willis Tower Watson</a></strong></p> <p>Lloyd’s is focused on becoming digital and will soon provide a host of products that can be traded, placed and accepted electronically. However, the essence of Lloyd’s will always be its people and the relationships of trust they form. Lloyd’s brokers and underwriters have always been there to listen and help people with their innovative endeavours. These conversations will continue to happen face to face. In this sense, the physical aspect will remain.</p> <p>Inga draws an example from the Netherlands. When an insurance market decided to go fully digital, they decided to close the market and send everybody to their offices. However, in the following years the need for a physical space and meeting people in person became apparent. In the end they reopened the market but in a different format.</p> <p>Lloyd’s is also keen on modernising and the underwriting room will definitely look different in five years. However, people will still be its defining element. The relationships, discussions and negotiations are at the heart of Lloyd’s success and the cluster effect all around Lloyd’s in the City of London is part of what makes it unique.</p> <p> </p> <p><a href="https://www.linkedin.com/in/dantedisparte/" rel="nofollow" target="_blank"></a></p> <p><strong>5. “As a champion for diversity and inclusion efforts in the risk and insurance industry. With you stepping down at Lloyd’s what work can we carry forward to keep your legacy alive?” <a href="https://www.linkedin.com/in/dantedisparte/" rel="nofollow" target="_blank">Dante Disparte</a>, <a href="http://riskcooperative.com" rel="nofollow" target="_blank">Risk Cooperative</a></strong></p> <p>Diversity and inclusion are here to stay. Thousands of people from the insurance industry have come together to fight for diversity and Lloyd’s Dive In festival has engaged people across the entire insurance sector including life assurers, brokers, consulting firms, lawyers and more. Thanks to all these people Dive In has gained a lot of momentum, with a presence in 27 countries and over 50 cities, including a gender-focused <a href="https://diveinfestival.com/events/empowering-women-in-insurance-building-on-momentum/" rel="nofollow" target="_blank">event</a> in Saudi Arabia.</p> <p>Inga tells us this all became possible because the industry is full of wonderful people who are willing to fight for change. Embracing diversity is necessary for insurance to become a more modern, dynamic environment that people want to join regardless of their background. We know that here at Insureblocks, all of us will do our best to keep Inga’s legacy alive.</p> <p> </p> <p><strong>Your turn!</strong></p> <p>This has been a truly special episode for us. We got to discuss the future of the insurance industry and Lloyd’s of London, focusing not only on innovation but also on diversity and inclusion. We hope you enjoyed this episode as much as we did.</p> <p>If you liked this episode please do <a href="https://itunes.apple.com/gb/podcast/insureblocks/id1361820676?mt=2" rel="nofollow" target="_blank">review it on iTunes</a> – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. We are sad to hear Inga will soon be leaving Lloyd’s but wish her best of luck with her next endeavour.</p> <p> </p> <p><strong>Thank you Inga!</strong></p>

Ep.27 – Lloyd’s and Blockchain with Inga Beale – CEO of Lloyd’s

In this week’s episode we explore how can we automate the claims process with blockchain. Our guest for this topic is Bobbie Shrivastav, Co-founder and Chief Product Officer at Benekiva. Bobbie has 15 years experience in the technology field. In 2015, in addition to becoming a parent Bobbie started working on Benekiva after realising all the inefficiencies in the insurance industry.   What is Blockchain? Blockchain is magic? That magic pill that we have all been waiting for? Bobbie describes blockchain as a ledger of transactional records that is permanent and immutable, i.e. it can’t be changed. In addition it is distributed across a permission based or permissionless based blockchain and is append only.   What is Benekiva? Benekiva is a technology platform that is here to bridge the gap between carriers, policy holders and beneficiaries via claims automation, asset retention and data management. Benekiva claims to be the only stand alone claims platform for life and annuity that focuses on the customer.    Challenges of the existing claims process? In 2016, Bobbie heard a stat that 68% of life insurance goes unclaimed in the United States. According to NerdWallet and USA Today, there is $7.4 billion of unclaimed life insurance in the US alone.  This staggering number is due to the fact that what is wrong with the existing claims process is that it is still in paper and file mode. For the most part the work flow is passing paper and files. It is a process full of friction that generates many barriers for beneficiaries to successfully receive a payout. Bobbie highlighted the four main problems:  Inefficient process Legacy systems As most life insurance policies are filed in paper format it doesn’t enable for a digital kind of communication with the policy holder for updating their details such as their beneficiaries. Unclaimed laws prevent insurance companies to keep the money so they have to engage in costly investigative exercises to find the beneficiaries of the life insurance policy.    How have carriers tackled this problem to date? Up to now most carriers’ strategy for addressing those issues has been through back end admin system upgrades. Whilst there is no issues with updating an insurance company’s core systems, it isn’t an update that has a fundamental impact on claims processes. As it also takes on average 2 – 5 years to do those updates, claims improvements haven’t happened.  Additionally as some carriers look at claims as an expense centre, they don’t always invest sufficiently into it to update them. Benekiva can integrate with insurance companies current systems and also into the updated admin systems once the update is complete. In the meantime Benekiva can start pulling data from legacy systems and provide immediate customer experience improvement. Even if the data is stored in a paper format, Benekiva is able to digitise its content.   Blockchain Benekiva started looking at using blockchain in two use cases within a private blockchain:  Immutable ledger – provide an audit trail of the claim process from the moment the policy is generated to when the payout is made “Time travel capability” – enables querying at any point in time instantly  Bobbie recognises that this could have been done without blockchain. However, Benekiva understands the importance of being at the cutting edge of technology and to start experimenting with blockchain in order for the future to explore building a consortium. From a customer experience side blockchain can help guarantee integrity and once the consortium model is enabled it will be able to service the beneficiary very efficiently with the potential to significantly reducing this stat of 68% unclaimed life insurance. Benekiva’s blockchain has been developed by Fluree.   What does the future look like? Making the claim process as seamless as possible is Benekiva’s focus for the next few years. Integrating chat bots, smarter “smart form technology”, fraud detection, blockchain and a lot more to make the claim process for the beneficiaries as smooth as possible. Additionally, Benekiva believes there is an opportunity to make the claims staff easier by providing an efficient workplace that isn’t paper base but digital.   Your Turn Thank you Bobbie for sharing some interesting insights on automating the claims process with blockchain. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Bobbie a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.

<p>In this week’s episode we explore how can we automate the claims process with blockchain. Our guest for this topic is <a href="https://www.linkedin.com/in/bobbieshrivastav/" rel="nofollow" target="_blank">Bobbie Shrivastav</a>, Co-founder and Chief Product Officer at <a href="https://benekiva.com/" rel="nofollow" target="_blank">Benekiva</a>. Bobbie has 15 years experience in the technology field. In 2015, in addition to becoming a parent Bobbie started working on Benekiva after realising all the inefficiencies in the insurance industry.</p> <p> </p> <h2>What is Blockchain?</h2> <p>Blockchain is magic? That magic pill that we have all been waiting for? Bobbie describes blockchain as a ledger of transactional records that is permanent and immutable, i.e. it can’t be changed. In addition it is distributed across a permission based or permissionless based blockchain and is append only.</p> <p> </p> <h2>What is Benekiva?</h2> <p>Benekiva is a technology platform that is here to bridge the gap between carriers, policy holders and beneficiaries via claims automation, asset retention and data management. Benekiva claims to be the only stand alone claims platform for life and annuity that focuses on the customer.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2019/02/Benekiva-home-page.png" rel="nofollow" target="_blank"></a></p> <p> </p> <h2>Challenges of the existing claims process?</h2> <p>In 2016, Bobbie heard a stat that 68% of life insurance goes unclaimed in the United States. According to NerdWallet and USA Today, there is $7.4 billion of unclaimed life insurance in the US alone.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2019/02/Unclaimed-billions.png" rel="nofollow" target="_blank"></a></p> <p>This staggering number is due to the fact that what is wrong with the existing claims process is that it is still in paper and file mode. For the most part the work flow is passing paper and files. It is a process full of friction that generates many barriers for beneficiaries to successfully receive a payout.</p> <p>Bobbie highlighted the four main problems:</p> <ol> <li>Inefficient process</li> <li>Legacy systems</li> <li>As most life insurance policies are filed in paper format it doesn’t enable for a digital kind of communication with the policy holder for updating their details such as their beneficiaries.</li> <li>Unclaimed laws prevent insurance companies to keep the money so they have to engage in costly investigative exercises to find the beneficiaries of the life insurance policy.</li> </ol> <p> </p> <h2>How have carriers tackled this problem to date?</h2> <p>Up to now most carriers’ strategy for addressing those issues has been through back end admin system upgrades. Whilst there is no issues with updating an insurance company’s core systems, it isn’t an update that has a fundamental impact on claims processes. As it also takes on average 2 – 5 years to do those updates, claims improvements haven’t happened.  Additionally as some carriers look at claims as an expense centre, they don’t always invest sufficiently into it to update them.</p> <p>Benekiva can integrate with insurance companies current systems and also into the updated admin systems once the update is complete. In the meantime Benekiva can start pulling data from legacy systems and provide immediate customer experience improvement. Even if the data is stored in a paper format, Benekiva is able to digitise its content.</p> <p> </p> <h2>Blockchain</h2> <p>Benekiva started looking at using blockchain in two use cases within a private blockchain:</p> <ol> <li>Immutable ledger – provide an audit trail of the claim process from the moment the policy is generated to when the payout is made</li> <li>“Time travel capability” – enables querying at any point in time instantly</li> </ol> <p>Bobbie recognises that this could have been done without blockchain. However, Benekiva understands the importance of being at the cutting edge of technology and to start experimenting with blockchain in order for the future to explore building a consortium.</p> <p>From a customer experience side blockchain can help guarantee integrity and once the consortium model is enabled it will be able to service the beneficiary very efficiently with the potential to significantly reducing this stat of 68% unclaimed life insurance.</p> <p>Benekiva’s blockchain has been developed by <a href="https://flur.ee/index.html" rel="nofollow" target="_blank">Fluree</a>.</p> <p> </p> <h2>What does the future look like?</h2> <p>Making the claim process as seamless as possible is Benekiva’s focus for the next few years. Integrating chat bots, smarter “smart form technology”, fraud detection, blockchain and a lot more to make the claim process for the beneficiaries as smooth as possible. Additionally, Benekiva believes there is an opportunity to make the claims staff easier by providing an efficient workplace that isn’t paper base but digital.</p> <p> </p> <h2>Your Turn</h2> <p>Thank you Bobbie for sharing some interesting insights on automating the claims process with blockchain. If you liked this episode, <a href="https://itunes.apple.com/gb/podcast/insureblocks/id1361820676?mt=2" rel="nofollow" target="_blank">please do review it on iTunes</a>. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Bobbie a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.</p>

Ep.45 – Automating the Claims Process with Blockchain – insights from Benekiva

Trent McConaghy grew up on a farm in rural Canada. He did AI research for 20 years including running 2 startups and a PhD. For the last 5 years he has been focused on blockchain and in particular on Ocean Protocol which he has co-founded.. Ocean Protocol is a protocol whose mission is to unlock data for the broad benefit of society. Data is becoming increasingly important and influential throughout the world, ensuring that the opportunities to access data are equalised is the aim of Ocean Protocol. What is blockchain? Blockchain at its heart is a technology, just as the internal combustion engine or a computer. The internal combustion engine combined with oil unlocked mobile transport in a big way. Similarly blockchain unloads a whole new set of possibilities that we haven’t seen before. At the very heart, it is simply a database. However its a database with very specific characteristics:  Decentralised: no single entity owns or controls it Immutable Concept of ownership if you have the private key to it such as tokens for money like with Bitcoin Unlocks incentives – blockchain can be used to shape incentives for human behaviour  What is the data economy? Trent looks at the token economy as the open version of the money economy. With the money economy we have tokens, currencies, etc. Traditionally these were distributed solely by national governments in opaque ways through the Fed and Central Banks. Whilst this has been beneficial in many ways there were still challenges. Bitcoin opened up the money economy by being permission less, friction free and fully open. Today there is a data economy, but like the money economy it is very opaque where credit card companies are selling your data, Facebook buying data from 150 organisations to add it to its own data in order to sell you more adds. There already is a data economy where it’s a flow of value and participants in the economy are buying and selling data in a closed and opaque manner. Just as Bitcoin opened up the money economy, ocean is designed to open up the data economy.   AI, the last mile of data Just like the internal combustion isn’t useful on its own nor is oil useful for its sake, both of them are useful towards machines that are then used for mobility. AI, is the last mile to unlock the value of data. Modern AI really loves data. The more data it receives the more accurate its models become which in turn can create business value. For example AI models used to predict cancer usually use data gathered from 100 individuals. These models can predict cancer from 6 months in or even from stage three. If those AI models were based on orders of magnitude of more data such as over millions of individuals then you could theoretically predict the existence of cancer 6 days into it from very early weak signals. Feeding large amounts of data into AI can help to unlock value and build new applications.   Components of the data economy Three levels to both the open money economy and to the token economy:  Base infrastructure (i.e. a store of value) Unit of exchange Platform to launch and to exchange things  The last mile on top of the platform are the applications. In the token economy the de factor standard, the unit of exchange, that has emerged is Bitcoin. The platform is Ethereum. On top of the platform you have a set of decentralised applications, DAPPS, running on Ethereum, which represent the kind of last mile in terms of applications. In terms of financial side the last mile are Decentralised finance or DeFi, some use cases of DeFi are for payments, lending, stablecoins, tokenization and decentralised exchange.  The components of the data economy are very similar in structure to the ones of the open money economy and the token economy. At the bottom level you have a store of value in terms of data, you have a unit of exchange related to data and you have an application platform related to data. One level up you have the last mile were you have the financial instruments that sit on top of this base, where data itself is the collateral. If you can collateralise data then you can get loans against data itself, insurance on data and many more applications.  Example: Connected Life and Parkinson  Connected Life is an organisation based out of Munich and Singapore that is building data models to predict Parkinson. They’ve been working with TUM, the Technical University of Munich to get data from their patients to build those data models. They’ve also been working with NUS, the National University of Singapore to get data from their patients. Because of data privacy laws, GDPR, in Germany, the data can’t leave European soil. Similar laws exist in Singapore. Ideally Connected Life wants to be able to build data models that uses both data sets without breaking those countries respective privacy laws. With the help of Ocean Protocol they built a data model that update itself form the Singapore data set as well as from the Munich data set, thus ensuring you have a model that has twice as much data. Connected Life is working to extend this test to more hospitals for not only for Parkinson diagnosis, but also for treating and for prevention. In America a lot of healthcare data is sold to insurance companies and to other providers. So, there’s already value being transferred there. If each piece of data was tokenised and collateralised then you can have financial instruments on top. In due course what this means is that consumers could be incentivised to making their data available. Insurance companies for example could request such data to improve their data training models, for better predication of insurance whilst at the same time consumers are not giving up their privacy.   Ocean Protocol – helping companies embracing the data paradigm shift  connecting the data and the AI expertise Most large enterprises have big data enterprises. Whether it’s in their infrastructure with Oracle databases, MongoDB and Hadoop to people like Chief Information Officers and emerging Chief Data Officers. Ocean can simply help those large enterprises solve their data management problems better. For example those that are multinational with offices in various countries they might not be able to share data from one office to the next because of data regulation. Additionally, it is important to recognise that data sometimes needs to stay at company’s premises, it needs to stay private. How do these organisations benefit of these data sets merging as in the above case of Connected Life? The big trick is to bring computational power to the data where it is vetted computational algorithms that are running against the data by applying simple business intelligence and eventually building AI models. The competitive advantage is data and not AI. Most Fortune 500 companies have a tons of data and they’re wondering what do to with it as they’re concerned about sharing it due to privacy issues and because of the fear of losing control. These companies have been trying to recruit the necessary AI expertise but the vast majority of available AI experts have gone off to work for Google, Facebook and Amazon. It is the combination of data and AI that has led to massive value creation for the Google, Facebook and Amazon’s of this world. Waymo, is Google’s off shoot autonomous vehicle. Recently it has been valued above $175 billion, which is superior to BMW’s valuation of $42 billion, Volkswagen, $76 billion and Daimler $48 billion combined! The market recognises that the future is in the data. The question then is how can incumbents unlock the benefits of data? How to spread the benefits of data and spread the benefits of AI? That’s what Ocean Protocol was designed for.  Ocean makes it possible for these Fortune 500 companies to access the benefits of AI without compromising their privacy and control. Ocean makes it easy for AI experts to build models for the benefit of Fortune 500 companies without those companies losing control of the data. So it’s connecting the data and the AI expertise.   Lessons to take from Toyota? Google’s ambitions in autonomous vehicles goes back to the DARPA Grand Challenge of 2005. This has given them over a decade competitive advantage over the incumbents. The response from the incumbents in the auto industry is maybe instructive for insurance. Toyota realised that to do autonomous driving they would need 500 billion miles of driving data onto roads which would have taken them 20 years to acquire. Toyota reached out to Ocean Protocol to pool their data alongside GM, Ford, Daimler and others to compete against Waymo and win. Ocean built an autonomous vehicle data exchange and a prototype two years ago. On the back of that Toyota realised that they couldn’t pursue this on their own so Chris Ballinger, who was running the project left Toyota to create a consortium called Mobithat now has over 100 organisations signed up to it including 80% of the world’s auto production. What these organisations have realised is that not a single one of them can win the data game on their own. But collectively they can create massive value by pooling their data in a way that reconcile privacy. That is a lesson insurance amongst other incumbents industries can take note off.   Your turn Thank you, Trent, for sharing your insights on the data economy. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Trent a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.

<p><a href="http://trent.st/" rel="nofollow" target="_blank">Trent McConaghy</a> grew up on a farm in rural Canada. He did AI research for 20 years including running 2 startups and a PhD. For the last 5 years he has been focused on blockchain and in particular on <a href="https://oceanprotocol.com/" rel="nofollow" target="_blank">Ocean Protocol</a> which he has co-founded.. Ocean Protocol is a protocol whose mission is to unlock data for the broad benefit of society. Data is becoming increasingly important and influential throughout the world, ensuring that the opportunities to access data are equalised is the aim of Ocean Protocol.</p> <h2>What is blockchain?</h2> <p>Blockchain at its heart is a technology, just as the internal combustion engine or a computer. The internal combustion engine combined with oil unlocked mobile transport in a big way. Similarly blockchain unloads a whole new set of possibilities that we haven’t seen before. At the very heart, it is simply a database. However its a database with very specific characteristics:</p> <ul> <li>Decentralised: no single entity owns or controls it</li> <li>Immutable</li> <li>Concept of ownership if you have the private key to it such as tokens for money like with Bitcoin</li> <li>Unlocks incentives – blockchain can be used to shape incentives for human behaviour</li> </ul> <h2>What is the data economy?</h2> <p>Trent looks at the token economy as the open version of the money economy. With the money economy we have tokens, currencies, etc. Traditionally these were distributed solely by national governments in opaque ways through the Fed and Central Banks. Whilst this has been beneficial in many ways there were still challenges. Bitcoin opened up the money economy by being permission less, friction free and fully open.</p> <p>Today there is a data economy, but like the money economy it is very opaque where credit card companies are selling your data, Facebook buying data from 150 organisations to add it to its own data in order to sell you more adds. There already is a data economy where it’s a flow of value and participants in the economy are buying and selling data in a closed and opaque manner. Just as Bitcoin opened up the money economy, ocean is designed to open up the data economy.</p> <p> </p> <h2>AI, the last mile of data</h2> <p>Just like the internal combustion isn’t useful on its own nor is oil useful for its sake, both of them are useful towards machines that are then used for mobility. AI, is the last mile to unlock the value of data. Modern AI really loves data. The more data it receives the more accurate its models become which in turn can create business value. For example AI models used to predict cancer usually use data gathered from 100 individuals. These models can predict cancer from 6 months in or even from stage three. If those AI models were based on orders of magnitude of more data such as over millions of individuals then you could theoretically predict the existence of cancer 6 days into it from very early weak signals. Feeding large amounts of data into AI can help to unlock value and build new applications.</p> <p> </p> <h2>Components of the data economy</h2> <p>Three levels to both the open money economy and to the token economy:</p> <ul> <li>Base infrastructure (i.e. a store of value)</li> <li>Unit of exchange</li> <li>Platform to launch and to exchange things</li> </ul> <p>The last mile on top of the platform are the applications.</p> <p>In the token economy the de factor standard, the unit of exchange, that has emerged is Bitcoin. The platform is Ethereum. On top of the platform you have a set of decentralised applications, <a href="https://www.coindesk.com/information/what-is-a-decentralized-application-dapp" rel="nofollow" target="_blank">DAPPS</a>, running on Ethereum, which represent the kind of last mile in terms of applications. In terms of financial side the last mile are <a href="https://outlierventures.io/research/mapping-decentralised-finance-defi/" rel="nofollow" target="_blank">Decentralised finance or DeFi</a>, some use cases of DeFi are for payments, lending, stablecoins, tokenization and decentralised exchange.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2019/07/Components-for-the-open-money-economy-and-token-economy.png" rel="nofollow" target="_blank"></a></p> <p>The components of the data economy are very similar in structure to the ones of the open money economy and the token economy. At the bottom level you have a store of value in terms of data, you have a unit of exchange related to data and you have an application platform related to data. One level up you have the last mile were you have the financial instruments that sit on top of this base, where data itself is the collateral. If you can collateralise data then you can get loans against data itself, insurance on data and many more applications.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2019/07/Components-of-the-data-economy.png" rel="nofollow" target="_blank"></a></p> <h2>Example: Connected Life and Parkinson</h2> <p></p> <p><a href="https://connectedlife.io/" rel="nofollow" target="_blank">Connected Life</a> is an organisation based out of Munich and Singapore that is building data models to predict Parkinson. They’ve been working with TUM, the <a href="https://www.tum.de/en/" rel="nofollow" target="_blank">Technical University of Munich</a> to get data from their patients to build those data models. They’ve also been working with NUS, the <a href="http://nus.edu.sg/" rel="nofollow" target="_blank">National University of Singapore</a> to get data from their patients. Because of data privacy laws, GDPR, in Germany, the data can’t leave European soil. Similar laws exist in Singapore. Ideally Connected Life wants to be able to build data models that uses both data sets without breaking those countries respective privacy laws.</p> <p>With the help of Ocean Protocol they built a data model that update itself form the Singapore data set as well as from the Munich data set, thus ensuring you have a model that has twice as much data. Connected Life is working to extend this test to more hospitals for not only for Parkinson diagnosis, but also for treating and for prevention.</p> <p>In America a lot of healthcare data is sold to insurance companies and to other providers. So, there’s already value being transferred there. If each piece of data was tokenised and collateralised then you can have financial instruments on top. In due course what this means is that consumers could be incentivised to making their data available. Insurance companies for example could request such data to improve their data training models, for better predication of insurance whilst at the same time consumers are not giving up their privacy.</p> <p> </p> <h2>Ocean Protocol – helping companies embracing the data paradigm shift</h2> <p></p> <blockquote><p>connecting the data and the AI expertise</p></blockquote> <p>Most large enterprises have big data enterprises. Whether it’s in their infrastructure with Oracle databases, MongoDB and Hadoop to people like Chief Information Officers and emerging Chief Data Officers.</p> <p>Ocean can simply help those large enterprises solve their data management problems better. For example those that are multinational with offices in various countries they might not be able to share data from one office to the next because of data regulation. Additionally, it is important to recognise that data sometimes needs to stay at company’s premises, it needs to stay private. How do these organisations benefit of these data sets merging as in the above case of Connected Life? The big trick is to bring computational power to the data where it is vetted computational algorithms that are running against the data by applying simple business intelligence and eventually building AI models.</p> <p>The competitive advantage is data and not AI. Most Fortune 500 companies have a tons of data and they’re wondering what do to with it as they’re concerned about sharing it due to privacy issues and because of the fear of losing control. These companies have been trying to recruit the necessary AI expertise but the vast majority of available AI experts have gone off to work for Google, Facebook and Amazon. It is the combination of data and AI that has led to massive value creation for the Google, Facebook and Amazon’s of this world.</p> <p><a href="https://www.waymo.com/" rel="nofollow" target="_blank">Waymo</a>, is Google’s off shoot autonomous vehicle. Recently it has been valued above <a href="https://www.forbes.com/sites/alanohnsman/2018/08/07/why-waymo-is-worth-a-staggering-175-billion-even-before-launching-its-self-driving-cars/" rel="nofollow" target="_blank">$175 billion</a>, which is superior to BMW’s valuation of $42 billion, Volkswagen, $76 billion and Daimler $48 billion combined! The market recognises that the future is in the data.</p> <p>The question then is how can incumbents unlock the benefits of data? How to spread the benefits of data and spread the benefits of AI? That’s what Ocean Protocol was designed for.  Ocean makes it possible for these Fortune 500 companies to access the benefits of AI without compromising their privacy and control.</p> <p>Ocean makes it easy for AI experts to build models for the benefit of Fortune 500 companies without those companies losing control of the data. So it’s connecting the data and the AI expertise.</p> <p> </p> <h2>Lessons to take from Toyota?</h2> <p>Google’s ambitions in autonomous vehicles goes back to the <a href="https://en.wikipedia.org/wiki/DARPA_Grand_Challenge_(2005)" rel="nofollow" target="_blank">DARPA Grand Challenge of 2005</a>. This has given them over a decade competitive advantage over the incumbents. The response from the incumbents in the auto industry is maybe instructive for insurance.</p> <p>Toyota realised that to do autonomous driving they would need 500 billion miles of driving data onto roads which would have taken them 20 years to acquire. Toyota reached out to Ocean Protocol to pool their data alongside GM, Ford, Daimler and others to compete against Waymo and win. Ocean built an autonomous vehicle data exchange and a prototype two years ago. On the back of that Toyota realised that they couldn’t pursue this on their own so <a href="https://www.linkedin.com/in/chris-ballinger-5aa38912/" rel="nofollow" target="_blank">Chris Ballinger</a>, who was running the project left Toyota to create a consortium called <a href="https://dlt.mobi/" rel="nofollow" target="_blank">Mobi</a>that now has over 100 organisations signed up to it including 80% of the world’s auto production. What these organisations have realised is that not a single one of them can win the data game on their own. But collectively they can create massive value by pooling their data in a way that reconcile privacy. That is a lesson insurance amongst other incumbents industries can take note off.</p> <p> </p> <h2>Your turn</h2> <p>Thank you, Trent, for sharing your insights on the data economy. If you liked this episode, <a href="https://itunes.apple.com/gb/podcast/insureblocks/id1361820676?mt=2" rel="nofollow" target="_blank">please do review it on iTunes</a>. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Trent a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.</p>

Ep. 67 – The Data Economy – Insights from Ocean Protocol

Heather Dahl is the CEO of Sovrin, one of the leading self-sovereign identity solutions. In this podcast we discuss how identity has evolved from the offline world, to the limitations of it being online in the internet and finally to the opportunities it brings in a blockchain world.   What is blockchain? Heather Dahl looks at blockchain as one of the technologies tools that we have today. From her perspective we should ask ourselves – are you seeking a solution that provides a decentralised network, meaning that you’re running a large number of diverse validators or nodes around the world that are run by different organisations that are censorship resistant, that helped build redundancy? Is that something you want that provides governance where no one organisation or company or government runs that network? If that’s something you want, blockchain technology brings that decentralised, diverse set of nodes to run a blockchain solution. From an identity standpoint is do you need interoperability with your identity? If you only need an identity for your sole company’s purposes then you don’t need a blockchain. However, if you’re building an identity, that needs to be interoperable with other systems then you need a blockchain based identity system like Sovrin. This allows issuers to write schemas and credential definitions and revocation on publicly available decentralised global network that everyone can access. Heather likes to think of blockchain as an immutable ledger where her customers, users or clients are in control of their data and information.     What is Sovrin?  Heather Dahl is the CEO and Executive Director of the Sovrin Foundation.  ‘Sovrin’ most commonly refers to the Sovrin Network, a public service utility enabling self-sovereign identity on the Internet. The Sovrin Network is decentralized, meaning individuals can collect, hold, and choose which identity credentials —such as a driver’s license or employment credential—without relying on individual siloed databases that manage the access to those credentials. Sovrin is an open source project that offers the tools and libraries to create private and secure data management solutions that then run on Sovrin’s identity network. Sovrin is now a global network for decentralised identity in six continents. In the past year they have launched the Sovrin Alliance to provide education and training programme for their community and those interested in decentralised identity. In partnership with Hard Yaka, Sovrin has launched a self sovereign identity incubator out of San Francisco. Sovrin also recently won the award for “Greatest Social Impact” by One World Identity. You can find out more about Sovrin on their website and join the Sovrin Alliance.   The internet has failed in providing an identify solution The web is abound with news regarding breaches of privacy, personal data being sold, cybercrimes and much more. The common factor around all these issues is identity. Heather believes that we don’t have a data management problem, we have an identity problem as all pieces of data are connected to some form of identity. These issues stem from when the internet was created as a network of machines. The identity protocols weren’t designed for people they were designed to identify machines. Heather gives the example of how email addresses are structured, where you’re at a workplace (name@workplace.com) or at a university or at a technology provider (eg. name@gmail.com) which provides you with a free email so that they can take your information. Identify was thus created in a very fractured manner that isn’t fully interoperable. As the internet grew websites and services who provided us with identities didn’t do in a manner with the users’ best interest but in a manner where they could profit, exploit and share. It is this internet lack of identity infrastructure that’s resulted in a fractured experience that’s insecure, fails to protect its users privacy and prone to criminals hacking into it. This lack of identity structure leads to people being deprived of their rights that they enjoy in the physical world. It has failed because identity doesn’t scale in a cost effective way. It has failed, because the identity solutions out there created privacy problems with serious correlation issues. And lastly, a lot of these identities don’t provide consent, we’re just given the identity and we have just have to accept it, because we need an identity to operate in the digital world. Or once we get it, we don’t have the ability to consent to further agreements as we use that identity along the way.   Offline identify vs internet identity Heather explains the differences between offline identity vs internet identity in confirming ones right to access a service. She gives the example of when an individual goes to a bar to buy an alcoholic beverage. The bar will not contact the State of Maryland to confirm the individual whether or not they are over 21. Nor will they call the State of Maryland every time the individual goes to buy a beer at the bar. It’s because there’s trust that when the individual pulls out their driver’s license the bar doesn’t have to confirm whether or not the state did issue that driver’s license to the individual. With the internet you have what’s called the “phone home problem”. When we try to share identities on the internet they don’t trust it and thus there is an online verification with the providers of that identity to confirm its authenticity. That phone home problem leaves a trail. Whilst in the offline world the state of Maryland has no clue how often one goes into a bar to order drinks, there’s a sense of privacy that allows the user to prove themselves for a trustworthy interaction without having someone or an organisation following every single step of their day. That’s what self-sovereign identity offers people in their digital lives is a way to replicate that offline identity that we use every day.   Difference between self-sovereign ID and blockchain based identity? A blockchain based identity is an identity that is written in a private ledger that is decentralised for your organisation and where that identity is only used going to be used within that private ecosystem. Self-sovereign identity is when you want to use that identity outside of that walled garden. It allows organisations who are issuing an identity, it allows them to connect that identity to a public lookup credential. This allows the holder of that identity to be able to present that identity elsewhere without the phone home problem. This allows other organisations to verify that the credential that has been issued is both accurate and it hasn’t been revoked on a ledger. That means they don’t have to go back to the database that issued the identity as it is on the public ledger which they can look up the schema, the credential definition and whether it’s on a revocation registration and that’s all done in a privacy preserving way. Self-sovereignty, allows organisations to issue credentials that can be used elsewhere in a privacy preserving way. It allows a holder of that credential to present their identity for services, or other relationships that they want to engage in, in the digital world without having to disclose it to the organisation who issued the identity. It also allows verifiers, those who are accepting the identity, to be able to ensure that the identities valid based on whether they trust organisations, they can verify it all in a privacy preserving way and not to have to connect back to the original issuer. It allows a completely interoperable global system where any organisation person or thing can use that credential to gather services, to engage in digital relationships with organisations, entities or other things, and do that in a privacy preserving way.   Zero knowledge proof and self-sovereign ID Zero knowledge proof (ZKP) are a cryptographic technique that allows users to share information without relinquishing their security and/or privacy. So, what they do is they use cryptography to provide a proof statement from the holder to the verify without revealing any additional information that’s not required. Heather gives the example that if she wants to buy an adult beverage from a bar, they don’t need to know where she lives. They don’t need to know her height or weight or her eye colour. They don’t even know need to know her exact age. All they need to know is that she is 21 years or older. ZKP is a technology that allows Heather to share that she is 21 years old or older without revealing anything else of her identity. For ZKPs to be usable the verifier has to believe the statements are true and that the results of the proof is accurate. The verifier has to know that the holder hasn’t altered the information. Because sometimes in the real world, for example, college kids may alter their driver’s licence in order to buy adult beverages. What Sovrin removes is the ability to make that alteration because it is on the blockchain, on the immutable ledger. If allow organisations to accept credentials to verify information knowing that they are absolutely accurate because of the blockchain ledger.   Different types of identities When we talk about identity we are not talking just about individuals. Identity can be applied to organisations, machines, IoT devices and data sets can have identities. Files, jpegs, stocks, anything can have identities. A chair can have an identity and the components of a chair can have an identity. Everything in the digital world has an identity at some point in it. Each of those identities, whether it is the leg of that chair or a piece of data can be self-sovereign. And where it becomes important is that a laptop has an identity and within it, it can have an identity of what it contains. And why is that important? A company goes to recycle that laptop, they can scan the identity of it, and they know exactly what it contains and how to recycle the particular pieces.   Self-sovereign ID’s impact on enterprises ability to store and mine data Enterprises collect and hoard personal data. In a self-sovereign world those organisations ability to hold on to the data will be determined by the user. What does this mean to organisation’s ability to build their business models if their ability to interrogate data sets is potentially hampered? Heather’s response to that question is do enterprises and organisations really need to store old data that may not be accurate. They need to assess the data that they need and what shelf life it has. Self-sovereign identity provides enterprises with accurate information at the time of the transaction. Self-sovereign identity and ZKPs allows enterprises to uses blockchain to make sure that the data they collect is accurate at the time of a transaction or when it is need. Any extra information not relevant to that transaction that isn’t necessary doesn’t need to be hoarded as it can create a security issue for that company. And that’s where something like sovereigns, you are knowledge proofs. Self sovereign identity allows you to use the blockchain to make sure it is accurate at the time that you need it in any extra information. You don’t need to afford it, because that just creates a security issue for you.   How can enterprises engage with self-sovereign identities? Some of the earliest adopters of Sovrin are from the financial industry. CULedger is a credit union service organisation that focuses on delivering innovative applications to credit unions through its DLT platform.  Their flagship product, MyCUID is a DLT built platform that enables credit unions to detect and prevent call centre fraud, enables self-sovereign identity for members, and will run on the Sovrin Network. You can download a wallet with your MYCUID. What it does is it allows the user to prove who they are, their address that they have an accountant, a credit union, and the credit union has gone through that KYC. Where this becomes important is within an ecosystem. If that user was to move to another location and open up an account with another credit union, it saves the whole KYC to be done all over again simply by sharing their MYCUID with the new credit union. So for KYC, as long as there’s trust between the financial institutions, it is a very cost effective way of reducing KYC costs.   GDPR &amp; self-sovereign IDs The challenge is that when GDPR was initially conceived, blockchain and self-sovereign IDs where still pie in the sky kind of ideas without any real traction. However, Heather believes that what Sovrin has created is what the original authors of GDPR had in mind. Her goal, along with the entire blockchain community is working with the European Union, the European Commission, the parliament, the regulatory bodies, in figuring out how GDPR applies to blockchain technology. Heather doesn’t think that anyone has the exact answer on how GDPR applies to blockchain. But she thinks that many in the blockchain community are highly new motivated to work with those regulators and figuring out how to apply the intention of GDPR, to the blockchain technology that exists today.   Self-sovereign IDs, AIs and Web 3.0 Self-sovereign IDs exist in agents and agents are applications, software managers, and digital wallets. We can set the controls, so that we can decide, every time something happens, then you can share my identity, or every time I go to purchase something on this website you can share my shipping address. There is going to be ways where we will engage our digital lives, and we’ve preset how we want our information to be shared. And we never have to look back because it just happens. And that is the web 3.0 world today. So, if I tell my refrigerator, every time I run out of milk, order it and have it shipped here, it just doesn’t. And I no longer have to be involved in that transaction chain anymore.   Importance of diversity for innovation at Sovrin  At a recent conference, Heather talked about the important of diversity for innovation at Sovrin. When Heather talks about diversity, she talks about including people who don’t have the backgrounds, skill set, experiences, views that you have. Diversity means bringing in ideas that you never expected. And ideas and perspectives you never expected never come in perfect packages the way you want them. Heather advises everyone to take a look at who’s on the outside, who is not in your inner circle, who was not included? What experiences do you lack, take a chance on someone who doesn’t come from the traditional world of technology, and bring those people in because they’re going to bring ideas that are representative of the populations of the people that you want to include to have use of your technology.

<p><a href="https://www.linkedin.com/in/heathercdahl/" rel="nofollow" target="_blank">Heather Dahl</a> is the CEO of <a href="https://sovrin.org" rel="nofollow" target="_blank">Sovrin</a>, one of the leading self-sovereign identity solutions. In this podcast we discuss how identity has evolved from the offline world, to the limitations of it being online in the internet and finally to the opportunities it brings in a blockchain world.</p> <p> </p> <h2>What is blockchain?</h2> <p>Heather Dahl looks at blockchain as one of the technologies tools that we have today. From her perspective we should ask ourselves – are you seeking a solution that provides a decentralised network, meaning that you’re running a large number of diverse validators or nodes around the world that are run by different organisations that are censorship resistant, that helped build redundancy? Is that something you want that provides governance where no one organisation or company or government runs that network? If that’s something you want, blockchain technology brings that decentralised, diverse set of nodes to run a blockchain solution.</p> <p>From an identity standpoint is do you need interoperability with your identity? If you only need an identity for your sole company’s purposes then you don’t need a blockchain. However, if you’re building an identity, that needs to be interoperable with other systems then you need a blockchain based identity system like Sovrin. This allows issuers to write schemas and credential definitions and revocation on publicly available decentralised global network that everyone can access.</p> <p>Heather likes to think of blockchain as an immutable ledger where her customers, users or clients are in control of their data and information.</p> <p> </p> <p> </p> <h2>What is Sovrin?</h2> <p></p> <p>Heather Dahl is the CEO and Executive Director of the Sovrin Foundation.  ‘Sovrin’ most commonly refers to the Sovrin Network, a public service utility enabling self-sovereign identity on the Internet. The Sovrin Network is decentralized, meaning individuals can collect, hold, and choose which identity credentials —such as a driver’s license or employment credential—without relying on individual siloed databases that manage the access to those credentials.</p> <p>Sovrin is an open source project that offers the tools and libraries to create private and secure data management solutions that then run on Sovrin’s identity network.</p> <p>Sovrin is now a global network for decentralised identity in six continents. In the past year they have launched the Sovrin Alliance to provide education and training programme for their community and those interested in decentralised identity. In partnership with Hard Yaka, Sovrin has launched a <a href="https://sovrin.org/an-incubator-for-digital-independence/" rel="nofollow" target="_blank">self sovereign identity incubator</a> out of San Francisco. Sovrin also recently won the award for “<a href="https://www.globenewswire.com/news-release/2019/03/28/1781351/0/en/Sovrin-Foundation-Wins-Award-for-Greatest-Social-Impact.html" rel="nofollow" target="_blank">Greatest Social Impact</a>” by <a href="https://oneworldidentity.com/" rel="nofollow" target="_blank">One World Identity</a>.</p> <p>You can find out more about Sovrin on their <a href="https://sovrin.org/" rel="nofollow" target="_blank">website</a> and join the <a href="https://sovrin.org/join-the-sovrin-alliance/" rel="nofollow" target="_blank">Sovrin Alliance</a>.</p> <p> </p> <h2>The internet has failed in providing an identify solution</h2> <p>The web is abound with news regarding breaches of privacy, personal data being sold, cybercrimes and much more. The common factor around all these issues is identity. Heather believes that we don’t have a data management problem, we have an identity problem as all pieces of data are connected to some form of identity. These issues stem from when the internet was created as a network of machines. The identity protocols weren’t designed for people they were designed to identify machines. Heather gives the example of how email addresses are structured, where you’re at a workplace (<a href="mailto:name@workplace.com">name@workplace.com</a>) or at a university or at a technology provider (eg. <a href="mailto:name@gmail.com">name@gmail.com</a>) which provides you with a free email so that they can take your information.</p> <p>Identify was thus created in a very fractured manner that isn’t fully interoperable. As the internet grew websites and services who provided us with identities didn’t do in a manner with the users’ best interest but in a manner where they could profit, exploit and share. It is this internet lack of identity infrastructure that’s resulted in a fractured experience that’s insecure, fails to protect its users privacy and prone to criminals hacking into it.</p> <p>This lack of identity structure leads to people being deprived of their rights that they enjoy in the physical world. It has failed because identity doesn’t scale in a cost effective way. It has failed, because the identity solutions out there created privacy problems with serious correlation issues. And lastly, a lot of these identities don’t provide consent, we’re just given the identity and we have just have to accept it, because we need an identity to operate in the digital world. Or once we get it, we don’t have the ability to consent to further agreements as we use that identity along the way.</p> <p> </p> <h2>Offline identify vs internet identity</h2> <p>Heather explains the differences between offline identity vs internet identity in confirming ones right to access a service. She gives the example of when an individual goes to a bar to buy an alcoholic beverage. The bar will not contact the State of Maryland to confirm the individual whether or not they are over 21. Nor will they call the State of Maryland every time the individual goes to buy a beer at the bar. It’s because there’s trust that when the individual pulls out their driver’s license the bar doesn’t have to confirm whether or not the state did issue that driver’s license to the individual.</p> <p>With the internet you have what’s called the “phone home problem”. When we try to share identities on the internet they don’t trust it and thus there is an online verification with the providers of that identity to confirm its authenticity. That phone home problem leaves a trail. Whilst in the offline world the state of Maryland has no clue how often one goes into a bar to order drinks, there’s a sense of privacy that allows the user to prove themselves for a trustworthy interaction without having someone or an organisation following every single step of their day. That’s what self-sovereign identity offers people in their digital lives is a way to replicate that offline identity that we use every day.</p> <p> </p> <h2>Difference between self-sovereign ID and blockchain based identity?</h2> <p>A blockchain based identity is an identity that is written in a private ledger that is decentralised for your organisation and where that identity is only used going to be used within that private ecosystem. Self-sovereign identity is when you want to use that identity outside of that walled garden. It allows organisations who are issuing an identity, it allows them to connect that identity to a public lookup credential. This allows the holder of that identity to be able to present that identity elsewhere without the phone home problem.</p> <p>This allows other organisations to verify that the credential that has been issued is both accurate and it hasn’t been revoked on a ledger. That means they don’t have to go back to the database that issued the identity as it is on the public ledger which they can look up the schema, the credential definition and whether it’s on a revocation registration and that’s all done in a privacy preserving way.</p> <p>Self-sovereignty, allows organisations to issue credentials that can be used elsewhere in a privacy preserving way. It allows a holder of that credential to present their identity for services, or other relationships that they want to engage in, in the digital world without having to disclose it to the organisation who issued the identity. It also allows verifiers, those who are accepting the identity, to be able to ensure that the identities valid based on whether they trust organisations, they can verify it all in a privacy preserving way and not to have to connect back to the original issuer. It allows a completely interoperable global system where any organisation person or thing can use that credential to gather services, to engage in digital relationships with organisations, entities or other things, and do that in a privacy preserving way.</p> <p> </p> <h2>Zero knowledge proof and self-sovereign ID</h2> <p>Zero knowledge proof (ZKP) are a cryptographic technique that allows users to share information without relinquishing their security and/or privacy. So, what they do is they use cryptography to provide a proof statement from the holder to the verify without revealing any additional information that’s not required. Heather gives the example that if she wants to buy an adult beverage from a bar, they don’t need to know where she lives. They don’t need to know her height or weight or her eye colour. They don’t even know need to know her exact age. All they need to know is that she is 21 years or older. ZKP is a technology that allows Heather to share that she is 21 years old or older without revealing anything else of her identity.</p> <p>For ZKPs to be usable the verifier has to believe the statements are true and that the results of the proof is accurate. The verifier has to know that the holder hasn’t altered the information. Because sometimes in the real world, for example, college kids may alter their driver’s licence in order to buy adult beverages. What Sovrin removes is the ability to make that alteration because it is on the blockchain, on the immutable ledger. If allow organisations to accept credentials to verify information knowing that they are absolutely accurate because of the blockchain ledger.</p> <p> </p> <h2>Different types of identities</h2> <p>When we talk about identity we are not talking just about individuals. Identity can be applied to organisations, machines, IoT devices and data sets can have identities. Files, jpegs, stocks, anything can have identities. A chair can have an identity and the components of a chair can have an identity. Everything in the digital world has an identity at some point in it.</p> <p>Each of those identities, whether it is the leg of that chair or a piece of data can be self-sovereign. And where it becomes important is that a laptop has an identity and within it, it can have an identity of what it contains. And why is that important? A company goes to recycle that laptop, they can scan the identity of it, and they know exactly what it contains and how to recycle the particular pieces.</p> <p> </p> <h2>Self-sovereign ID’s impact on enterprises ability to store and mine data</h2> <p>Enterprises collect and hoard personal data. In a self-sovereign world those organisations ability to hold on to the data will be determined by the user. What does this mean to organisation’s ability to build their business models if their ability to interrogate data sets is potentially hampered?</p> <p>Heather’s response to that question is do enterprises and organisations really need to store old data that may not be accurate. They need to assess the data that they need and what shelf life it has.</p> <p>Self-sovereign identity provides enterprises with accurate information at the time of the transaction. Self-sovereign identity and ZKPs allows enterprises to uses blockchain to make sure that the data they collect is accurate at the time of a transaction or when it is need. Any extra information not relevant to that transaction that isn’t necessary doesn’t need to be hoarded as it can create a security issue for that company.</p> <p>And that’s where something like sovereigns, you are knowledge proofs. Self sovereign identity allows you to use the blockchain to make sure it is accurate at the time that you need it in any extra information. You don’t need to afford it, because that just creates a security issue for you.</p> <p> </p> <h2>How can enterprises engage with self-sovereign identities?</h2> <p>Some of the earliest adopters of Sovrin are from the financial industry. <a href="http://www.culedger.com/" rel="nofollow" target="_blank">CULedger</a> is a credit union service organisation that focuses on delivering innovative applications to credit unions through its DLT platform.</p> <p></p> <p>Their flagship product, <a href="https://www.culedger.com/solutions/mycuid" rel="nofollow" target="_blank">MyCUID</a> is a DLT built platform that enables credit unions to detect and prevent call centre fraud, enables self-sovereign identity for members, and will run on the Sovrin Network.</p> <p>You can download a wallet with your MYCUID. What it does is it allows the user to prove who they are, their address that they have an accountant, a credit union, and the credit union has gone through that KYC. Where this becomes important is within an ecosystem. If that user was to move to another location and open up an account with another credit union, it saves the whole KYC to be done all over again simply by sharing their MYCUID with the new credit union. So for KYC, as long as there’s trust between the financial institutions, it is a very cost effective way of reducing KYC costs.</p> <p> </p> <h2>GDPR &amp; self-sovereign IDs</h2> <p>The challenge is that when GDPR was initially conceived, blockchain and self-sovereign IDs where still pie in the sky kind of ideas without any real traction. However, Heather believes that what Sovrin has created is what the original authors of GDPR had in mind.</p> <p>Her goal, along with the entire blockchain community is working with the European Union, the European Commission, the parliament, the regulatory bodies, in figuring out how GDPR applies to blockchain technology. Heather doesn’t think that anyone has the exact answer on how GDPR applies to blockchain. But she thinks that many in the blockchain community are highly new motivated to work with those regulators and figuring out how to apply the intention of GDPR, to the blockchain technology that exists today.</p> <p> </p> <h2>Self-sovereign IDs, AIs and Web 3.0</h2> <p>Self-sovereign IDs exist in agents and agents are applications, software managers, and digital wallets. We can set the controls, so that we can decide, every time something happens, then you can share my identity, or every time I go to purchase something on this website you can share my shipping address. There is going to be ways where we will engage our digital lives, and we’ve preset how we want our information to be shared. And we never have to look back because it just happens. And that is the web 3.0 world today. So, if I tell my refrigerator, every time I run out of milk, order it and have it shipped here, it just doesn’t. And I no longer have to be involved in that transaction chain anymore.</p> <p> </p> <h2>Importance of diversity for innovation at Sovrin</h2> <p></p> <p>At a recent conference, Heather talked about the important of diversity for innovation at Sovrin. When Heather talks about diversity, she talks about including people who don’t have the backgrounds, skill set, experiences, views that you have. Diversity means bringing in ideas that you never expected. And ideas and perspectives you never expected never come in perfect packages the way you want them. Heather advises everyone to take a look at who’s on the outside, who is not in your inner circle, who was not included? What experiences do you lack, take a chance on someone who doesn’t come from the traditional world of technology, and bring those people in because they’re going to bring ideas that are representative of the populations of the people that you want to include to have use of your technology.</p>

Ep. 74 – Self Sovereign Identity – insights from Sovrin

Blockchain is one of many new emerging technologies alongside AI, machine learning, robotics and much more. Most insurance companies unfortunately look at these technologies in silos and thus get a limited return on their investment. BlockClaim is an exciting insurtech that had the foresight to design an offering that combines both AI, machine learning and blockchain. In this exciting podcast we had the pleasure of interviewing Niels Thoné, CEO of BlockClaim, who passionately shared his insights on the convergence of AI, machine learning and blockchain.   What is blockchain? On a high level blockchain is all about storing and processing sensitive information, like financial transactions, on a lot of different computers rather than with a single central authority. What this means is that the need for trust in a central authority is removed because if it fails the network doesn’t fail. For BlockClaim, a private blockchain is a great way to connect various actors with different systems, software or legacy IT in a super light touch way. It allows BlockClaim to gather information from all these different systems in real time without interfering any kind of workflows. Blockchain creates a unified data format that allows you to feed that into any AI or machine learning and increase its efficiency through the use of smart contracts for automation of workflows or processes of claims for example.   The new stack  Here at Insureblocks we are great believers that the future resides in looking at emerging technologies such as blockchain, AI, machine learning, IoT, big data, and robotics as the “new stack”. Because it is only by combining them that we can really get the most ROI out of them. We asked Niels his thoughts on how the insurance industry was embracing these new technologies. Insurers have a tendency of looking at these new technologies in a “trendy way”. Five, six years ago it was RPA, then it became AI and machine leaning and last year it was blockchain. A lot of insurers have a tendency of just following the latest technology trends which complicates things. However Niels is quick to point out that sometimes you meet a C Level director that gets it and sees the value of combining these new technologies to help them achieve their vision. He gave the example of a CEO of a bank insurer who stated her vision of settling claims in one day and wanted to find out what set of technologies would help her achieve that vision. Innovation department at insurance companies are also a great way for start-ups to have that first conversation. However these innovation departments are more like gatekeepers who do put you in touch with different sections of the business but they don’t have any budget or any kind of decisive authority.   Data – the new natural resource In episode 40, IBM’s 2019 Insurance Predictions, we interviewed Sandip Patel, global managing director for insurance across IBM. In podcast he stated that there is a fundamental shift in how we think of data. Where data is becoming the next natural resource, particularly in Insurance from a few perspective:  Volume of data: The rate and pace at which data sets are evolving is growing exponentially. Type of data: the nature of data is changing. 60 – 70% of the data sets such as from wearables, sensors, and drones, often referred as unstructured data sets Temporal factor of data  Data basically enables BlockClaim to make informed decisions in an automated way Blockcliam is both an aggregator of data and an enricher of it. Data basically enables BlockClaim to make informed decisions in an automated way. Claims for example can be very subjective. Recognising that claimants may lie, a claims handler has to try and reconstitute an objective reality of what happened. What BlockClaim aims to do is to automate that. They leverage external and internal data such as “dark data” to enrich the whole claim process. Dark data is any data such as PDFs, emails, images (eg. of a car accident) that aren’t in the right systems which makes it difficult to mine. However it is data, usually stored in an email inbox, that a claims handler evaluates in an intuitive way. One of BlockClaim’s USP is in creating new data sources. Looking for better APIs, building their own spiders to aggregate data, plugging into IOT such as wearables and combining all of that with an insurers own internal data gives BlockClaim the opportunity to build the ultimate contextual engine.   BlockClaim’s Vision BlockClaim’s aim is to help insurers to settle claims in 24 hours. On average claims in the UK, depending on the verticals, takes about 25 days. This is often due to sequential processing, outdated systems and an ecosystem that involves numerous players. BlockClaim wants to offer lemonade style claims for everyone.   Delivering on BlockClaim’s’ Vision BlockClaim offers three different ways to integrate with an insurer:  Batch – insurers send them claims on a daily basis and BlockClaim enriches the data and states which claims can be settled or not Real time – BlockClaim can integrate within a few hours into an insurers workflow or claim systems Proper integration – BlockClaim sits within the insurers core systems    The New Stack – BlockClaim style    BlockClaim uses a mixture of AI, machine learning and deep learning on a blockchain to deliver their 24-hour claims vision. The AI and the blockchain section of their proposition comes in two modules. The AI module. When a claim comes into the system the AI extracts the data and enriches it with external data such as IoT and internal insurers data that includes dark data. With machine learning it generates a confidence score between 0 – 100 in a kind of traffic light system. However, there are other players within this claim ecosystem that sit on the blockchain module. In motor claims for example you have garages, car hire companies, engineers and internal claims teams. As they all sit on the blockchain you can audit wherever the claim is. Insurers work with a number of TPA who provide every month an excel file with claims data. A key frustration insurers get is that they don’t get to control the data. They don’t have visibility of the data now can they audit it. With this blockchain related solution of the ecosystem, insurers can now have clear visibility of their data. Each ecosystem player’s data is fed into the AI and you can start getting a real time confidence score every step of the way in the claims process along the blockchain. Depending on the level of the confidence score you have a triage system, that can determine to which next step the claims process should take and that includes skipping several steps in the process thus reducing the settlement time. This process is also very effective in capturing fraud that can be operated by criminal gangs that may involve the participation of service providers (e.g. a garage).   Did you really need a blockchain? Niels recognises that the insurance industry is very polarised around the question of blockchain and on whether it’s a yes or no question. For him it varies like 50 shades of grey. You can use a distributed database, but if you have more than five or six participants it becomes incredibly difficult to manage a permission system. Blockchain has a built-in permission system. It is the best and cheapest way to effectively work with various partners or actors in a system with over three or five players. Niels is excited by how blockchain technology can help reduce fraud. For example if a large number of insurance companies were to join a blockchain ecosystem then fraudulent activity on an insured with an insurer can be automatically detected and all the other insurance companies within the ecosystem will be informed of it.   BlockClaim’s road map BlockClaim started at Imperial College, about 2 years ago out of a POC (proof of concept)  that was about blockchain telematics and insurance. The company then evolved towards working with motor insurance first and now recently moving into health claims. BlockClaim analyses five million claims. Their next step is to move into lines of business such as fleets, home, pets and kind of PNC lines and some kind of commercial lines. Insurers who work with Blockchain have been looking at expanding their collaboration with to cover the underwriting side. There is a real opportunity in using BlockClaim’s ability to aggregate and process large amounts of data (external and internal) for not just managing claim but also in helping underwriters’ better price themselves.   Top tips for Insurtechs in working with incumbents Niel’s main tip to Insurtechs is to raise funding from a mix of sources. Make sure that your investors have a great black book of contacts that can offer you introductions and warm leads that allows you to bypass a lot of the steps that you normally have to do. Sales cycles for example can be very long up to 9 and 12 months long. Getting access to the right C-level people, product owners and budget holders can make a significant difference. Business angels with an insurance background or former C-level individuals are great to providing those kind of introductions and thus play an important part in getting the right mix of funding sources. Niel’s second tip is try to get a soft landing. Always offer insurance companies with an easy way for them to sign up to try your product.  Your turn! Niels have shared some great insights with us on the convergence of AI, machine learning, and blockchain. If you liked this episode, please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Michael or Tim a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.

<p>Blockchain is one of many new emerging technologies alongside AI, machine learning, robotics and much more. Most insurance companies unfortunately look at these technologies in silos and thus get a limited return on their investment. <a href="https://www.blockclaim.ai" rel="nofollow" target="_blank">BlockClaim</a> is an exciting insurtech that had the foresight to design an offering that combines both AI, machine learning and blockchain. In this exciting podcast we had the pleasure of interviewing <a href="https://www.linkedin.com/in/nielsthonedesign/" rel="nofollow" target="_blank">Niels Thoné</a>, CEO of BlockClaim, who passionately shared his insights on the convergence of AI, machine learning and blockchain.</p> <p> </p> <h2>What is blockchain?</h2> <p>On a high level blockchain is all about storing and processing sensitive information, like financial transactions, on a lot of different computers rather than with a single central authority. What this means is that the need for trust in a central authority is removed because if it fails the network doesn’t fail. For BlockClaim, a private blockchain is a great way to connect various actors with different systems, software or legacy IT in a super light touch way. It allows BlockClaim to gather information from all these different systems in real time without interfering any kind of workflows.</p> <p>Blockchain creates a unified data format that allows you to feed that into any AI or machine learning and increase its efficiency through the use of smart contracts for automation of workflows or processes of claims for example.</p> <p> </p> <h2>The new stack</h2> <p><a href="http://insureblocks.com/wp-content/uploads/2019/03/The-New-Stack-1.png" rel="nofollow" target="_blank"></a></p> <p>Here at Insureblocks we are great believers that the future resides in looking at emerging technologies such as blockchain, AI, machine learning, IoT, big data, and robotics as the “new stack”. Because it is only by combining them that we can really get the most ROI out of them. We asked Niels his thoughts on how the insurance industry was embracing these new technologies.</p> <p>Insurers have a tendency of looking at these new technologies in a “trendy way”. Five, six years ago it was RPA, then it became AI and machine leaning and last year it was blockchain. A lot of insurers have a tendency of just following the latest technology trends which complicates things.</p> <p>However Niels is quick to point out that sometimes you meet a C Level director that gets it and sees the value of combining these new technologies to help them achieve their vision. He gave the example of a CEO of a bank insurer who stated her vision of settling claims in one day and wanted to find out what set of technologies would help her achieve that vision.</p> <p>Innovation department at insurance companies are also a great way for start-ups to have that first conversation. However these innovation departments are more like gatekeepers who do put you in touch with different sections of the business but they don’t have any budget or any kind of decisive authority.</p> <p> </p> <h2>Data – the new natural resource</h2> <p>In <a href="https://insureblocks.com/ep-40-ibms-2019-insurance-predictions/" rel="nofollow" target="_blank">episode 40, IBM’s 2019 Insurance Predictions</a>, we interviewed <a href="https://www.linkedin.com/in/sandip-patel-8b2450/" rel="nofollow" target="_blank">Sandip Patel</a>, global managing director for insurance across IBM. In podcast he stated that there is a fundamental shift in how we think of data. Where data is becoming the next natural resource, particularly in Insurance from a few perspective:</p> <ul> <li>Volume of data: The rate and pace at which data sets are evolving is growing exponentially.</li> <li>Type of data: the nature of data is changing. 60 – 70% of the data sets such as from wearables, sensors, and drones, often referred as unstructured data sets</li> <li>Temporal factor of data</li> </ul> <blockquote><p>Data basically enables BlockClaim to make informed decisions in an automated way</p></blockquote> <p>Blockcliam is both an aggregator of data and an enricher of it. Data basically enables BlockClaim to make informed decisions in an automated way. Claims for example can be very subjective. Recognising that claimants may lie, a claims handler has to try and reconstitute an objective reality of what happened. What BlockClaim aims to do is to automate that. They leverage external and internal data such as “dark data” to enrich the whole claim process. Dark data is any data such as PDFs, emails, images (eg. of a car accident) that aren’t in the right systems which makes it difficult to mine. However it is data, usually stored in an email inbox, that a claims handler evaluates in an intuitive way.</p> <p>One of BlockClaim’s USP is in creating new data sources. Looking for better APIs, building their own spiders to aggregate data, plugging into IOT such as wearables and combining all of that with an insurers own internal data gives BlockClaim the opportunity to build the ultimate contextual engine.</p> <p> </p> <h2>BlockClaim’s Vision</h2> <p>BlockClaim’s aim is to help insurers to settle claims in 24 hours. On average claims in the UK, depending on the verticals, takes about 25 days. This is often due to sequential processing, outdated systems and an ecosystem that involves numerous players. BlockClaim wants to offer <a href="https://www.lemonade.com" rel="nofollow" target="_blank">lemonade</a> style claims for everyone.</p> <p> </p> <h2>Delivering on BlockClaim’s’ Vision</h2> <p>BlockClaim offers three different ways to integrate with an insurer:</p> <ul> <li>Batch – insurers send them claims on a daily basis and BlockClaim enriches the data and states which claims can be settled or not</li> <li>Real time – BlockClaim can integrate within a few hours into an insurers workflow or claim systems</li> <li>Proper integration – BlockClaim sits within the insurers core systems</li> </ul> <p> </p> <h2>The New Stack – BlockClaim style</h2> <h2><a href="http://insureblocks.com/wp-content/uploads/2019/05/The-New-Stack-BlockClaim-Style.png" rel="nofollow" target="_blank"></a></h2> <p> </p> <p>BlockClaim uses a mixture of AI, machine learning and deep learning on a blockchain to deliver their 24-hour claims vision. The AI and the blockchain section of their proposition comes in two modules.</p> <p>The AI module. When a claim comes into the system the AI extracts the data and enriches it with external data such as IoT and internal insurers data that includes dark data. With machine learning it generates a confidence score between 0 – 100 in a kind of traffic light system.</p> <p>However, there are other players within this claim ecosystem that sit on the blockchain module. In motor claims for example you have garages, car hire companies, engineers and internal claims teams. As they all sit on the blockchain you can audit wherever the claim is.</p> <p>Insurers work with a number of TPA who provide every month an excel file with claims data. A key frustration insurers get is that they don’t get to control the data. They don’t have visibility of the data now can they audit it. With this blockchain related solution of the ecosystem, insurers can now have clear visibility of their data.</p> <p>Each ecosystem player’s data is fed into the AI and you can start getting a real time confidence score every step of the way in the claims process along the blockchain.</p> <p>Depending on the level of the confidence score you have a triage system, that can determine to which next step the claims process should take and that includes skipping several steps in the process thus reducing the settlement time.</p> <p>This process is also very effective in capturing fraud that can be operated by criminal gangs that may involve the participation of service providers (e.g. a garage).</p> <p> </p> <h2>Did you really need a blockchain?</h2> <p>Niels recognises that the insurance industry is very polarised around the question of blockchain and on whether it’s a yes or no question. For him it varies like 50 shades of grey. You can use a distributed database, but if you have more than five or six participants it becomes incredibly difficult to manage a permission system. Blockchain has a built-in permission system. It is the best and cheapest way to effectively work with various partners or actors in a system with over three or five players.</p> <p>Niels is excited by how blockchain technology can help reduce fraud. For example if a large number of insurance companies were to join a blockchain ecosystem then fraudulent activity on an insured with an insurer can be automatically detected and all the other insurance companies within the ecosystem will be informed of it.</p> <p> </p> <h2>BlockClaim’s road map</h2> <p>BlockClaim started at Imperial College, about 2 years ago out of a POC (proof of concept)  that was about blockchain telematics and insurance. The company then evolved towards working with motor insurance first and now recently moving into health claims. BlockClaim analyses five million claims. Their next step is to move into lines of business such as fleets, home, pets and kind of PNC lines and some kind of commercial lines.</p> <p>Insurers who work with Blockchain have been looking at expanding their collaboration with to cover the underwriting side. There is a real opportunity in using BlockClaim’s ability to aggregate and process large amounts of data (external and internal) for not just managing claim but also in helping underwriters’ better price themselves.</p> <p> </p> <h2>Top tips for Insurtechs in working with incumbents</h2> <p>Niel’s main tip to Insurtechs is to raise funding from a mix of sources. Make sure that your investors have a great black book of contacts that can offer you introductions and warm leads that allows you to bypass a lot of the steps that you normally have to do. Sales cycles for example can be very long up to 9 and 12 months long. Getting access to the right C-level people, product owners and budget holders can make a significant difference.</p> <p>Business angels with an insurance background or former C-level individuals are great to providing those kind of introductions and thus play an important part in getting the right mix of funding sources.</p> <p>Niel’s second tip is try to get a soft landing. Always offer insurance companies with an easy way for them to sign up to try your product.</p> <h2></h2> <h2><strong>Your turn!</strong></h2> <p>Niels have shared some great insights with us on the convergence of AI, machine learning, and blockchain.</p> <p>If you liked this episode, <a href="https://itunes.apple.com/gb/podcast/insureblocks/id1361820676?mt=2" rel="nofollow" target="_blank">please do review it on iTunes</a> – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Michael or Tim a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.</p>

Ep. 58 – Convergence of AI, machine learning and blockchain – Inisghts from BlockClaim

In this fascinating episode we are joined by Andy Martin,  Blockchain Business Design at IBM. For the last three years Andy has been working on how to create business case for blockchain networks. In this podcast he shares with us his deep wealth of experience in how to design effective blockchain business design. This is a must listen to anyone interested in establishing blockchain networks.   What is blockchain? In defining what is blockchain, Andy focuses on private permissioned blockchain whose initial opportunity is in optimising shared business to business processes. Up to now the approached businesses took was in having a central intermediary to act as a central database to smooth out that shared process. The challenge is that both the quantity and the value of data has been growing very rapidly, leading to reluctance in businesses to share that data to a central intermediary. Blockchain gives us a super elegant approach to sharing this process across the members of an ecosystem in such a way that no one person is in charge of the data. All the members can have a say in how that data is governed and they each have a copy of the ledger. Smart contracts are running on top of it and that is where the shared processes have been codified – who needs to do what to move the status of an asset as it moves across that shared process as trades of ownership of that asset are made. When a trade of ownership transaction is proposed to update the ledger, a consensus mechanism is used, so that all the members of the network can come into agreement as to what is the status of this asset as it as it moves through this process. Blockchain has created a new asset which is trusted data at the level of the market. Privacy controls are put into place so that only the permissioned individuals are allowed to see the data. This new asset is effectively the foundation stone to truly innovate, to create new types of business and new types of marketplaces. This paradigm shift provides players within an ecosystem an interest to collaborate with their competitors in building that trusted data marketplace to then compete above it whilst combining your firm’s private data and capabilities and combine it with that trusted data.   Building business cases for blockchain networks There are three big areas where building a business case for a blockchain network is different than any other technology:  Incentive model Network effect Market level thinking  For any blockchain network you also will need an effective governing body that plays the role of defining the marketplace rules. It needs to be fair and democratic to ensure that everybody gets a fair chance and cut of things and a desire to increase the volume of transactions within that market.   Incentive model Three different types of business cases have to be built to create an incentive model. Each of these business cases have to interrelate and create reinforcing behaviour:  A solid financial incentive for whatever entity who is going to be bring this network to market. A strong business case for each of the members of the network to join it. If members benefit greatly from the network you charge them a fee to join it. Some members may be so valuable to the network that they either have great gravitational pull that they can bring other members to the network or whose data is so valuable that you may choose to give them free access to the network. The final case is for those who provides useful data to the network but don’t benefit greatly from being in the network. An incentive model is required for them to join the network.    Network effect The whole point of the incentive model is to ensure that as many of the trading partners of a market join a blockchain network. The incentives are here to identify and recruit the partners who can bring the most transactions and volumes to the network in order to seize a market. This will in turn enable to help all network participants to innovate on top of that new marketplace. Andy is quick to clarify that when he talks about network effects he isn’t talking about Facebook. With Facebook you have a single governing identity that is controlling the data. In a blockchain network there isn’t one party that is owning and driving the governance and monetisation of the data.   Market level thinking The third point regarding blockchain network is to be thinking at the level of a market. These markets will be driven by zones of regulation, for example one in the EU, one in the US and one in Asia Pacific.  Because these are networks for businesses they need to be compliant to the local regulation.   Effective governance The governance is all about designing an incentive model to drive helpful behaviour from all of the various interest groups on the network to drive the volume of transactions up through the network. It’s critical for a governing entity to be fair, where every participant has a fair incentive to want to join and get a fair sharing in the benefits of being part of that network. If that is achieved we need to make it as simple and as easy as possible to move a business onto the blockchain network. That is why in Andy’s opinion we need to start with a very thin layer of blockchain that initially focuses on the shared processes. In automating the paper processes, the phone calls and Excel spreadsheets. Additionally, it has to be commercially attractive to join the network, it has to have an easy onboarding and immediate first benefits, making it easy to consume the service. Andy gave us an example on the important of having a good effective governance model through a case study of 31 banks in Australia who created a financial network together. The top three or four banks in the network probably have something like over 50% of the market share. The aspirations these banks had was to create a marketplace utility. They engaged with the local regulator who made it clear that the 31st bank that signs up to the network isn’t disadvantaged compared to bank number one. The governance structure used to regulate that network was made to ensure that all banks weren’t disadvantaged when joining the network compared to the original founding ones.   Five laws of blockchain business model design  These five “laws” or ideas came to Andy whilst having lunch in Nantwich and what they represent are the five core principles one needs to consider when building a blockchain business model:  Rule 1: Network entities sell digital products and services created through ecosystem collaboration Rule 2: Sales increases with network effects within one market or by building new markets with new data combinations Rule 3: Governance of incentives creates helpful reinforcing behaviours Rule 4: Governance enables transition from a central start to a fully decentralised marketplace Rule 5: Governance enables the Token or Network Economy    Rule 1: Network entities sell digital products and services created through ecosystem collaboration The first law is about creating new digital products and services. And we’re looking to expose these on a marketplace.  Andy references a speech by Don Tapscott where he mentioned that we were seeing the birth of a new type of business that looks more like a network. There are numerous special purpose vehicles for creating a blockchain network. In the above case of the 31 banks a for profit company was created by the four or five founding members to take this network to market. Other markets may take a different approach such as using a non-for-profit consortium. An alternative approach is one where a technology solution provider who is building the capability and taking that to market to build an ecosystem around it. The fourth model is one where you have a dominant player within a market who chooses to launch a blockchain network. In this instance it is critical to have a governing board that will fairly represent the interest of the key players in the market. This is the easiest and fastest approach to launching a blockchain solution. According to the 2nd Global enterprise blockchain benchmarking study, 71% of live networks have been initiated by a single founder leading the initiative. Within the insurance industry we have seen RiskStream Collaborative take the not-for-profit consortium approach, B3i take the for-profit approach and Insurwave the more dominant player model.   Rule 2: Sales increases with network effects within one market or by building new markets with new data combinations Network effects are created by either picking up existing trading and capturing that in a marketplace, or by creating new types of trading. Blockchain networks provides the opportunity for creating new trading relationships by bringing in new data and new member types into a network. This drives new types of transactions. It has a governance model that ensures that everyone can govern their data and that the marketplace works on democratic and fair principles. In creating a marketplace for peer to peer trading there are two models:  “As is model”: These are existing peer to peer trading relationships that are added to a blockchain marketplace to put onto a share process to automate and reduce friction. This is about creating the foundations to reinvent the industry in new markets. “New market models”: creating new types of trading relationships with new types of data combinations. This can be done in two ways. One way is to start with a blank sheet of paper that brings member types that wouldn’t normally trade together to create a new value proposition. A second way is to take the “As is model” and inject it with some new data to drive new trading relationships to drive some new network effects.    Rule 3: Governance of incentives creates helpful reinforcing behaviours The third law is about having a governance model that creates a fair incentive model for all the marketplace participants. Theses incentive models can take the form of cash or more elegant solutions to generate a helpful behaviour for all participants. There are a set of levers a governance function can pull to design the incentive model:  Operational improvements participants get by being part of a blockchain network For a for-profit model you could have the rule of five, where the first five members who are starting to form the marketplace may have slightly higher privileges that the second and third set of five members in terms of equity ownership of the business for example For a not-for-profit model you could still follow the same sort of five by five but the first five who are putting some money in their pocket to help build out the marketplace will get access to some privileges. For example, if an innovative new service is going to be added the founding members will get exclusive access to that service for a period of three months before the other members. Or perhaps they will get a lower access to the cost of the basic services of this marketplace for a period of time until they get their money back.    Rule 4: Governance enables transition from a central start to a fully decentralised marketplace In Andy’s opinion for a marketplace to grow it needs to get progressively more decentralised to do that, because there’s a power equation here. If the network remains too centralised within the hands of too few people, having access to the governing entity, then the incentive to collaborate starts to fall away. Finding the right level of decentralisation can be tricky and can be different depending on the marketplace. Andy quotes Joe Lubin who stated at Devcon 5: “But I think it is short-sighted when some people believe that all blockchain systems must be fully permissionless and maximally decentralized. When you are issuing valuable assets or anchoring into a base trust layer, that layer must be maximally decentralized and that requires it to be completely permissionless. But adding some decentralization to use cases that are enacted among a small set of counterparties is enormously valuable, and this is best done on a private permissioned system.” In a private permission network, the opportunity is to seize a market. For that to happen it is ideal to have the main players of that market join the network leading to an early centralised approach to that network. The key thing to determine here is how important is that long tail? If it is important, you will need to have a governance structure that is open and fair enough to incentivise new members from that long tail to join the network to seize that market. It is thus important from the get go to determine the level of decentralisation the network wants to aim for. Will it have a coopetition model that is open to competitors joining and to the launch of new competing value propositions.   Rule 5: Governance enables the Token or Network Economy Tokens are part of the new set of tools and techniques that a governing function can take advantage of for driving trade and for driving collaboration. Tokens have three high level jobs on a blockchain:  A means of payment whether it is in fiat or crypto Ownership whether it is for a digital asset or a physical asset that needs a digital twin Utility token    Utility token In creating a marketplace that will have a whole range of service, you need to attract a number of participants in order for them to transact correctly onto that marketplace. What are the tools a governance function can have to create a really smooth marketplace to try to encourage behaviours right at the beginning? Outlier Ventures have helped Andy to inform his view on the function of utility tokens as an economic level for the governing entity to control marketplace behaviours. There are three levels that need to interact:  Marketplace level – encourage participants to consume services on the marketplace Ledger level – encourage participants to build innovative new digital products and services Governance level – design the economic model behind the token. This is useful for controlling behaviour where mining tokens or staking tokens are commonly being used in todays networks.    Example: Plastic Bank  The Plastic Bank  is Andy’s all-time favourite blockchain network. Plastic Bank was founding in March 2013 in Vancouver, Canada by David Katz and Shaun Frankson. David was alarmed by the amount of plastic he could see around him whilst scuba diving. After some research the duo came to realise that the majority of the plastic that ends up in the ocean comes from a relatively limited number of rivers in developing countries. The challenge they set themselves was how to design a business model to change the behaviour of folks living near beaches and near rivers to turn them into recycling entrepreneurs. The Plastic Bank is a for profit company that aims to monetise waste plastic and turn it into currency. The idea is that you have various collection points on beaches or near rivers. These collection centres are going to recruit recycling entrepreneurs, who will take the collection bags and collect plastic and bring them back to the centre to turn them into “Social Plastic”. Social Plastic is Plastic Bank Verified plastic that provided a premium for the collector. The premiums are called Plastic Bank Rewards. These rewards are distributed and authenticated through the Plastic Bank app which uses Blockchain technology to provide the safest and most trusted means to deliver a globally scalable social impact. Recycling entrepreneurs who bring their plastic bags to the collection point get paid in tokens which goes onto their phone’s Plastic Bank app. These tokens can be redeemed with local service providers. So the Plastic Bank has become basically the largest shop in the world for the poor. These tokens can be used to pay for school fees to pay for heating oil and for many other services. In turn leading consumer packaged goods and leading retailers who wish to enhance their brands can then sell their products using social plastic. What these firms needs is an ability to trace the provenance of this social plastic which is what blockchain technology enables them to do. This creates a virtuous circle of behaviours that are driven by this utility model, whereby the behaviours of the retailer, the behaviours of the service providers, the behaviours of the recycling entrepreneurs, and the behaviour of the plastic bank itself, all pointing in the same direction, and all driven by this utility token. The fascinating opportunity about this model is that by turning the plastic collectors into entrepreneurs you start having a trend business where you can start finding a trend in the amount of plastic they bring to the collection point every week, to which you can lend against. This drives micro finance. So, the Plastic Bank actually is a means of establishing identity for the unbanked, a means of cleaning up the environment, and a means of driving innovative new finance into developing markets.

<p>In this fascinating episode we are joined by <a href="https://www.linkedin.com/in/andy-martin-387188a/" rel="nofollow" target="_blank">Andy Martin</a>,  Blockchain Business Design at <a href="https://www.ibm.com/uk-en" rel="nofollow" target="_blank">IBM</a>. For the last three years Andy has been working on how to create business case for blockchain networks. In this podcast he shares with us his deep wealth of experience in how to design effective blockchain business design. This is a must listen to anyone interested in establishing blockchain networks.</p> <p> </p> <h2>What is blockchain?</h2> <p>In defining what is blockchain, Andy focuses on private permissioned blockchain whose initial opportunity is in optimising shared business to business processes. Up to now the approached businesses took was in having a central intermediary to act as a central database to smooth out that shared process. The challenge is that both the quantity and the value of data has been growing very rapidly, leading to reluctance in businesses to share that data to a central intermediary.</p> <p>Blockchain gives us a super elegant approach to sharing this process across the members of an ecosystem in such a way that no one person is in charge of the data. All the members can have a say in how that data is governed and they each have a copy of the ledger. Smart contracts are running on top of it and that is where the shared processes have been codified – who needs to do what to move the status of an asset as it moves across that shared process as trades of ownership of that asset are made. When a trade of ownership transaction is proposed to update the ledger, a consensus mechanism is used, so that all the members of the network can come into agreement as to what is the status of this asset as it as it moves through this process.</p> <p>Blockchain has created a new asset which is trusted data at the level of the market. Privacy controls are put into place so that only the permissioned individuals are allowed to see the data. This new asset is effectively the foundation stone to truly innovate, to create new types of business and new types of marketplaces. This paradigm shift provides players within an ecosystem an interest to collaborate with their competitors in building that trusted data marketplace to then compete above it whilst combining your firm’s private data and capabilities and combine it with that trusted data.</p> <p> </p> <h2>Building business cases for blockchain networks</h2> <p>There are three big areas where building a business case for a blockchain network is different than any other technology:</p> <ol> <li>Incentive model</li> <li>Network effect</li> <li>Market level thinking</li> </ol> <p>For any blockchain network you also will need an effective governing body that plays the role of defining the marketplace rules. It needs to be fair and democratic to ensure that everybody gets a fair chance and cut of things and a desire to increase the volume of transactions within that market.</p> <p> </p> <h3>Incentive model</h3> <p>Three different types of business cases have to be built to create an incentive model. Each of these business cases have to interrelate and create reinforcing behaviour:</p> <ol> <li>A solid financial incentive for whatever entity who is going to be bring this network to market.</li> <li>A strong business case for each of the members of the network to join it. If members benefit greatly from the network you charge them a fee to join it. Some members may be so valuable to the network that they either have great gravitational pull that they can bring other members to the network or whose data is so valuable that you may choose to give them free access to the network.</li> <li>The final case is for those who provides useful data to the network but don’t benefit greatly from being in the network. An incentive model is required for them to join the network.</li> </ol> <p> </p> <h2>Network effect</h2> <p>The whole point of the incentive model is to ensure that as many of the trading partners of a market join a blockchain network. The incentives are here to identify and recruit the partners who can bring the most transactions and volumes to the network in order to seize a market. This will in turn enable to help all network participants to innovate on top of that new marketplace.</p> <p>Andy is quick to clarify that when he talks about network effects he isn’t talking about Facebook. With Facebook you have a single governing identity that is controlling the data. In a blockchain network there isn’t one party that is owning and driving the governance and monetisation of the data.</p> <p> </p> <h3>Market level thinking</h3> <p>The third point regarding blockchain network is to be thinking at the level of a market. These markets will be driven by zones of regulation, for example one in the EU, one in the US and one in Asia Pacific.  Because these are networks for businesses they need to be compliant to the local regulation.</p> <p> </p> <h2>Effective governance</h2> <p>The governance is all about designing an incentive model to drive helpful behaviour from all of the various interest groups on the network to drive the volume of transactions up through the network. It’s critical for a governing entity to be fair, where every participant has a fair incentive to want to join and get a fair sharing in the benefits of being part of that network.</p> <p>If that is achieved we need to make it as simple and as easy as possible to move a business onto the blockchain network. That is why in Andy’s opinion we need to start with a very thin layer of blockchain that initially focuses on the shared processes. In automating the paper processes, the phone calls and Excel spreadsheets. Additionally, it has to be commercially attractive to join the network, it has to have an easy onboarding and immediate first benefits, making it easy to consume the service.</p> <p>Andy gave us an example on the important of having a good effective governance model through a case study of 31 banks in Australia who created a financial network together.</p> <p>The top three or four banks in the network probably have something like over 50% of the market share. The aspirations these banks had was to create a marketplace utility. They engaged with the local regulator who made it clear that the 31st bank that signs up to the network isn’t disadvantaged compared to bank number one. The governance structure used to regulate that network was made to ensure that all banks weren’t disadvantaged when joining the network compared to the original founding ones.</p> <p> </p> <h2>Five laws of blockchain business model design</h2> <p><a href="http://insureblocks.com/wp-content/uploads/2019/10/5-laws-of-blockchain-business-model-design.jpeg" rel="nofollow" target="_blank"></a></p> <p>These five “laws” or ideas came to Andy whilst having lunch in Nantwich and what they represent are the five core principles one needs to consider when building a blockchain business model:</p> <ol> <li>Rule 1: Network entities sell digital products and services created through ecosystem collaboration</li> <li>Rule 2: Sales increases with network effects within one market or by building new markets with new data combinations</li> <li>Rule 3: Governance of incentives creates helpful reinforcing behaviours</li> <li>Rule 4: Governance enables transition from a central start to a fully decentralised marketplace</li> <li>Rule 5: Governance enables the Token or Network Economy</li> </ol> <p> </p> <h2>Rule 1: Network entities sell digital products and services created through ecosystem collaboration</h2> <p>The first law is about creating new digital products and services. And we’re looking to expose these on a marketplace.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2019/10/Don-Tapscott-State-of-blockchain-world-2018.jpg" rel="nofollow" target="_blank"></a></p> <p>Andy references a speech by Don Tapscott where he mentioned that we were seeing the birth of a new type of business that looks more like a network. There are numerous special purpose vehicles for creating a blockchain network. In the above case of the 31 banks a for profit company was created by the four or five founding members to take this network to market. Other markets may take a different approach such as using a non-for-profit consortium. An alternative approach is one where a technology solution provider who is building the capability and taking that to market to build an ecosystem around it.</p> <p>The fourth model is one where you have a dominant player within a market who chooses to launch a blockchain network.</p> <p>In this instance it is critical to have a governing board that will fairly represent the interest of the key players in the market. This is the easiest and fastest approach to launching a blockchain solution.</p> <p>According to the <a href="https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/2nd-global-enterprise-blockchain-benchmarking-study/" rel="nofollow" target="_blank">2nd Global enterprise blockchain benchmarking study</a>, 71% of live networks have been initiated by a single founder leading the initiative.</p> <p>Within the insurance industry we have seen <a href="https://insureblocks.com/news-flash-the-institutes-riskblock-alliance-selects-r3s-corda-blockchain-for-canopy-2-0/" rel="nofollow" target="_blank">RiskStream Collaborative</a> take the not-for-profit consortium approach, <a href="https://insureblocks.com/ep-80-b3is-new-ceo-product-launch/" rel="nofollow" target="_blank">B3i</a> take the for-profit approach and <a href="https://insureblocks.com/ep-61-insurwave-one-year-on-since-launch/" rel="nofollow" target="_blank">Insurwave</a> the more dominant player model.</p> <p> </p> <h2>Rule 2: Sales increases with network effects within one market or by building new markets with new data combinations</h2> <p>Network effects are created by either picking up existing trading and capturing that in a marketplace, or by creating new types of trading. Blockchain networks provides the opportunity for creating new trading relationships by bringing in new data and new member types into a network. This drives new types of transactions. It has a governance model that ensures that everyone can govern their data and that the marketplace works on democratic and fair principles.</p> <p>In creating a marketplace for peer to peer trading there are two models:</p> <ul> <li>“As is model”: These are existing peer to peer trading relationships that are added to a blockchain marketplace to put onto a share process to automate and reduce friction. This is about creating the foundations to reinvent the industry in new markets.</li> <li>“New market models”: creating new types of trading relationships with new types of data combinations. This can be done in two ways. One way is to start with a blank sheet of paper that brings member types that wouldn’t normally trade together to create a new value proposition. A second way is to take the “As is model” and inject it with some new data to drive new trading relationships to drive some new network effects.</li> </ul> <p> </p> <h2>Rule 3: Governance of incentives creates helpful reinforcing behaviours</h2> <p>The third law is about having a governance model that creates a fair incentive model for all the marketplace participants. Theses incentive models can take the form of cash or more elegant solutions to generate a helpful behaviour for all participants.</p> <p>There are a set of levers a governance function can pull to design the incentive model:</p> <ul> <li>Operational improvements participants get by being part of a blockchain network</li> <li>For a for-profit model you could have the rule of five, where the first five members who are starting to form the marketplace may have slightly higher privileges that the second and third set of five members in terms of equity ownership of the business for example</li> <li>For a not-for-profit model you could still follow the same sort of five by five but the first five who are putting some money in their pocket to help build out the marketplace will get access to some privileges. For example, if an innovative new service is going to be added the founding members will get exclusive access to that service for a period of three months before the other members. Or perhaps they will get a lower access to the cost of the basic services of this marketplace for a period of time until they get their money back.</li> </ul> <p> </p> <h2>Rule 4: Governance enables transition from a central start to a fully decentralised marketplace</h2> <p>In Andy’s opinion for a marketplace to grow it needs to get progressively more decentralised to do that, because there’s a power equation here. If the network remains too centralised within the hands of too few people, having access to the governing entity, then the incentive to collaborate starts to fall away. Finding the right level of decentralisation can be tricky and can be different depending on the marketplace.</p> <p>Andy quotes <a href="https://www.linkedin.com/in/joseph-lubin-48406489/" rel="nofollow" target="_blank">Joe Lubin</a> <a href="https://media.consensys.net/joe-lubins-full-speech-from-devcon-5-how-we-get-to-a-decentralized-world-wide-web-1f83b35b2a0c" rel="nofollow" target="_blank">who stated at Devcon 5</a>: “<em>But I think it is short-sighted when some people believe that all blockchain systems must be fully permissionless and maximally decentralized. When you are issuing valuable assets or anchoring into a base trust layer, that layer must be maximally decentralized and that requires it to be completely permissionless. But adding some decentralization to use cases that are enacted among a small set of counterparties is enormously valuable, and this is best done on a private permissioned system.</em>”</p> <p>In a private permission network, the opportunity is to seize a market. For that to happen it is ideal to have the main players of that market join the network leading to an early centralised approach to that network. The key thing to determine here is how important is that long tail? If it is important, you will need to have a governance structure that is open and fair enough to incentivise new members from that long tail to join the network to seize that market.</p> <p>It is thus important from the get go to determine the level of decentralisation the network wants to aim for. Will it have a coopetition model that is open to competitors joining and to the launch of new competing value propositions.</p> <p> </p> <h2>Rule 5: Governance enables the Token or Network Economy</h2> <p>Tokens are part of the new set of tools and techniques that a governing function can take advantage of for driving trade and for driving collaboration. Tokens have three high level jobs on a blockchain:</p> <ul> <li>A means of payment whether it is in fiat or crypto</li> <li>Ownership whether it is for a digital asset or a physical asset that needs a digital twin</li> <li>Utility token</li> </ul> <p> </p> <h3>Utility token</h3> <p>In creating a marketplace that will have a whole range of service, you need to attract a number of participants in order for them to transact correctly onto that marketplace. What are the tools a governance function can have to create a really smooth marketplace to try to encourage behaviours right at the beginning?</p> <p><a href="https://insureblocks.com/ep-64-the-convergence-ecosystem-insights-by-outlier-ventures/" rel="nofollow" target="_blank">Outlier Ventures</a> have helped Andy to inform his view on the function of utility tokens as an economic level for the governing entity to control marketplace behaviours. There are three levels that need to interact:</p> <ol> <li>Marketplace level – encourage participants to consume services on the marketplace</li> <li>Ledger level – encourage participants to build innovative new digital products and services</li> <li>Governance level – design the economic model behind the token. This is useful for controlling behaviour where mining tokens or staking tokens are commonly being used in todays networks.</li> </ol> <p> </p> <h2>Example: Plastic Bank</h2> <p></p> <p>The <a href="https://www.plasticbank.com/" rel="nofollow" target="_blank">Plastic Bank</a>  is Andy’s all-time favourite blockchain network. Plastic Bank was founding in March 2013 in Vancouver, Canada by <a href="https://www.linkedin.com/in/david-katz-4b66178/" rel="nofollow" target="_blank">David Katz</a> and <a href="https://www.linkedin.com/in/shaunfrankson/" rel="nofollow" target="_blank">Shaun Frankson.</a> David was alarmed by the amount of plastic he could see around him whilst scuba diving. After some research the duo came to realise that the majority of the plastic that ends up in the ocean comes from a relatively limited number of rivers in developing countries.</p> <p>The challenge they set themselves was how to design a business model to change the behaviour of folks living near beaches and near rivers to turn them into recycling entrepreneurs.</p> <p>The Plastic Bank is a for profit company that aims to monetise waste plastic and turn it into currency.</p> <p>The idea is that you have various collection points on beaches or near rivers. These collection centres are going to recruit recycling entrepreneurs, who will take the collection bags and collect plastic and bring them back to the centre to turn them into “Social Plastic”. Social Plastic is Plastic Bank Verified plastic that provided a premium for the collector. The premiums are called Plastic Bank Rewards. These rewards are distributed and authenticated through the Plastic Bank app which uses Blockchain technology to provide the safest and most trusted means to deliver a globally scalable social impact.</p> <p>Recycling entrepreneurs who bring their plastic bags to the collection point get paid in tokens which goes onto their phone’s Plastic Bank app. These tokens can be redeemed with local service providers. So the Plastic Bank has become basically the largest shop in the world for the poor. These tokens can be used to pay for school fees to pay for heating oil and for many other services.</p> <p>In turn leading consumer packaged goods and leading retailers who wish to enhance their brands can then sell their products using social plastic. What these firms needs is an ability to trace the provenance of this social plastic which is what blockchain technology enables them to do.</p> <p>This creates a virtuous circle of behaviours that are driven by this utility model, whereby the behaviours of the retailer, the behaviours of the service providers, the behaviours of the recycling entrepreneurs, and the behaviour of the plastic bank itself, all pointing in the same direction, and all driven by this utility token.</p> <p>The fascinating opportunity about this model is that by turning the plastic collectors into entrepreneurs you start having a trend business where you can start finding a trend in the amount of plastic they bring to the collection point every week, to which you can lend against. This drives micro finance. So, the Plastic Bank actually is a means of establishing identity for the unbanked, a means of cleaning up the environment, and a means of driving innovative new finance into developing markets.</p>

Ep.81 – Blockchain business design

In this exciting podcast, our 50th, we had the great pleasure of having Magda Ramada Sarasola, EMEA Insurtech Innovation Leader, at Willis Towers Watson return to Insureblocks. In this fireside chat we discussed the emergence of a new stack – the convergence of blockchain, AI, IoT, big data, machine learning and robotics. This podcast sits at the epicentre of a pivot we’re doing at Insureblocks for 2019. In addition to reporting stories on blockchain within the insurance industry, Insureblocks is going to embrace three new themes:  Cover new industries: finance, supply chain logistics, food and agriculture, automobile and transportation, and healthcare. The aim is to investigate their blockchain learnings and facilitate the sharing of best practice across industries Investigate how blockchain sits with this new technology stack that includes AI, IoT, machine learning, big data, and robotics. We believe  that while they’re noteworthy the potential these technologies have individually is limited but once combined as a stack there is the “multiplier” effect to their potential Deep dive into the legal and regulatory blockchain environment and of course best practices for establishing effective governance within blockchain networks    What is Blockchain? In the initial days blockchain was often referred to as a shared excel database. Of course, now we know that blockchain is a lot more than that. Today blockchain can be looked as this ledger that participants who don’t know each other and don’t necessarily trust each other can transact without the need for an overseeing central actor. Transactions of value can be:  Exchanged without being corrupted or changed Validating their authenticity and confirm that whoever is sending the value actually owns it  Consequently for Magda, blockchain is a sociological innovation. It enables peer-to-peer markets to work without centralised authorities. This has impact not just onto the peer-to-peer world but also onto the enterprise and business world whose ecosystems are highly dysfunctional. It gives enterprises peer-to-peer enablement which makes blockchain so interesting. It’s a new governance paradigm that changes the way we organise markets and transactions of value in the broadest sense of the word (i.e. digital and physical assets).   Data the lifeblood of insurance August last year, Insureblocks interviewed Bill Pieroni, CEO of ACORD– (Ep. 21 ACORD: data standards for blockchain in insurance) where he stated “Data is the lifeblood of the insurance industry, which fundamentally works by examining data to quantify risk”.  Over the last few years the nature, type and amount of data that is becoming available to the insurance industry has radically changed. Sandip Patel, Global Managing Director for insurance from IBM, stated that on Insureblocks that “Data is the new natural resource” and he mentioned three important points:  Volume of data is changing – 2.5 quintillion (a thousand raised to the power of six {1018}) bytes of data is produced on a daily basis (as reported by Forbes in May 2018) Type of data from both structured and unstructured Temporal factor of data  Source: Domo – Data Never Sleeps 6.0 Magda recognises the “mind-blowing” amount of data that is being produced on a regular basis that it is very difficult to define what the actuarial value of that data is. Insurance industry was quite late to embracing big data. One of the reasons was that they didn’t have enough transactional data at a high frequency like ecommerce does for example. That has changed, over the last few years, as the insurance industry recognises that there is a lot of data that it doesn’t own that is being generated by other players that has been proven to actually add value in assessing the riskiness of an individual or of a certain asset / situation. However due to the large amount of data that is produced it is important to have a clear data strategy that understands:  Type of data you have / don’t have Type of data you need and where to get it Knowing how to structure that data How to make best use of that data What that data adds in value as opposed to what you already have The necessary infrastructure to deal with the data and secure the data    The Netflix paradigm  For Magda, the insurance industry may be facing what she calls the “Netflix paradigm”. What’s driving all of the insurance industry’s pillars of innovation is data and how we use that data. The problem is that most of the data is not owned by the insurance industry. Partnerships are made to access data from Fitbit, Under Armour, Apple Watch, and many others. It’s really difficult to price that data today, because data is not distributed and it’s sitting in centralized repositories that are owned by different actors. Not so long ago, Netflix was able to stream a lot of movies that it didn’t own. However, when the market increasingly used streaming and binge watching on Netflix, that became the prevailing business model that cannibalised the channels that traditional content owners had. This forced the traditional content owners to raise their price for their content in order to eat into Netflix’s margins.  However, Netflix had anticipated that move and had already started producing its own content and has now become one of the main content generators globally. Why? Because they were sitting on lots of data about behaviour about what people watched and when and they were able to use that to generate very targeted content. Today the insurance industry is able to access data it doesn’t own from third parties like Fitbit. However, at some point the value of the data will be clear and insurance players may not be able to access that data anymore.   The new stack  Next year there is an estimated 20-25 billion IoT devices coming online. All these devices will produce raw data which we aren’t able to process into intelligence. Not only that but they’re being communicated on the internet which is insecure and open to cyber criminal activity. Some innovative insurance companies have been looking at emerging technologies like AI, IoT, machine learning, big data, robotics, drones, telematics and a whole range of other technologies. However these have been looked at individually instead as a new stack and thus the ROI is limited.   Data vaults At the present moment we are producing a large amount of data which is only going to increase on a yearly basis. Numerous questions arise on how we can keep the data secure, communicate it in a secure way, keep it free from tampering or nefarious actions, and ensure that it can be monetized and used by its rightful owner. Today, whilst you own your data and are in charge of it in some extent, it is being copied and used by companies. There is a need for identity solutions and data self-sovereignty. Unfortunately does solutions are not mature enough today and a new infrastructure is required to enable them. This coupled with the fact that it will take a long time for people to realise the value of their data and how their data is being used. Blockchain can help in bringing a solution by providing its users with the ability to be custodians of their own data. The way this would work is that people will have a data vault which can contain their digital identity, their FitBit data, their driving behaviour and medical data for example. For example, today to get a drink in a bar in the US you have to prove you are over 21 years old and have to show your driver’s license. However, that driver’s license contains your address which you may not wish to share with the bartender. With a secure data vault, that contains your driver’s license, it can essentially automatically validate that you are over 21 without sharing your address. If people have those vaults and objects have their vaults, data becomes an inherent part of every actor in an economy and its individual historical data that cannot be corrupted. A car is an example of an object data vault who streams data. The car can validate its data such as how it is being driven and maintained. The day the car is sold it can be sold with its data vault. Alongside user vaults and object vaults we can also have vaults of behavioural data and many other vaults in the future. For Magda, that is the future where data is being distributed as opposed to centralised and it is secured in a cryptographic manner.   Need for a new infrastructure – blockchain coalition, cross industry and government initiatives We need to focus on the things that blockchain enables that we cannot do with other technologies. Magda illustrates two key points:  Data stored within a data vault cannot be corrupted even by the owners of the data. So for the first time users can be true custodians of their own data Blockchain frontier – i.e. how the data gets into the vault, that it comes from trustworthy sources such as a bank or a government institution. This will require a new infrastructure that can connect all these validators to an immutable and distributed ledger.  For example if you go into a bank that bank will have systems where they can look at your credit worthiness, they look at your behaviour, they look at Equifax and then they will validate the data. If they put that into your vault whenever you go to another bank, they don’t have to repeat it, as the KYC would already have been done from a trusted source. As it is stored into your data vault they will also know that the data hasn’t been tampered with. For this to happen it will require blockchain coalitions and cross industry and government initiatives to build the necessary infrastructure.   Oracles and IoT the weakest link? When looking at innovation in general and specifically at the new stack we realise that it isn’t just about blockchain. Blockchain is dependent upon getting reliable validated data into it. These comes from oracles which can take the form of IoT devices. Securing real-time data streams from IoT is not easy. As you cannot corrupt the smart contracts on the blockchain there is a clear case for trying to corrupt the oracles. There is a need to secure the oracles.   Maximising ROI by moving from individual technologies to the new Stack There is a clear business case for merging these emerging technologies into a new stack. These technologies are doing very different things and if you really want to have a quantum leap in terms of how you develop a new business model or enable a new way of doing things, you need the combination, you need the new stack. IoT are a great source of instant access to data. Machine learning and computer vision can extract data from numerous sources such as what is your sentiment from micro facial expressions to the distress in your voice. Machine learnings and certain algorithms are critical for data ingestion and for the analytics of that data. Big data implies that we are sitting on a very large amount of data ready for us to use. The reality though isn’t quite that. The data isn’t ready. It needs to be structured, it needs to be cleaned from what is noise and what is valuable. For that you need advanced analytic tools, machine learning, AI, computer vision augmented related to be able to incorporate things like a human behaviour with the data and the physical reality around them. All these technologies really work well in combination. Blockchain enables a way of having distributed markets and distributed value and interactions with people without them being centralised. For that to happen you need to know who the people are, how they behave and you need to understand them. This requires a smart contract to be truly smart. It can only achieve this by having a layer of machine learning that has access to data for it to learn from. Thus, to maximise ROI we need to ensure that we look at the business case and then determine what set of technologies is appropriate for that business case. It may be a small set of technologies, it may be the entire stack or it may be legacy technology. The key is to always start from the business case and not to look for a problem that this technology can answer.   Future of risk and its pricing Having the technologies from the new stack and hyper granular data sitting on those data vaults we have what Magda calls fourth generation solutions that can react in time to events and to behaviour. This means in the future we should be able to have products that adapt in their structure as in clauses what they cover, what they don’t and price themselves in an almost real-time fashion. Another future possibility is one where for certain types of risks and products we may not need an underwriter to actually underwrite. For example, future car insurance will be on a smart contract that can read exactly how the car is being driven, used, and maintained. The smart contract will also understand the driver’s driving patterns and automatically price the risk. You can neutralise the risk through a coded mutual for certain type of risks, where you have smart contracts dealing with pricing the risk, assessing the risk, pricing risk, pulling it, generating a vehicle like an insurance security and placing it in a distributed capital market. Part of the risk for that car insurance can be accepted by individuals around the world such as one in China or in Australia that have a certain risk appetite that has been assessed by their respective smart contracts. In such a future you are bridging the risk to capital journey in a decentralised and automated way.   Parametric insurance Parametric insurance is the low hanging fruit as it is straightforward to process if you have the right data input you can automate it very quickly. The question is does parametric insurance require a blockchain? In most cases probably not, but there are some where it does. In those cases where it makes sense from a consumer perspective to buy a product where they want to make sure the insurer could not stop the policy from being executed.   Your Turn Thank you, Magda, for this fireside chat and for sharing your views on the new stack. If you’d like to meet Magda, make sure to attend the upcoming Blockchain for Insurance Conference here in London on the 18thto 19thof June 2019.

<p>In this exciting podcast, our 50th, we had the great pleasure of having <a href="https://www.linkedin.com/in/magdalena-ramada-sarasola-phd-73560210/" rel="nofollow" target="_blank">Magda Ramada Sarasola</a>, EMEA Insurtech Innovation Leader, at <a href="https://www.willistowerswatson.com" rel="nofollow" target="_blank">Willis Towers Watson</a> return to Insureblocks. In this fireside chat we discussed the emergence of a new stack – the convergence of blockchain, AI, IoT, big data, machine learning and robotics.</p> <p>This podcast sits at the epicentre of a pivot we’re doing at Insureblocks for 2019. In addition to reporting stories on blockchain within the insurance industry, Insureblocks is going to embrace three new themes:</p> <ul> <li>Cover new industries: finance, supply chain logistics, food and agriculture, automobile and transportation, and healthcare. The aim is to investigate their blockchain learnings and facilitate the sharing of best practice across industries</li> <li>Investigate how blockchain sits with this new technology stack that includes AI, IoT, machine learning, big data, and robotics. We believe  that while they’re noteworthy the potential these technologies have individually is limited but once combined as a stack there is the “multiplier” effect to their potential</li> <li>Deep dive into the legal and regulatory blockchain environment and of course best practices for establishing effective governance within blockchain networks</li> </ul> <p> </p> <h2>What is Blockchain?</h2> <p>In the initial days blockchain was often referred to as a shared excel database. Of course, now we know that blockchain is a lot more than that. Today blockchain can be looked as this ledger that participants who don’t know each other and don’t necessarily trust each other can transact without the need for an overseeing central actor. Transactions of value can be:</p> <ul> <li>Exchanged without being corrupted or changed</li> <li>Validating their authenticity and confirm that whoever is sending the value actually owns it</li> </ul> <p>Consequently for Magda, blockchain is a sociological innovation. It enables peer-to-peer markets to work without centralised authorities. This has impact not just onto the peer-to-peer world but also onto the enterprise and business world whose ecosystems are highly dysfunctional. It gives enterprises peer-to-peer enablement which makes blockchain so interesting.</p> <p>It’s a new governance paradigm that changes the way we organise markets and transactions of value in the broadest sense of the word (i.e. digital and physical assets).</p> <p> </p> <h2>Data the lifeblood of insurance</h2> <p>August last year, Insureblocks interviewed <a href="https://www.linkedin.com/in/bill-pieroni-99740670/" rel="nofollow" target="_blank">Bill Pieroni</a>, CEO of <a href="https://www.acord.org/" rel="nofollow" target="_blank">ACORD</a>– (<a href="https://insureblocks.com/ep-21-acord-data-standards-for-blockchain-in-insurance/" rel="nofollow" target="_blank">Ep. 21 ACORD: data standards for blockchain in insurance</a>) where he stated “Data is the lifeblood of the insurance industry, which fundamentally works by examining data to quantify risk”.  Over the last few years the nature, type and amount of data that is becoming available to the insurance industry has radically changed. <a href="https://www.linkedin.com/in/sandip-patel-8b2450/" rel="nofollow" target="_blank">Sandip Patel</a>, <a href="https://www.ibm.com/industries/uk-en/insurance/" rel="nofollow" target="_blank">Global Managing Director for insurance </a>from <a href="https://www.ibm.com/uk-en/?ar=1" rel="nofollow" target="_blank">IBM</a>, stated that on Insureblocks that “<a href="https://insureblocks.com/ep-40-ibms-2019-insurance-predictions/" rel="nofollow" target="_blank">Data is the new natural resource</a>” and he mentioned three important points:</p> <ul> <li>Volume of data is changing – 2.5 quintillion (a thousand raised to the power of six {1018}) bytes of data is produced on a daily basis (as reported by <a href="https://www.forbes.com/sites/bernardmarr/2018/05/21/how-much-data-do-we-create-every-day-the-mind-blowing-stats-everyone-should-read/#4bae6de560ba" rel="nofollow" target="_blank">Forbes in May 2018</a>)</li> <li>Type of data from both structured and unstructured</li> <li>Temporal factor of data</li> </ul> <a href="http://insureblocks.com/wp-content/uploads/2019/03/18-domo-data-never-sleeps-6.png" rel="nofollow" target="_blank"></a><p>Source: Domo – Data Never Sleeps 6.0</p> <p>Magda recognises the “mind-blowing” amount of data that is being produced on a regular basis that it is very difficult to define what the actuarial value of that data is. Insurance industry was quite late to embracing big data. One of the reasons was that they didn’t have enough transactional data at a high frequency like ecommerce does for example. That has changed, over the last few years, as the insurance industry recognises that there is a lot of data that it doesn’t own that is being generated by other players that has been proven to actually add value in assessing the riskiness of an individual or of a certain asset / situation.</p> <p>However due to the large amount of data that is produced it is important to have a clear data strategy that understands:</p> <ul> <li>Type of data you have / don’t have</li> <li>Type of data you need and where to get it</li> <li>Knowing how to structure that data</li> <li>How to make best use of that data</li> <li>What that data adds in value as opposed to what you already have</li> <li>The necessary infrastructure to deal with the data and secure the data</li> </ul> <p> </p> <h3>The Netflix paradigm</h3> <p><a href="http://insureblocks.com/wp-content/uploads/2019/03/Netflix-Paradigm.png" rel="nofollow" target="_blank"></a></p> <p>For Magda, the insurance industry may be facing what she calls the “Netflix paradigm”.</p> <p>What’s driving all of the insurance industry’s pillars of innovation is data and how we use that data. The problem is that most of the data is not owned by the insurance industry. Partnerships are made to access data from Fitbit, Under Armour, Apple Watch, and many others. It’s really difficult to price that data today, because data is not distributed and it’s sitting in centralized repositories that are owned by different actors.</p> <p>Not so long ago, Netflix was able to stream a lot of movies that it didn’t own. However, when the market increasingly used streaming and binge watching on Netflix, that became the prevailing business model that cannibalised the channels that traditional content owners had. This forced the traditional content owners to raise their price for their content in order to eat into Netflix’s margins.  However, Netflix had anticipated that move and had already started producing its own content and has now become one of the main content generators globally. Why? Because they were sitting on lots of data about behaviour about what people watched and when and they were able to use that to generate very targeted content.</p> <p>Today the insurance industry is able to access data it doesn’t own from third parties like Fitbit. However, at some point the value of the data will be clear and insurance players may not be able to access that data anymore.</p> <p> </p> <h2>The new stack</h2> <p><a href="http://insureblocks.com/wp-content/uploads/2019/03/The-New-Stack-1.png" rel="nofollow" target="_blank"></a></p> <p>Next year there is an estimated 20-25 billion IoT devices coming online. All these devices will produce raw data which we aren’t able to process into intelligence. Not only that but they’re being communicated on the internet which is insecure and open to cyber criminal activity.</p> <p>Some innovative insurance companies have been looking at emerging technologies like AI, IoT, machine learning, big data, robotics, drones, telematics and a whole range of other technologies. However these have been looked at individually instead as a new stack and thus the ROI is limited.</p> <p> </p> <h2>Data vaults</h2> <p>At the present moment we are producing a large amount of data which is only going to increase on a yearly basis. Numerous questions arise on how we can keep the data secure, communicate it in a secure way, keep it free from tampering or nefarious actions, and ensure that it can be monetized and used by its rightful owner.</p> <p>Today, whilst you own your data and are in charge of it in some extent, it is being copied and used by companies. There is a need for identity solutions and data self-sovereignty. Unfortunately does solutions are not mature enough today and a new infrastructure is required to enable them. This coupled with the fact that it will take a long time for people to realise the value of their data and how their data is being used.</p> <p>Blockchain can help in bringing a solution by providing its users with the ability to be custodians of their own data. The way this would work is that people will have a data vault which can contain their digital identity, their FitBit data, their driving behaviour and medical data for example.</p> <p>For example, today to get a drink in a bar in the US you have to prove you are over 21 years old and have to show your driver’s license. However, that driver’s license contains your address which you may not wish to share with the bartender. With a secure data vault, that contains your driver’s license, it can essentially automatically validate that you are over 21 without sharing your address. If people have those vaults and objects have their vaults, data becomes an inherent part of every actor in an economy and its individual historical data that cannot be corrupted.</p> <p>A car is an example of an object data vault who streams data. The car can validate its data such as how it is being driven and maintained. The day the car is sold it can be sold with its data vault.</p> <p>Alongside user vaults and object vaults we can also have vaults of behavioural data and many other vaults in the future. For Magda, that is the future where data is being distributed as opposed to centralised and it is secured in a cryptographic manner.</p> <p> </p> <h2>Need for a new infrastructure – blockchain coalition, cross industry and government initiatives</h2> <p>We need to focus on the things that blockchain enables that we cannot do with other technologies. Magda illustrates two key points:</p> <ol> <li>Data stored within a data vault cannot be corrupted even by the owners of the data. So for the first time users can be true custodians of their own data</li> <li>Blockchain frontier – i.e. how the data gets into the vault, that it comes from trustworthy sources such as a bank or a government institution. This will require a new infrastructure that can connect all these validators to an immutable and distributed ledger.</li> </ol> <p>For example if you go into a bank that bank will have systems where they can look at your credit worthiness, they look at your behaviour, they look at Equifax and then they will validate the data. If they put that into your vault whenever you go to another bank, they don’t have to repeat it, as the KYC would already have been done from a trusted source. As it is stored into your data vault they will also know that the data hasn’t been tampered with.</p> <p>For this to happen it will require blockchain coalitions and cross industry and government initiatives to build the necessary infrastructure.</p> <p> </p> <h2>Oracles and IoT the weakest link?</h2> <p>When looking at innovation in general and specifically at the new stack we realise that it isn’t just about blockchain. Blockchain is dependent upon getting reliable validated data into it. These comes from oracles which can take the form of IoT devices. Securing real-time data streams from IoT is not easy. As you cannot corrupt the smart contracts on the blockchain there is a clear case for trying to corrupt the oracles. There is a need to secure the oracles.</p> <p> </p> <h2>Maximising ROI by moving from individual technologies to the new Stack</h2> <p>There is a clear business case for merging these emerging technologies into a new stack. These technologies are doing very different things and if you really want to have a quantum leap in terms of how you develop a new business model or enable a new way of doing things, you need the combination, you need the new stack.</p> <p>IoT are a great source of instant access to data. Machine learning and computer vision can extract data from numerous sources such as what is your sentiment from micro facial expressions to the distress in your voice. Machine learnings and certain algorithms are critical for data ingestion and for the analytics of that data.</p> <p>Big data implies that we are sitting on a very large amount of data ready for us to use. The reality though isn’t quite that. The data isn’t ready. It needs to be structured, it needs to be cleaned from what is noise and what is valuable. For that you need advanced analytic tools, machine learning, AI, computer vision augmented related to be able to incorporate things like a human behaviour with the data and the physical reality around them.</p> <p>All these technologies really work well in combination. Blockchain enables a way of having distributed markets and distributed value and interactions with people without them being centralised. For that to happen you need to know who the people are, how they behave and you need to understand them. This requires a smart contract to be truly smart. It can only achieve this by having a layer of machine learning that has access to data for it to learn from.</p> <p>Thus, to maximise ROI we need to ensure that we look at the business case and then determine what set of technologies is appropriate for that business case. It may be a small set of technologies, it may be the entire stack or it may be legacy technology. The key is to always start from the business case and not to look for a problem that this technology can answer.</p> <p> </p> <h2>Future of risk and its pricing</h2> <p>Having the technologies from the new stack and hyper granular data sitting on those data vaults we have what Magda calls fourth generation solutions that can react in time to events and to behaviour. This means in the future we should be able to have products that adapt in their structure as in clauses what they cover, what they don’t and price themselves in an almost real-time fashion.</p> <p>Another future possibility is one where for certain types of risks and products we may not need an underwriter to actually underwrite. For example, future car insurance will be on a smart contract that can read exactly how the car is being driven, used, and maintained. The smart contract will also understand the driver’s driving patterns and automatically price the risk.</p> <p>You can neutralise the risk through a coded mutual for certain type of risks, where you have smart contracts dealing with pricing the risk, assessing the risk, pricing risk, pulling it, generating a vehicle like an insurance security and placing it in a distributed capital market. Part of the risk for that car insurance can be accepted by individuals around the world such as one in China or in Australia that have a certain risk appetite that has been assessed by their respective smart contracts. In such a future you are bridging the risk to capital journey in a decentralised and automated way.</p> <p> </p> <h2>Parametric insurance</h2> <p>Parametric insurance is the low hanging fruit as it is straightforward to process if you have the right data input you can automate it very quickly. The question is does parametric insurance require a blockchain? In most cases probably not, but there are some where it does. In those cases where it makes sense from a consumer perspective to buy a product where they want to make sure the insurer could not stop the policy from being executed.</p> <p> </p> <h2>Your Turn</h2> <p>Thank you, Magda, for this fireside chat and for sharing your views on the new stack. If you’d like to meet Magda, make sure to attend the upcoming <a href="https://ter.li/phnzvh" rel="nofollow" target="_blank">Blockchain for Insurance Conference here in London on the 18thto 19thof June 2019</a>.</p>

Ep.50 – The New Stack – Convergence of blockchain, AI, IoT, big data and a lot more

Raghavendra Kulkarni, is responsible for developing new Innovation Strategies and Business Ecosystems at Bosch. In this podcast we discuss not just internet of things (IoT) but also the concept of Economy of Things and how blockchain is an enabler for combining IoT devices to business models.   What is blockchain? How we perceive Blockchain within Bosch. Three aspects to blockchain:  Decentralisation Immutability Exchange of consensus – collaboration  Web 2.0 has created centralised platform monopolies. Internet of things (IoT) coupled with a decentralised ledger operates well within a decentralised ecosystem. The second aspect is immutability where you can have an immutable trail of an identity or of data. The third aspect is where you have consensus which is driven by collaboration. In principle what Bosch believes in is blockchain as a technology which will enable decentralised algorithmic consensus in the context of things.   What is Internet of Things (IoT)? Raghavendra looks at Maslow’s Hierarchy of Needs for things and has identified three levels: IoT can be looked from there levels:  First level is you look at a physical device. When the device is connected you look at what are the attributes of that device when it is connected to the web. The second level is making the connected device smart where you enable it to have automation attributes. The third level is making the device autonomous.  Raghavendra believes the IoT is all about the connection of the physical into the digital world. IoT sits in all three aspects of the digital world:  Edge – the connection between the physical object and the activities around that physical object are Middleware – is where IoT have to operate into systems of subsystems Infrastructure – the pure data    Blockchain and IoT Bosch believes blockchain will play a very important role in enabling things from automation to autonomic. IoT has enabled the automation of a number of things. Where blockchain comes in, is in enabling those autonomous devices to make decisions on their own, by making these devices into economic ones. That is the game changer opportunity in combining blockchain with IoT. Bosch as a company predominantly operates as a company in sensor software and services. In the context of blockchain, Bosch’s entire pursuit has been to enable sensing devices to become economic agents. When talking about economic agents, it’s about deriving value from those sensing devices, settling a value when you settle a transaction. Bosch believes blockchain would help connected smart devices become economic devices.   Bosch – Economy of Things    On the 15th of May 2019 at the “ConnectedWorld Event” in Berlin, Bosch announced a tagline “from the Internet of Things to the Economy of Things”. Raghavendra explained that when we talk about IoT it is really a conversation that is restricted to the technology of devices being connected. Economy of things is the principle of taking a technology and combining it to a business model. An example Raghavendra uses is if you take a machine and create a tender for it that states that for this machine to do an activity today it would cost $10. The operator would have to create cycles and set it all up. In an economy of things scenario, the machine could consider its own resources and availability and broadcast to a network its own contracts and availability. Once agreement is made it can also settle its own transactions. Additionally, at Bosch they believe the acceleration of AI adoption will happen if it is on the blockchain. With blockchain AI gets the provenance of data, the provenance of the models and if the AI is self-learning or has unsupervised algorithms it resides on the ledger.   Democratising the internet Over the last decade the internet as a technology has really commodities the hardware. Whether it is a car or a machine the value that these things have in the entire value chain the control point has moved from things to a central platform with Web 2.0. With the advent of blockchain or decentralised capability that this technology delivers, Bosch believe that the differentiation that the things can provide can be really taken back. Raghavendar doesn’t believe there is enough motivation for people who are working at the things level to just enable IoT to sense and provide data back to the platform monopolies. With blockchain you can create an incentivization model for all IoT devices on the value chain to contribute value and to make them accountable. When it comes to incentivization models, blockchain provides the opportunity for tokenization. Raghavendra uses the example of a logistic use case where in a Web 2.0 world a parcel that is moved from A to B is considered a transaction. In a blockchain world that transaction can be made of multiple tokens. Every participant in the transaction can incentivized via tokens to add further value.   Bosch’s blockchain use case: food provenance – “Crypto Cow”  This blockchain use case is about food provenance, with regards the provenance of milk. There are two dimensions to this use case:  Production of the milk – the farmer ecosystem and the cow, the “crypto cow” Transportation of the milk from where it was produced to the retail store  For the first dimension, the crypto cow, is where for the farmer the calf is a Bitcoin. In the entire life cycle of the cow the farmer would like to know what percentage of milk it generates and how he can be incentivized for that. On the other side he can use this data of his cow for various other purposes. For example, you have participants who sell to the farmer and participants who buy from the farmer. Bosch has created a data market place on a ledger for the farmer where he can put his data of his herd onto the blockchain. Participants who sell to the farmer can be veterinarian doctors, insurance companies, seed producers, financial institutions and so on. A veterinarian doctor for example can access the data on the herd and if he detects any changes to the milk production he can proactively call the farmer to investigate if there any kind of sickness to the cows or if there have been any changes to the feed. Additionally, financial institutions can also access the data regarding the health of the herd, forecast milk production and if necessary provide financial aid to the farmer whether it is for expansion or for maintaining the well-being of the cow. What is essentially happening is that the farmer provides data on this blockchain data marketplace and third-party providers can proactively provide services based on that data. For the second dimension, Bosch has many sensors that monitor the temperature of the milk where it is collected in the barn, to its transportation unit and ultimately to where it is processed. All that data is uploaded onto the blockchain with numerous various parameters regarding temperature, humidity and other criteria. A live implementation has been done in Norway with TINE AS the largest producer, distributor and exporter of dairy products.   Bosch’s blockchain use case: pharmaceuticals – serialization drug tracking Bosch is working on a POC, proof of concept, on the serialize drug tracking which is essentially tracking drug provenance. There are two business drivers for this POC:  Recall management of medicines which need to be shipped back to the pharmaceutical company When the dispenser of the medicine wants to access the entire trace of the medicine from when it was manufactured to the point of the condition monitoring    Trusted IoT Alliance  Bosch is part of the Trusted IoT Alliance which is a new open source software foundation born to support the creation of a secure, scalable, interoperable, and trusted IoT ecosystem. The Trusted IoT Alliance has launched two challenges a Smart eMobility Challenge in October 2018 and a Smart Construction challenge in February 2019.   Smart eMobility Challenge When you look at blockchain and a vehicle there are two dimensions to it:  In-vehicle which means the software in the vehicle, the parts in the vehicle, the maintenance of the vehicle and all other related activities of the vehicle Vehicle ecosystem  Blockchain would become a business operating system for a vehicle along those two dimensions. The Smart eMobility Challenge was a hackathon related around the ledger for the vehicle. How is the ledger designed for various purposes: software provenance, vehicle wallets (in terms of electric vehicle charge) and how the vehicle would participate with various stakeholders such as energy providers, retailers, suppliers and OEMs like Daimler and BMW.   Smart Construction Challenge The challenge looks at the complete property lifecycle, from the initial planning to the operation by a Facility Management Company (FMC). Contestants will provide solutions that address one of the three use cases: Construction Assurance, Track and Trace for Onsite Logistics, and Smart Worker Equipment.   Future blockchain adoption Raghavendra’s personal opinion is that there isn’t going to be a complete public blockchain where all big industries are going to work and collaborate onto it. That potentially could happen in the long terms but what he expects to happen more likely in the short to medium terms are founder led blockchains. Which means to say that, as a founder, you are governing and sponsoring a ledger with an intention of automating the business processes. In the midterm, Raghavendra sees more of a consortium driven blockchain, whilst the long term is where we could see cross industry blockchain activity. In terms of industries, Raghavendra sees logistics as the most likely industry to grow the fastest in terms of blockchain adoption for fundamentally two reasons:  Shared business processes and shared data Providing transparency and the provenance where there is a lot of opaqueness in the entire supply chain  Healthcare and Life Sciences is another industry, Raghavendra sees becoming a leader in blockchain adoption as there is an abundance of data that can be used on a ledger for the benefit of drug discovery. The third industry is automotive as being a leader in blockchain adoption, especially due to the eMobility aspect and where the car becomes part of a business ecosystem. 

<p><a href="https://www.linkedin.com/in/raghavendra-kulkarni-b365763/" rel="nofollow" target="_blank">Raghavendra Kulkarni</a>, is responsible for developing new Innovation Strategies and Business Ecosystems at <a href="https://www.bosch.com" rel="nofollow" target="_blank">Bosch</a>. In this podcast we discuss not just internet of things (IoT) but also the concept of Economy of Things and how blockchain is an enabler for combining IoT devices to business models.</p> <p> </p> <h2>What is blockchain?</h2> <p>How we perceive Blockchain within Bosch. Three aspects to blockchain:</p> <ul> <li>Decentralisation</li> <li>Immutability</li> <li>Exchange of consensus – collaboration</li> </ul> <p>Web 2.0 has created centralised platform monopolies. Internet of things (IoT) coupled with a decentralised ledger operates well within a decentralised ecosystem. The second aspect is immutability where you can have an immutable trail of an identity or of data. The third aspect is where you have consensus which is driven by collaboration. In principle what Bosch believes in is blockchain as a technology which will enable decentralised algorithmic consensus in the context of things.</p> <p> </p> <h2>What is Internet of Things (IoT)?</h2> <p>Raghavendra looks at Maslow’s Hierarchy of Needs for things and has identified three levels:</p> <p>IoT can be looked from there levels:</p> <ol> <li>First level is you look at a physical device. When the device is connected you look at what are the attributes of that device when it is connected to the web.</li> <li>The second level is making the connected device smart where you enable it to have automation attributes.</li> <li>The third level is making the device autonomous.</li> </ol> <p>Raghavendra believes the IoT is all about the connection of the physical into the digital world.</p> <p>IoT sits in all three aspects of the digital world:</p> <ol> <li>Edge – the connection between the physical object and the activities around that physical object are</li> <li>Middleware – is where IoT have to operate into systems of subsystems</li> <li>Infrastructure – the pure data</li> </ol> <p> </p> <h2>Blockchain and IoT</h2> <p>Bosch believes blockchain will play a very important role in enabling things from automation to autonomic.</p> <p>IoT has enabled the automation of a number of things. Where blockchain comes in, is in enabling those autonomous devices to make decisions on their own, by making these devices into economic ones. That is the game changer opportunity in combining blockchain with IoT.</p> <p>Bosch as a company predominantly operates as a company in sensor software and services.</p> <p>In the context of blockchain, Bosch’s entire pursuit has been to enable sensing devices to become economic agents. When talking about economic agents, it’s about deriving value from those sensing devices, settling a value when you settle a transaction. Bosch believes blockchain would help connected smart devices become economic devices.</p> <p> </p> <h2>Bosch – Economy of Things</h2> <p></p> <p> </p> <p>On the 15th of May 2019 at the “<a href="https://bosch-connected-world.com/" rel="nofollow" target="_blank">ConnectedWorld Event</a>” in Berlin, Bosch announced a tagline “from the Internet of Things to the Economy of Things”.</p> <p>Raghavendra explained that when we talk about IoT it is really a conversation that is restricted to the technology of devices being connected. Economy of things is the principle of taking a technology and combining it to a business model.</p> <p>An example Raghavendra uses is if you take a machine and create a tender for it that states that for this machine to do an activity today it would cost $10. The operator would have to create cycles and set it all up. In an economy of things scenario, the machine could consider its own resources and availability and broadcast to a network its own contracts and availability. Once agreement is made it can also settle its own transactions.</p> <p>Additionally, at Bosch they believe the acceleration of AI adoption will happen if it is on the blockchain. With blockchain AI gets the provenance of data, the provenance of the models and if the AI is self-learning or has unsupervised algorithms it resides on the ledger.</p> <p> </p> <h2>Democratising the internet</h2> <p>Over the last decade the internet as a technology has really commodities the hardware. Whether it is a car or a machine the value that these things have in the entire value chain the control point has moved from things to a central platform with Web 2.0. With the advent of blockchain or decentralised capability that this technology delivers, Bosch believe that the differentiation that the things can provide can be really taken back.</p> <p>Raghavendar doesn’t believe there is enough motivation for people who are working at the things level to just enable IoT to sense and provide data back to the platform monopolies. With blockchain you can create an incentivization model for all IoT devices on the value chain to contribute value and to make them accountable.</p> <p>When it comes to incentivization models, blockchain provides the opportunity for tokenization. Raghavendra uses the example of a logistic use case where in a Web 2.0 world a parcel that is moved from A to B is considered a transaction. In a blockchain world that transaction can be made of multiple tokens. Every participant in the transaction can incentivized via tokens to add further value.</p> <p> </p> <h2>Bosch’s blockchain use case: food provenance – “Crypto Cow”</h2> <p></p> <p>This blockchain use case is about food provenance, with regards the provenance of milk. There are two dimensions to this use case:</p> <ul> <li>Production of the milk – the farmer ecosystem and the cow, the “crypto cow”</li> <li>Transportation of the milk from where it was produced to the retail store</li> </ul> <p>For the first dimension, the crypto cow, is where for the farmer the calf is a Bitcoin. In the entire life cycle of the cow the farmer would like to know what percentage of milk it generates and how he can be incentivized for that. On the other side he can use this data of his cow for various other purposes. For example, you have participants who sell to the farmer and participants who buy from the farmer. Bosch has created a data market place on a ledger for the farmer where he can put his data of his herd onto the blockchain.</p> <p>Participants who sell to the farmer can be veterinarian doctors, insurance companies, seed producers, financial institutions and so on. A veterinarian doctor for example can access the data on the herd and if he detects any changes to the milk production he can proactively call the farmer to investigate if there any kind of sickness to the cows or if there have been any changes to the feed.</p> <p>Additionally, financial institutions can also access the data regarding the health of the herd, forecast milk production and if necessary provide financial aid to the farmer whether it is for expansion or for maintaining the well-being of the cow. What is essentially happening is that the farmer provides data on this blockchain data marketplace and third-party providers can proactively provide services based on that data.</p> <p>For the second dimension, Bosch has many sensors that monitor the temperature of the milk where it is collected in the barn, to its transportation unit and ultimately to where it is processed. All that data is uploaded onto the blockchain with numerous various parameters regarding temperature, humidity and other criteria.</p> <p>A live implementation has been done in Norway with <a href="https://www.tine.no/english" rel="nofollow" target="_blank">TINE AS</a> the largest producer, distributor and exporter of dairy products.</p> <p> </p> <h2>Bosch’s blockchain use case: pharmaceuticals – serialization drug tracking</h2> <p>Bosch is working on a POC, proof of concept, on the serialize drug tracking which is essentially tracking drug provenance. There are two business drivers for this POC:</p> <ul> <li>Recall management of medicines which need to be shipped back to the pharmaceutical company</li> <li>When the dispenser of the medicine wants to access the entire trace of the medicine from when it was manufactured to the point of the condition monitoring</li> </ul> <p> </p> <h2>Trusted IoT Alliance</h2> <p></p> <p>Bosch is part of the <a href="https://www.trusted-iot.org/" rel="nofollow" target="_blank">Trusted IoT Alliance</a> which is a new open source software foundation born to support the creation of a secure, scalable, interoperable, and trusted IoT ecosystem.</p> <p>The Trusted IoT Alliance has launched two challenges a Smart eMobility Challenge in October 2018 and a Smart Construction challenge in February 2019.</p> <p> </p> <h3>Smart eMobility Challenge</h3> <p>When you look at blockchain and a vehicle there are two dimensions to it:</p> <ol> <li>In-vehicle which means the software in the vehicle, the parts in the vehicle, the maintenance of the vehicle and all other related activities of the vehicle</li> <li>Vehicle ecosystem</li> </ol> <p>Blockchain would become a business operating system for a vehicle along those two dimensions. The Smart eMobility Challenge was a hackathon related around the ledger for the vehicle. How is the ledger designed for various purposes: software provenance, vehicle wallets (in terms of electric vehicle charge) and how the vehicle would participate with various stakeholders such as energy providers, retailers, suppliers and OEMs like Daimler and BMW.</p> <p> </p> <h3>Smart Construction Challenge</h3> <p>The challenge looks at the complete property lifecycle, from the initial planning to the operation by a Facility Management Company (FMC). Contestants will provide solutions that address one of the three use cases: Construction Assurance, Track and Trace for Onsite Logistics, and Smart Worker Equipment.</p> <p> </p> <h2>Future blockchain adoption</h2> <p>Raghavendra’s personal opinion is that there isn’t going to be a complete public blockchain where all big industries are going to work and collaborate onto it. That potentially could happen in the long terms but what he expects to happen more likely in the short to medium terms are founder led blockchains.</p> <p>Which means to say that, as a founder, you are governing and sponsoring a ledger with an intention of automating the business processes.</p> <p>In the midterm, Raghavendra sees more of a consortium driven blockchain, whilst the long term is where we could see cross industry blockchain activity.</p> <p>In terms of industries, Raghavendra sees logistics as the most likely industry to grow the fastest in terms of blockchain adoption for fundamentally two reasons:</p> <ul> <li>Shared business processes and shared data</li> <li>Providing transparency and the provenance where there is a lot of opaqueness in the entire supply chain</li> </ul> <p>Healthcare and Life Sciences is another industry, Raghavendra sees becoming a leader in blockchain adoption as there is an abundance of data that can be used on a ledger for the benefit of drug discovery.</p> <p>The third industry is automotive as being a leader in blockchain adoption, especially due to the eMobility aspect and where the car becomes part of a business ecosystem. </p>

Ep.84 – Bosch’s Economy of Things

Atlas Insurance is the first European insurer to convert to a protected cell company. In this podcast, Ian-Edward Stafrace, Chief Strategy Officer at Atlas Insurance in Malta, talked to us about the advantages an insurance cell can provide to Insurtechs to rapidly innovate within the insurance industry by effectively becoming an insurance carrier themselves without all of the overheads and capital requirements. Etherisc, the blockchain insurtech company, used Atlas’s platform to rapidly prototype their flight delay insurance product.   About Ian-Edward Stafrace &amp; Atlas Ian joined Atlas back in 2000 as a commercial underwriter. He rapidly got enamored by insurance by its logical approach since Ian has a technology background. Atlas is one of the leading insurance players in Malta and is structured as a protective cell company. Ian’s role evolved becoming a business intelligence analyst, a risk manager, a compliance officer, a data protection officer, to now as the Chief Strategy Officer. In 2006 Atlas converted from being an insurance company into a protected cell company, becoming the first European insurer to do that. We first met Ian at the D1Conf on the 5th of November 2019:    What is blockchain? Ian defines blockchain from the set of benefits that are derived from it. There are three aspects:  Distributed database Smart contracts Potential for P2P activities  Distributed database gives multiple organisations, one immutable version of the truth, one database, eliminating all reconciliation processes that today tend to happen manually between those parties. This brings efficiency and transparency. The insurance industry has a very long value chain from insureds, brokers, insurers, reinsurers brokers, reinsurers and data providers such as telematics for cars and health care providers for health. Having a common distributed database brings numerous efficiencies and having a smart contract on top of it we have the potential for automated self-executing processes. Smart contracts enable automated self-execution of claims, pricing determination, limits setting and transactions themselves which can happen away from the organization’s core systems in a way that is decentralised and trusted because the rules would have been set in advance of the events happenings. This is ideal for parametric insurance as there is a trigger, which can create a deterministic action upon a set of agreed rules. The P2P side is more theoretical of bringing the insureds and the capital providers closer to each other. Automated matching of customers, carriers and investors depending on risk appetite.   What is a Protected Cell Company (PCC)? Protected cell legislation is found around the world in various jurisdictions sometimes called, segregated accounts companies or incorporated cell companies. Malta is the only full EU member state that has protected cell legislation applicable for insurance. The UK has insurance linked securities. PCC as a structure has a single legal entity but its shareholding is structured in a way where cells can have their own separate set of shareholders which are completely protected from the liabilities of any other cell or the core. This means that the PCC can act as a hub or a platform with a single insurance license. Third parties can invest in their own cells effectively meaning they can own a piece of Atlas. Their investment will only be used for their business. When transacting with customers it is always made very clear which cell they are dealing with. From a tax perspective the cells are considered as though they are separate companies. In a way it means that each cell is a mini insurance company that is built in a low cost manner riding on the insurance license of the PCC and on its platform. The PCC platform provides to the cell the hosting, risk management, compliance, internal audit, actuarial and regularly reporting. Each cell can thus focus on their specific business model. There are clearly cost benefits from having a standalone company but also there are capital benefits. From a capital perspective the cell only needs to focus on the capital needed for its business model. The core PCC provides the absolute minimum floor capital requirements that is required at a EU level. Each cell contributes what additional capital it requires. This is similar to the model provided by the “rent-a-captive” model which has the same mechanisms and protections that is done via a contract. The difference is that in a PCC those protections are enshrined in the law of the country therefore protecting the investments of the cells.   Cells opportunity for Insurtechs Some insurtechs use the cell as a vehicle for starting to write insurance and potentially scaling up within the cell. Others would have scaled up within a cell and then departed the cell to create a standalone insurance company. A cell can act as an incubator or because of its cost efficiencies some prefer to stay within the cell environment. In Maltese Law there isn’t a minimum capital requirement for a cell. However, the cell needs to meet its solvency capital requirements which depends on the size of the business. If you have a €1m worth of premiums you could end having a capital requirement of €200k to €300k. In comparison an insurance stand alone company in Europe, according to Solvency 2 would require €3.7m capital if it was writing liability business and €2.7m if it wasn’t writing liability business. This capital requirement represents a massive barrier entry to Insurtechs. Having an insurance cell enables the Insurtechs to access the reinsurance market. For the last few years reinsurers have shown a lot of interest in Insurtechs. Insurtechs have had difficulty finding friendly carriers to carry the risks that they wish to experiment with and grow. Once a cell finds a support reinsurance they can move away from being an intermediary, because very often Insurtechs become intermediaries for another insurer. By creating their own cell, an Insurtech effectively becomes their own carrier having access to the reinsurance market without having to share their intellectual property with a large insurance incumbent. Finally, being able to rapidly become an insurance carrier at a very low cost, accessing the reinsurance market to launch the insurtech’s product enables the insurtechs to bring in venture capital and other capital sources having demonstrated usage of their product. Of course this also helps access more reinsurance support.   Maltese cell jurisdictions A cell registered in Malta can passport its services across Europe as Malta is a full EU member state. Nevertheless the PCC, with which the cell is hosted by, has to notify the EU country in which it wishes to passport to and it needs to ensure that it adheres to the country’s own flavor of consumer regulation. For example insurance premium taxes may differ from country to country within the EU. When the PCC has successfully passported to one EU country for a cell, all other cells can benefit from that.   Blockchain Insurtech cell case study: Etherisc Etherisc (Etherisc podcast on Insureblocks) was one of the first blockchain insurtech companies to engage with Atlas. Atlas provided Etherisc with the insurance license for them to test out their concept in a small limited way. When Etherisc approached Atlas to test out their flight delay insurance, Atlas was already doing travel insurance locally, it was easy for Atlas to do a pilot from its core within its existing insurance license and operation. Instead of creating cell straight away they used their existing core business to do a live test with their consumers. For both parties this exercise was a learning curve. From Atlas it was about understanding blockchain whilst for Etherisc it was from the insurance side. The first challenged they faced was in designing this parametric flight delay insurance with GDPR in mind because GDPR wasn’t quite designed with blockchain in mind. The second challenge was with regards accepting cryptocurrency. Ian believes that they were the first insurance company to accept cryptocurrency as a means for payment for the premium and for claims payment in Ether if premiums were paid in Ether. Ether presented a number of challenges including the volatility of the currency. Steps were undertaken to ensure there was enough mitigation around collateralization. Shortly after prompted by EU warnings coincidentally at the time, the regulator expressed concerns and actually prohibited insurers from using cryptocurrencies.   “Innovation through regulation”  Malta, also known as blockchain island has a focus on Fintech, on AI and on blockchain with a concerted effort across the various regulatory bodies. The Malta Digital Innovation Authority, has established at a law a joint committee which is here to facilitate the adoption of blockchain and openness to blockchain across various authorities. At the moment the Malta Financial Services Authority is going through a consultation process on the establishment of a sandbox. One of the mottos the Maltese regulators have is “innovation through regulation”.

<p><a href="https://www.atlas.com.mt/" rel="nofollow" target="_blank">Atlas Insurance</a> is the first European insurer to convert to a protected cell company. In this podcast, <a href="https://www.linkedin.com/in/ACoAAAQ916kBmPXJdf2ZGvSqgw3NhiXax_JXTEA/?lipi=urn%3Ali%3Apage%3Ad_flagship3_company_admin%3BNRqF3oHETKKYQ6t1L2rFQw%3D%3D" rel="nofollow" target="_blank">Ian-Edward Stafrace</a>, Chief Strategy Officer at Atlas Insurance in Malta, talked to us about the advantages an insurance cell can provide to Insurtechs to rapidly innovate within the insurance industry by effectively becoming an insurance carrier themselves without all of the overheads and capital requirements. <a href="https://etherisc.com/" rel="nofollow" target="_blank">Etherisc</a>, the blockchain insurtech company, used Atlas’s platform to rapidly prototype their flight delay insurance product.</p> <p> </p> <h2>About Ian-Edward Stafrace &amp; Atlas</h2> <p>Ian joined<a href="https://www.atlas.com.mt/" rel="nofollow" target="_blank"> Atlas</a> back in 2000 as a commercial underwriter. He rapidly got enamored by insurance by its logical approach since Ian has a technology background. <a href="https://www.atlas.com.mt/" rel="nofollow" target="_blank">Atlas</a> is one of the leading insurance players in Malta and is structured as a protective cell company. Ian’s role evolved becoming a business intelligence analyst, a risk manager, a compliance officer, a data protection officer, to now as the Chief Strategy Officer. In 2006 Atlas converted from being an insurance company into a protected cell company, becoming the first European insurer to do that.</p> <p>We first met Ian at the <a href="https://d1conf.com/" rel="nofollow" target="_blank">D1Conf</a> on the 5th of November 2019:</p> <p></p> <p> </p> <h2>What is blockchain?</h2> <p>Ian defines blockchain from the set of benefits that are derived from it. There are three aspects:</p> <ol> <li>Distributed database</li> <li>Smart contracts</li> <li>Potential for P2P activities</li> </ol> <p>Distributed database gives multiple organisations, one immutable version of the truth, one database, eliminating all reconciliation processes that today tend to happen manually between those parties. This brings efficiency and transparency. The insurance industry has a very long value chain from insureds, brokers, insurers, reinsurers brokers, reinsurers and data providers such as telematics for cars and health care providers for health. Having a common distributed database brings numerous efficiencies and having a smart contract on top of it we have the potential for automated self-executing processes.</p> <p>Smart contracts enable automated self-execution of claims, pricing determination, limits setting and transactions themselves which can happen away from the organization’s core systems in a way that is decentralised and trusted because the rules would have been set in advance of the events happenings. This is ideal for parametric insurance as there is a trigger, which can create a deterministic action upon a set of agreed rules.</p> <p>The P2P side is more theoretical of bringing the insureds and the capital providers closer to each other. Automated matching of customers, carriers and investors depending on risk appetite.</p> <p> </p> <h2>What is a Protected Cell Company (PCC)?</h2> <p>Protected cell legislation is found around the world in various jurisdictions sometimes called, segregated accounts companies or incorporated cell companies. Malta is the only full EU member state that has protected cell legislation applicable for insurance. The UK has insurance linked securities.</p> <p>PCC as a structure has a single legal entity but its shareholding is structured in a way where cells can have their own separate set of shareholders which are completely protected from the liabilities of any other cell or the core. This means that the PCC can act as a hub or a platform with a single insurance license. Third parties can invest in their own cells effectively meaning they can own a piece of Atlas. Their investment will only be used for their business. When transacting with customers it is always made very clear which cell they are dealing with. From a tax perspective the cells are considered as though they are separate companies.</p> <p>In a way it means that each cell is a mini insurance company that is built in a low cost manner riding on the insurance license of the PCC and on its platform. The PCC platform provides to the cell the hosting, risk management, compliance, internal audit, actuarial and regularly reporting. Each cell can thus focus on their specific business model. There are clearly cost benefits from having a standalone company but also there are capital benefits.</p> <p>From a capital perspective the cell only needs to focus on the capital needed for its business model. The core PCC provides the absolute minimum floor capital requirements that is required at a EU level. Each cell contributes what additional capital it requires. This is similar to the model provided by the “rent-a-captive” model which has the same mechanisms and protections that is done via a contract. The difference is that in a PCC those protections are enshrined in the law of the country therefore protecting the investments of the cells.</p> <p> </p> <h2>Cells opportunity for Insurtechs</h2> <p>Some insurtechs use the cell as a vehicle for starting to write insurance and potentially scaling up within the cell. Others would have scaled up within a cell and then departed the cell to create a standalone insurance company.</p> <p>A cell can act as an incubator or because of its cost efficiencies some prefer to stay within the cell environment.</p> <p>In Maltese Law there isn’t a minimum capital requirement for a cell. However, the cell needs to meet its solvency capital requirements which depends on the size of the business. If you have a €1m worth of premiums you could end having a capital requirement of €200k to €300k. In comparison an insurance stand alone company in Europe, according to Solvency 2 would require €3.7m capital if it was writing liability business and €2.7m if it wasn’t writing liability business. This capital requirement represents a massive barrier entry to Insurtechs.</p> <p>Having an insurance cell enables the Insurtechs to access the reinsurance market. For the last few years reinsurers have shown a lot of interest in Insurtechs. Insurtechs have had difficulty finding friendly carriers to carry the risks that they wish to experiment with and grow.</p> <p>Once a cell finds a support reinsurance they can move away from being an intermediary, because very often Insurtechs become intermediaries for another insurer. By creating their own cell, an Insurtech effectively becomes their own carrier having access to the reinsurance market without having to share their intellectual property with a large insurance incumbent.</p> <p>Finally, being able to rapidly become an insurance carrier at a very low cost, accessing the reinsurance market to launch the insurtech’s product enables the insurtechs to bring in venture capital and other capital sources having demonstrated usage of their product. Of course this also helps access more reinsurance support.</p> <p> </p> <h2>Maltese cell jurisdictions</h2> <p>A cell registered in Malta can passport its services across Europe as Malta is a full EU member state. Nevertheless the PCC, with which the cell is hosted by, has to notify the EU country in which it wishes to passport to and it needs to ensure that it adheres to the country’s own flavor of consumer regulation. For example insurance premium taxes may differ from country to country within the EU. When the PCC has successfully passported to one EU country for a cell, all other cells can benefit from that.</p> <p> </p> <h2>Blockchain Insurtech cell case study: Etherisc</h2> <p><a href="https://etherisc.com/" rel="nofollow" target="_blank">Etherisc</a> (<a href="https://insureblocks.com/ep-17-creating-a-decentralised-insurance-model-with-blockchain-smart-contracts-etherisc/" rel="nofollow" target="_blank">Etherisc podcast on Insureblocks</a>) was one of the first blockchain insurtech companies to engage with Atlas. Atlas provided Etherisc with the insurance license for them to test out their concept in a small limited way. When Etherisc approached Atlas to test out their flight delay insurance, Atlas was already doing travel insurance locally, it was easy for Atlas to do a pilot from its core within its existing insurance license and operation. Instead of creating cell straight away they used their existing core business to do a live test with their consumers.</p> <p>For both parties this exercise was a learning curve. From Atlas it was about understanding blockchain whilst for Etherisc it was from the insurance side. The first challenged they faced was in designing this parametric flight delay insurance with GDPR in mind because GDPR wasn’t quite designed with blockchain in mind. The second challenge was with regards accepting cryptocurrency. Ian believes that they were the first insurance company to accept cryptocurrency as a means for payment for the premium and for claims payment in Ether if premiums were paid in Ether.</p> <p>Ether presented a number of challenges including the volatility of the currency. Steps were undertaken to ensure there was enough mitigation around collateralization. Shortly after prompted by EU warnings coincidentally at the time, the regulator expressed concerns and actually prohibited insurers from using cryptocurrencies.</p> <p> </p> <h2>“Innovation through regulation”</h2> <p><a href="http://insureblocks.com/wp-content/uploads/2019/11/Malta-Digital-Innovation-Authority.png" rel="nofollow" target="_blank"></a></p> <p>Malta, also known as blockchain island has a focus on Fintech, on AI and on blockchain with a concerted effort across the various regulatory bodies. <a href="https://mdia.gov.mt/" rel="nofollow" target="_blank">The Malta Digital Innovation Authority</a>, has established at a law a joint committee which is here to facilitate the adoption of blockchain and openness to blockchain across various authorities. At the moment the Malta Financial Services Authority is going through a consultation process on the establishment of a sandbox.</p> <p>One of the mottos the Maltese regulators have is “innovation through regulation”.</p>

Ep.85 – Are insurance cells an opportunity for blockchain Insurtechs?

In this podcast we look at the amazing opportunity reforming contracts with self-executing contracts can have on insurance, distributed ledgers and beyond. To take us through this journey we are joined by Rory Unsworth, who until recently was Swiss Re’s Director at Smart Contracts Counsel. Rory has a background as a UK lawyer with a focus on insurance litigation civil law. In recent years he pivoted towards legal engineering as it is more fun than traditional legal practice because it is about solving new challenges, working in teams and delivering projects. A legal engineer is someone who helps to change legal processes by leveraging and creating adoption. Both of those things, leveraging and creating adoption are tools, based on all types of technology, from text mining to blockchain, AI, semantic, whose purpose is to support lawyers and experts. During his stay at Swiss Re, Rory had the chance to re-engineer the way Swiss Re works around its contracts and manages contract risk. He has now recently left Swiss Re and is moving into the consultancy space.   What is blockchain? Blockchain is a type of distributed ledger. A ledger is a type of record keeping system. It allows you to note the state of your asset or of your transactions with those assets. A distributed ledger, it’s a new concept because it’s shared across a network   What are self-executing contracts? Smart contracts are bits of code that order the code to take action when a contractual condition is satisfied. They’re not actually contracts. It’s a misnomer. They are “if, then” conditions that execute individual actions, usually with a view to automating or driving contractual conditions. And those actions could be payments or value transfers. Now a self-executing contract are like traditional contracts but executed by means of smart contracts. To compare it to the internet, it’s a bit like text with hyperlinks, you got the surface text, but there’s another dimension underneath it which leads to an execution piece.   Example of iTunes When you used to sign up to iTunes you were presented with a massive click to accept contract which apparently was longer than Hamlet by Shakespeare in terms of word count. This was the traditional contract that came with clauses and so forth which limited the number of devices onto which you could share the music you had bought a license for. You could share the music with five devices but in the old style of contract enforcement if you had shared the music with more than five devices you would receive a nasty lawyer letter asking you to cease and desist or they would ask you to pay a fine for breaching that contract. This of course would have been impossible for Apple to impose and would have never succeeded as a business model. Apple removed that friction by using a smart contract to do two things:  Contractual permission: to enable the customer to listen on several devices Contractual prohibition: to block the listening of music on more devices than were allowed.  In that sense contractual enforcement was automated and there was no need for lawyers. The code simply didn’t permit you to breach the contract.   Smart contracts potential to change the legacy landscape Rory likes to use the metaphor of how self-driving cars are going to change the way our roads will look like and how driving will look like, as an experience, to describe the impact smart contracts will have on legacy approaches. Contracting and driving are both complex acts which has the potential to be fully or partially automated with lots of benefits to users. In a future vision, contracts will more or less talk to each other. In a world of autonomous cars, there will be no stop signs and no traffic jams. In the world of smart contracts, the code itself will be programmed to pick up external data points, like in the world of cars, if a speed limit is automatically communicated to the car’s operating system, then the operating system limits the speed accordingly. Smart contracts will communicate with each other, pick up external stimuli and adjust their behavior one to another and interact with each other.  B3i has a similar model built around this kind of interaction but one between insurance and reinsurance companies. So, in the end it won’t just be smart contracts that support the distributed ledger. They’ll have access to other technology like text mining, semantic computing, IoT (Internet of Things) and other data sources. These will all feed the smart contract with digital information for it to act upon. In the in the end state, smart contracts will clearly reduce the role of humans in terms of contract execution and accounting, and give businesses the opportunity to invest in further innovation. So, in the nirvana state, the car drives itself and the contract executes itself.   Reforming commercial contracts Commercial contracts have grown out of control according to Rory. The complexity of the language and the length of the documents have crept upwards as contracts try to be ever more explicit. And now it’s true to say that the garden is overgrown, and we just don’t know where we are with them anymore. The European Corporate Governance Institute published in Nov 2016 a paper entitled “Why Have M&amp;A Contracts Grown? Evidence from Twenty Years of Deals” That study clearly showed that M&amp;A contracts have become much worse in the last 20 years. In the 1990s, contract complexity was at a post graduate grade level 20. Now, it’s at a post-doctoral grade 30. So, you need to have a post-doctoral degree to read them. In other words, understanding of those contracts has been intermediated and can only be done by elites no longer by ordinary business people. In addition, they’ve grown in length by about three times in that same period. A similar thing has happened in insurance and reinsurance. In the London market a move was made to move to so called contract certainty, which essentially means reducing the contextual nature of the contract by increasing the textual nature of the contract. Unfortunately, the outcome was that individual contracts got longer and more complex. When you look at non-standard contracts or when you look at a book that subdivides into sections or lines of business that all have slightly different governance rules and meaning, then contract complexity is compounded. What Rory believes we need is a paradigm shift, if not, two things will happen:  Increased confusion by our contracts Our ability to reorganize contracts with smart contracts and to decode them becomes more remote  However, the main challenge for reforming the current style of contracts is the complacency that exists between insurance, reinsurance, their clients, and regulators. They will all have to be removed from the fallacy that the remedy for unclear contracting is to add words.   Transforming existing book of contracts vs creating a new book for smarter contracts A new line of contract is quite easy to introduce with smart contracts because you’re drafting it from scratch. The parties can just come to an agreement upfront to create contracts with a smart contract where there’s no path dependency. Path dependencies is a very interesting topic in contracting. A recent study by an academic, called Julian Nyarko, at Stanford has proved with research what practitioners have known all along, which is that for existing contract, there’s a significant path dependency, and it’s hard to break away from it. The study found that 40% of contract submissions to the SEC were missing clauses, which the lawyers who drafted them said were essential. So, the lawyers who drafted them said here is the list of topics that I would expect to see in there, and in 40% of the cases, the contracts that they dealt with, did not contain some of those elements.   Digital contract optimization It is a process to try and re-understand books of contracts together with your counterparty. It’s a process that Rory has created to completely reboot the way we view the terms and conditions across a portfolio of contracts. It’s based on two observations:  the first being that it’s very difficult in the short term to change the contracts themselves, that’s the path dependency piece. The second is that there’s a dynamic in a company between the need for consistency of treatment on the one hand and the contextual nature of contracting, on the other hand  Consequently, it is assumed that the contracts can’t be radically changed but instead there’s a method called, digital contract optimization, for decrypting those existing portfolios and using that fresh understanding of them to improve the process of setting up a contract, and then managing risk across the book. The first steps in a digital contract optimization is to digitalize the entity and then ask what clauses does the company have? And what does it think of them? And in what context? So, it’s not so much what is the view of one expert, but what in fact, is the view of the company represented by its most pertinent expert? This creates the playbook. Companies who have a standard data language to describe their various types of clauses can use it as the backbone to start implementing things like automating or enhancing the contract review and creation system. Creating radars and alarm systems. And after that, you can leverage that knowledge to automate your policy analysis in a consistent manner, using text mining or other analysis techniques. The next step, is to start allying that new knowledge about contract content with the value dimension. For example, some contract clauses may shift the value of that contract one way or another. Knowing which contract clauses and categories have value means that a machine can start weighting them to test for importance. Future contracts reviews can thus be limited to looking through machine generated summaries instead of having to review the whole contract again.   Key risks in undertaking a process of digital contract optimization A key risk is around transparency. Whilst transparency allows conscious decision making and improvement in risk management. It also comes with a price tag. The expert finds out that they may have been inconsistent with themselves. The company itself finds its declared positions on some risks or the assumptions it was making about how it was exposed to some risk, don’t match out. The other risk is the human risk around change management. Any kind of digitalization process raises the question around whether or not employees will lose their job or not.   Future impact of self-executing contracts? Once firms have gone through the process of digital contract optimization and we see an increase in legal engineers, Rory believes that firms like B3i will see a massive acceleration in their ability to get scale. At the moment the number of contracts you can put on B3i’s platform is one at a time. The digital optimization process will allow it to be done in bulk to create greater adoption and to start creating exactly the type of ecosystem they’re looking to build.

<p>In this podcast we look at the amazing opportunity reforming contracts with self-executing contracts can have on insurance, distributed ledgers and beyond. To take us through this journey we are joined by <a href="https://www.linkedin.com/in/roryunsworth/" rel="nofollow" target="_blank">Rory Unsworth</a>, who until recently was Swiss Re’s Director at Smart Contracts Counsel.</p> <p>Rory has a background as a UK lawyer with a focus on insurance litigation civil law. In recent years he pivoted towards legal engineering as it is more fun than traditional legal practice because it is about solving new challenges, working in teams and delivering projects.</p> <p>A legal engineer is someone who helps to change legal processes by leveraging and creating adoption. Both of those things, leveraging and creating adoption are tools, based on all types of technology, from text mining to blockchain, AI, semantic, whose purpose is to support lawyers and experts.</p> <p>During his stay at Swiss Re, Rory had the chance to re-engineer the way Swiss Re works around its contracts and manages contract risk. He has now recently left Swiss Re and is moving into the consultancy space.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is a type of distributed ledger. A ledger is a type of record keeping system. It allows you to note the state of your asset or of your transactions with those assets.</p> <p>A distributed ledger, it’s a new concept because it’s shared across a network</p> <p> </p> <h2>What are self-executing contracts?</h2> <p>Smart contracts are bits of code that order the code to take action when a contractual condition is satisfied. They’re not actually contracts. It’s a misnomer. They are “if, then” conditions that execute individual actions, usually with a view to automating or driving contractual conditions. And those actions could be payments or value transfers.</p> <p>Now a self-executing contract are like traditional contracts but executed by means of smart contracts. To compare it to the internet, it’s a bit like text with hyperlinks, you got the surface text, but there’s another dimension underneath it which leads to an execution piece.</p> <p> </p> <h3>Example of iTunes</h3> <p>When you used to sign up to iTunes you were presented with a massive click to accept contract which apparently was longer than Hamlet by Shakespeare in terms of word count. This was the traditional contract that came with clauses and so forth which limited the number of devices onto which you could share the music you had bought a license for. You could share the music with five devices but in the old style of contract enforcement if you had shared the music with more than five devices you would receive a nasty lawyer letter asking you to cease and desist or they would ask you to pay a fine for breaching that contract.</p> <p>This of course would have been impossible for Apple to impose and would have never succeeded as a business model. Apple removed that friction by using a smart contract to do two things:</p> <ul> <li>Contractual permission: to enable the customer to listen on several devices</li> <li>Contractual prohibition: to block the listening of music on more devices than were allowed.</li> </ul> <p>In that sense contractual enforcement was automated and there was no need for lawyers. The code simply didn’t permit you to breach the contract.</p> <p> </p> <h2>Smart contracts potential to change the legacy landscape</h2> <p>Rory likes to use the metaphor of how self-driving cars are going to change the way our roads will look like and how driving will look like, as an experience, to describe the impact smart contracts will have on legacy approaches.</p> <p>Contracting and driving are both complex acts which has the potential to be fully or partially automated with lots of benefits to users.</p> <p>In a future vision, contracts will more or less talk to each other. In a world of autonomous cars, there will be no stop signs and no traffic jams. In the world of smart contracts, the code itself will be programmed to pick up external data points, like in the world of cars, if a speed limit is automatically communicated to the car’s operating system, then the operating system limits the speed accordingly.</p> <p>Smart contracts will communicate with each other, pick up external stimuli and adjust their behavior one to another and interact with each other. <a href="https://b3i.tech/home.html" rel="nofollow" target="_blank"> B3i</a> has a similar model built around this kind of interaction but one between insurance and reinsurance companies. So, in the end it won’t just be smart contracts that support the distributed ledger. They’ll have access to other technology like text mining, semantic computing, IoT (Internet of Things) and other data sources. These will all feed the smart contract with digital information for it to act upon.</p> <p>In the in the end state, smart contracts will clearly reduce the role of humans in terms of contract execution and accounting, and give businesses the opportunity to invest in further innovation. So, in the nirvana state, the car drives itself and the contract executes itself.</p> <p> </p> <h2>Reforming commercial contracts</h2> <p>Commercial contracts have grown out of control according to Rory. The complexity of the language and the length of the documents have crept upwards as contracts try to be ever more explicit. And now it’s true to say that the garden is overgrown, and we just don’t know where we are with them anymore.</p> <p>The <a href="https://ecgi.global/" rel="nofollow" target="_blank">European Corporate Governance Institute</a> published in Nov 2016 a paper entitled “<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2862019#%23" rel="nofollow" target="_blank">Why Have M&amp;A Contracts Grown? Evidence from Twenty Years of Deals”</a></p> <p>That study clearly showed that M&amp;A contracts have become much worse in the last 20 years. In the 1990s, contract complexity was at a post graduate grade level 20. Now, it’s at a post-doctoral grade 30. So, you need to have a post-doctoral degree to read them. In other words, understanding of those contracts has been intermediated and can only be done by elites no longer by ordinary business people. In addition, they’ve grown in length by about three times in that same period.</p> <p>A similar thing has happened in insurance and reinsurance. In the London market a move was made to move to so called contract certainty, which essentially means reducing the contextual nature of the contract by increasing the textual nature of the contract. Unfortunately, the outcome was that individual contracts got longer and more complex.</p> <p>When you look at non-standard contracts or when you look at a book that subdivides into sections or lines of business that all have slightly different governance rules and meaning, then contract complexity is compounded.</p> <p>What Rory believes we need is a paradigm shift, if not, two things will happen:</p> <ol> <li>Increased confusion by our contracts</li> <li>Our ability to reorganize contracts with smart contracts and to decode them becomes more remote</li> </ol> <p>However, the main challenge for reforming the current style of contracts is the complacency that exists between insurance, reinsurance, their clients, and regulators. They will all have to be removed from the fallacy that the remedy for unclear contracting is to add words.</p> <p> </p> <h2>Transforming existing book of contracts vs creating a new book for smarter contracts</h2> <p>A new line of contract is quite easy to introduce with smart contracts because you’re drafting it from scratch. The parties can just come to an agreement upfront to create contracts with a smart contract where there’s no path dependency.</p> <p>Path dependencies is a very interesting topic in contracting. A <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3446206" rel="nofollow" target="_blank">recent study by an academic, called Julian Nyarko</a>, at Stanford has proved with research what practitioners have known all along, which is that for existing contract, there’s a significant path dependency, and it’s hard to break away from it.</p> <p>The study found that 40% of contract submissions to the SEC were missing clauses, which the lawyers who drafted them said were essential. So, the lawyers who drafted them said here is the list of topics that I would expect to see in there, and in 40% of the cases, the contracts that they dealt with, did not contain some of those elements.</p> <p> </p> <h2>Digital contract optimization</h2> <p>It is a process to try and re-understand books of contracts together with your counterparty. It’s a process that Rory has created to completely reboot the way we view the terms and conditions across a portfolio of contracts. It’s based on two observations:</p> <ol> <li>the first being that it’s very difficult in the short term to change the contracts themselves, that’s the path dependency piece.</li> <li>The second is that there’s a dynamic in a company between the need for consistency of treatment on the one hand and the contextual nature of contracting, on the other hand</li> </ol> <p>Consequently, it is assumed that the contracts can’t be radically changed but instead there’s a method called, digital contract optimization, for decrypting those existing portfolios and using that fresh understanding of them to improve the process of setting up a contract, and then managing risk across the book.</p> <p>The first steps in a digital contract optimization is to digitalize the entity and then ask what clauses does the company have? And what does it think of them? And in what context? So, it’s not so much what is the view of one expert, but what in fact, is the view of the company represented by its most pertinent expert? This creates the playbook.</p> <p>Companies who have a standard data language to describe their various types of clauses can use it as the backbone to start implementing things like automating or enhancing the contract review and creation system. Creating radars and alarm systems. And after that, you can leverage that knowledge to automate your policy analysis in a consistent manner, using text mining or other analysis techniques.</p> <p>The next step, is to start allying that new knowledge about contract content with the value dimension. For example, some contract clauses may shift the value of that contract one way or another. Knowing which contract clauses and categories have value means that a machine can start weighting them to test for importance. Future contracts reviews can thus be limited to looking through machine generated summaries instead of having to review the whole contract again.</p> <p> </p> <h2>Key risks in undertaking a process of digital contract optimization</h2> <p>A key risk is around transparency. Whilst transparency allows conscious decision making and improvement in risk management. It also comes with a price tag. The expert finds out that they may have been inconsistent with themselves. The company itself finds its declared positions on some risks or the assumptions it was making about how it was exposed to some risk, don’t match out.</p> <p>The other risk is the human risk around change management. Any kind of digitalization process raises the question around whether or not employees will lose their job or not.</p> <p> </p> <h2>Future impact of self-executing contracts?</h2> <p>Once firms have gone through the process of digital contract optimization and we see an increase in legal engineers, Rory believes that firms like B3i will see a massive acceleration in their ability to get scale. At the moment the number of contracts you can put on B3i’s platform is one at a time. The digital optimization process will allow it to be done in bulk to create greater adoption and to start creating exactly the type of ecosystem they’re looking to build.</p>

Ep.88 – Reforming contracts with self-executing contracts

FLASH

Welcome to another episode in ours News Flash series, where we share the latest developments in the blockchain space, straight off the press. Today we are joined again by David Edwards, CEO of ChainThat, who previously featured in Ep.8 – Building a Blockchain PoC/Pilot, and we welcome Rebecca Oliver, business development director at ChainThat,  to Insureblocks for the first time. About ChainThat David Edwards formed ChaintThat in 2015 with the sole focus to see how blockchain distributed ledger technology can impact commercial speciality insurance and reinsurance. Since there early start ChainThat cover the entire value chain from the placement process to technical and financial accounting, settlement, claims administration and facilities, tax and regulatory reporting. ChainThat has received investment from Xceedance and has now grown to about 30 staff.   Launching the world’s first technology-driven insurance and reinsurance risk and capital exchange ChainThat’s new initiative is to launch in Bermuda the most efficient reinsurance risk and capital exchange in the world called the Bermuda Risk Exchange. Why Bermuda? Bermuda, is home to the ILS and a lot of captives, it has a very proactive government that wants to drive innovation in Fintech and Insurtech. The regulars are one of the leaders with their digital asset regulations and the tokenization of assets. Bermuda has a great community spirit that is keen to innovate and bring a blockchain based solution of the ground. Scope of the Bermuda Exchange – Source: ChainThat   From a marketplace platform to a risk exchange ChainThat is offering a marketplace platform that will morph into a risk exchange. Initially the platform will be supporting existing back-office processes such as the placement of risk to supporting the technical and financial account and then moving into the settlement process and claim’s agreement process. The aim is to remove frictional costs to drive down costs to make insurance more efficient that it is today. The platform is built on Corda and uses the ACORD data model for all transactions. Impact of current inefficiencies – Source: ChainThat David hopes to offer this risk exchange to other insurance marketplaces by finding one regulatory area that has high trading volumes and lots of participants such as Singapore, Dubai, Zurich and New York.   Why blockchain? The challenge centralised systems have to running a marketplace for insurance companies is that the centralised entity has to store the data and manage the system on behalf of the marketplace participants.  However, the insurance business model is a peer-to-peer one, just like they used to in the Lloyd’s coffee shop. That’s what blockchain technology enables, it gives participants back the control of their data and their process. It provides the guarantee that you’re looking at the same version at the exact same point of time.     Education &amp; Customer Centricity At the beginning David concedes that there was a lot of misinformation about blockchain and distributed ledger technologies. So they had to spend a considerable of time educating all the main parties (brokers, reinsures and regulators) and engage with them on a one-to-one basis. This meant that ChainThat had a customer centric approach to defining the exchange and ensured that the participants within the exchange helped to shape and finalise the final outcome.   Brokers and disintermediation? David believes that individuals who believe that brokers will be disintermediated by blockchain lack the understanding of what the broker really does. For David the brokers are the market makers, they provide the risk management services to the customers and they provide back office services. It’s the back-office services that blockchain is looking to streamline. Not just for the brokers but for all insurance entities. By improving efficiencies in back-office services then brokers can deploy their resources more effectively at making those markets and providing better value to their customers around their risk management services.   Products on the risk exchange Initially the exchange will start off with property, and facultative and treaty contracts. Looking at doing the accounting, settling and claims related to those. ChainThat will be adding further lines of business onto that and alternative risk transfer, ILS and ILW.   Top tips for aspiring marketplace So, the first thing is don’t be afraid to fail. You’ve got to fail fast on these things and you know try it as quickly as you can. Try things quickly, if they don’t work try something else quickly. David’s top tip is don’t be afraid to fail fast and to keep trying out new things. Take an iterative approach from starting on a small project that take can be started on a credit card and then rapidly scaled up.   The big bad word of “integration” ChainThat has thought about integration from day one. In a marketplace the market moves as slow as the slowest participant which usually is around integration. ChainThat has built a layer on top of its platform that acts as an accelerator for integration which can also integrate with ACORD messaging. ChainThat has data pipelines for performing data mapping exercises which enables them to talk to their firm’s internal systems.   What does success look like? After the launch event of the 5thof March, ChainThat is going to be looking for participants to sign up to the live production trail to use the platform. During the duration of the trail there will be key milestones to define the efficiencies and demonstrate the KPIs against the trail. They want to be able to see how the participants will be able to sell the trial internally to their boards to demonstrate the true value from concept to live production and to demonstrate the potential of what this platform can provide and the new products they could thing to bringing to the market. From a ChainThat perspective they want to see that they have defined an exchange that has the longevity to go into live production with multiple participants in Bermuda.   Your turn! ChainThat has launched a truly innovative and modern risk and capital exchange in the market. We are very excited to have been given the chance to report on this exciting news. We hope you have enjoyed this news flash, if you liked this episode please do review it on iTunes. Your comments and suggestions are always appreciated so please don’t hesitate to add a comment below. If your organisation has any news you’d like to share regarding blockchain, feel free to get in touch with us and we’ll help you spread the word. If you’d like to ask David and Rebecca a question, you can add a comment below and we’ll try to get them over to our site to answer your questions.

<p>Welcome to another episode in ours News Flash series, where we share the latest developments in the blockchain space, straight off the press. Today we are joined again by <a href="https://www.linkedin.com/in/davidedwards1/" rel="nofollow" target="_blank">David Edwards</a>, CEO of <a href="https://www.chainthat.com" rel="nofollow" target="_blank">ChainThat</a>, who previously featured in <a href="https://insureblocks.com/blockchain/ep-8-building-a-blockchain-poc-pilot/" rel="nofollow" target="_blank">Ep.8 – Building a Blockchain PoC/Pilot</a>, and we welcome <a href="https://www.linkedin.com/in/rebeccaoliverism/" rel="nofollow" target="_blank">Rebecca Oliver</a>, business development director at <a href="https://www.chainthat.com" rel="nofollow" target="_blank">ChainThat</a>,  to Insureblocks for the first time.</p> <h2>About ChainThat</h2> <p>David Edwards formed ChaintThat in 2015 with the sole focus to see how blockchain distributed ledger technology can impact commercial speciality insurance and reinsurance. Since there early start ChainThat cover the entire value chain from the placement process to technical and financial accounting, settlement, claims administration and facilities, tax and regulatory reporting. ChainThat has received investment from <a href="https://xceedance.com/" rel="nofollow" target="_blank">Xceedance</a> and has now grown to about 30 staff.</p> <p> </p> <h2>Launching the world’s first technology-driven insurance and reinsurance risk and capital exchange</h2> <p>ChainThat’s new initiative is to launch in Bermuda the most efficient reinsurance risk and capital exchange in the world called the Bermuda Risk Exchange.</p> <p>Why Bermuda? Bermuda, is home to the ILS and a lot of captives, it has a very proactive government that wants to drive innovation in Fintech and Insurtech. The regulars are one of the leaders with their digital asset regulations and the tokenization of assets. Bermuda has a great community spirit that is keen to innovate and bring a blockchain based solution of the ground.</p> <a href="http://insureblocks.com/wp-content/uploads/2019/03/Scope-of-the-Bermuda-Exchange.png" rel="nofollow" target="_blank"></a><p>Scope of the Bermuda Exchange – Source: <a href="https://www.chainthat.com" rel="nofollow" target="_blank">ChainThat</a></p> <p> </p> <h2>From a marketplace platform to a risk exchange</h2> <p>ChainThat is offering a marketplace platform that will morph into a risk exchange. Initially the platform will be supporting existing back-office processes such as the placement of risk to supporting the technical and financial account and then moving into the settlement process and claim’s agreement process. The aim is to remove frictional costs to drive down costs to make insurance more efficient that it is today. The platform is built on <a href="https://insureblocks.com/ep-6-r3-the-blockchain-banking-consortium/" rel="nofollow" target="_blank">Corda</a> and uses the <a href="https://insureblocks.com/ep-21-acord-data-standards-for-blockchain-in-insurance/" rel="nofollow" target="_blank">ACORD</a> data model for all transactions.</p> <a href="http://insureblocks.com/wp-content/uploads/2019/03/Impact-of-current-inefficiencies.png" rel="nofollow" target="_blank"></a><p>Impact of current inefficiencies – Source: <a href="https://www.chainthat.com" rel="nofollow" target="_blank">ChainThat</a></p> <p>David hopes to offer this risk exchange to other insurance marketplaces by finding one regulatory area that has high trading volumes and lots of participants such as Singapore, Dubai, Zurich and New York.</p> <p> </p> <h2>Why blockchain?</h2> <p>The challenge centralised systems have to running a marketplace for insurance companies is that the centralised entity has to store the data and manage the system on behalf of the marketplace participants.  However, the insurance business model is a peer-to-peer one, just like they used to in the Lloyd’s coffee shop. That’s what blockchain technology enables, it gives participants back the control of their data and their process. It provides the guarantee that you’re looking at the same version at the exact same point of time.</p> <p> </p> <p> </p> <h2>Education &amp; Customer Centricity</h2> <p>At the beginning David concedes that there was a lot of misinformation about blockchain and distributed ledger technologies. So they had to spend a considerable of time educating all the main parties (brokers, reinsures and regulators) and engage with them on a one-to-one basis. This meant that ChainThat had a customer centric approach to defining the exchange and ensured that the participants within the exchange helped to shape and finalise the final outcome.</p> <p> </p> <h2>Brokers and disintermediation?</h2> <p>David believes that individuals who believe that brokers will be disintermediated by blockchain lack the understanding of what the broker really does. For David the brokers are the market makers, they provide the risk management services to the customers and they provide back office services. It’s the back-office services that blockchain is looking to streamline. Not just for the brokers but for all insurance entities. By improving efficiencies in back-office services then brokers can deploy their resources more effectively at making those markets and providing better value to their customers around their risk management services.</p> <p> </p> <h2>Products on the risk exchange</h2> <p>Initially the exchange will start off with property, and facultative and treaty contracts. Looking at doing the accounting, settling and claims related to those. ChainThat will be adding further lines of business onto that and alternative risk transfer, <a href="https://en.wikipedia.org/wiki/Insurance-Linked_Securities_(ILS)" rel="nofollow" target="_blank">ILS</a> and <a href="https://en.wikipedia.org/wiki/Industry_loss_warranty" rel="nofollow" target="_blank">ILW</a>.</p> <p> </p> <h2>Top tips for aspiring marketplace</h2> <blockquote><p>So, the first thing is don’t be afraid to fail. You’ve got to fail fast on these things and you know try it as quickly as you can. Try things quickly, if they don’t work try something else quickly.</p></blockquote> <p>David’s top tip is don’t be afraid to fail fast and to keep trying out new things. Take an iterative approach from starting on a small project that take can be started on a credit card and then rapidly scaled up.</p> <p> </p> <h2>The big bad word of “integration”</h2> <p>ChainThat has thought about integration from day one. In a marketplace the market moves as slow as the slowest participant which usually is around integration. ChainThat has built a layer on top of its platform that acts as an accelerator for integration which can also integrate with ACORD messaging. ChainThat has data pipelines for performing data mapping exercises which enables them to talk to their firm’s internal systems.</p> <p> </p> <h2>What does success look like?</h2> <p>After the launch event of the 5thof March, ChainThat is going to be looking for participants to sign up to the live production trail to use the platform. During the duration of the trail there will be key milestones to define the efficiencies and demonstrate the KPIs against the trail. They want to be able to see how the participants will be able to sell the trial internally to their boards to demonstrate the true value from concept to live production and to demonstrate the potential of what this platform can provide and the new products they could thing to bringing to the market.</p> <p>From a ChainThat perspective they want to see that they have defined an exchange that has the longevity to go into live production with multiple participants in Bermuda.</p> <p> </p> <h2><strong>Your turn!</strong></h2> <p>ChainThat has launched a truly innovative and modern risk and capital exchange in the market. We are very excited to have been given the chance to report on this exciting news.</p> <p>We hope you have enjoyed this news flash, if you liked this episode please do review it on <a href="https://itunes.apple.com/gb/podcast/insureblocks-blockchain-smart-contracts-in-insurance/id1361820676?mt=2" rel="nofollow" target="_blank">iTunes</a>. Your comments and suggestions are always appreciated so please don’t hesitate to add a comment below.</p> <p>If your organisation has any news you’d like to share regarding blockchain,<a href="mailto:info@insureblocks.com"> feel free to get in touch with us</a> and we’ll help you spread the word. If you’d like to ask David and Rebecca a question, you can add a comment below and we’ll try to get them over to our site to answer your questions.</p>

News Flash – ChainThat launches blockchain powered insurance and reinsurance risk & capital exchange in Bermuda

On the 12th of May 2019, Insureblocks went on a 2 week road trip across the United States of America. This trip took us from the International Finance Corporation in Washington D.C. to the North American Contingency Associaiton in Myrtle Beach, South Carolina. From there we headed to New York City to run a blockchain cross industry workshop at R3’s offices before heading to Connecticut to run a blockchain presentation to the Connecticut Captive Insurance Association. Throughout this trip we interviewed a number of individuals from insurance professionals to regulators and to professionals from the pharmaceutical industry:  Nicholas Hanes, Senior Vice President, Underwriting and MGA Operations at Spotted Inc. and Vice President of NACA. Philip Mershon, Senior Account Manager – Entertainment at OneBeacon Insurance Group Dempsey Lulley, Risk Insurance Administrator at WeWork Philippe Heilberg, co-Founder &amp; COO/CFO at Arbol Inc.  Flora Nanda, Senior Manager, Blockchain at Pfizer Michael Fulton, Associate Vice President, Technology Innovation at Nationwide Tomer Saar, Partner, managing director at DBI Construction Consultants and Construction Consultant Stephen DiCenso, Consulting Actuary at Milliman, Inc. and President of CCIA. Christopher Gallo, Insurance Accredited Financial Examiner, CFE at State of Connecticut Insurance Department Janeanne Lubin-Szafranski, Of Counsel at Neubert, Pepe &amp; Monteith, P.C. Christopher Day, North America-Business Development and Sales at RapidQube Digital Solutions Dawn Ware, CEO, Ware Consulting LLC and Independent Director

<p>On the 12th of May 2019, Insureblocks went on a 2 week road trip across the United States of America. This trip took us from the<a href="https://www.ifc.org/wps/wcm/connect/corp_ext_content/ifc_external_corporate_site/home" rel="nofollow" target="_blank"> International Finance Corporation</a> in Washington D.C. to the <a href="https://www.nacaonline.com" rel="nofollow" target="_blank">North American Contingency Associaiton</a> in Myrtle Beach, South Carolina. From there we headed to New York City to run a blockchain cross industry workshop at <a href="https://www.r3.com" rel="nofollow" target="_blank">R3’s offices</a> before heading to Connecticut to run a blockchain presentation to the <a href="http://www.conncaptives.org" rel="nofollow" target="_blank">Connecticut Captive Insurance Association</a>.</p> <p>Throughout this trip we interviewed a number of individuals from insurance professionals to regulators and to professionals from the pharmaceutical industry:</p> <ul> <li><a href="https://www.linkedin.com/in/nickhanes/" rel="nofollow" target="_blank">Nicholas Hanes</a>, Senior Vice President, Underwriting and MGA Operations at <a href="https://spotted.us/" rel="nofollow" target="_blank">Spotted Inc.</a> and Vice President of <a href="https://www.nacaonline.com/" rel="nofollow" target="_blank">NACA</a>.</li> <li><a href="https://www.linkedin.com/in/philip-mershon-a7287763/" rel="nofollow" target="_blank">Philip Mershon</a>, Senior Account Manager – Entertainment at <a href="https://www.onebeacon.com/" rel="nofollow" target="_blank">OneBeacon Insurance Group</a></li> <li><a href="https://www.linkedin.com/in/dempsey-lulley-87901154/" rel="nofollow" target="_blank">Dempsey Lulley</a>, Risk Insurance Administrator at <a href="https://www.wework.com/" rel="nofollow" target="_blank">WeWork</a></li> <li><a href="https://www.linkedin.com/in/philippe-heilberg-mba/" rel="nofollow" target="_blank">Philippe Heilberg</a>, co-Founder &amp; COO/CFO at <a href="https://www.arbolmarket.com/" rel="nofollow" target="_blank">Arbol Inc. </a></li> <li><a href="https://www.linkedin.com/in/flora-nanda-473616163/" rel="nofollow" target="_blank">Flora Nanda</a>, Senior Manager, Blockchain at <a href="https://www.pfizer.com" rel="nofollow" target="_blank">Pfizer</a></li> <li><a href="https://www.linkedin.com/in/michaelfulton/" rel="nofollow" target="_blank">Michael Fulton</a>, Associate Vice President, Technology Innovation at <a href="https://www.nationwide.com" rel="nofollow" target="_blank">Nationwide</a></li> <li><a href="https://www.linkedin.com/in/tomer-saar-828914/" rel="nofollow" target="_blank">Tomer Saar</a>, Partner, managing director at <a href="http://cc.dbinyc.com/" rel="nofollow" target="_blank">DBI Construction Consultants and Construction Consultant</a></li> <li><a href="https://www.linkedin.com/in/stephen-dicenso-3054a011/" rel="nofollow" target="_blank">Stephen DiCenso</a>, Consulting Actuary at <a href="http://us.milliman.com/" rel="nofollow" target="_blank">Milliman, Inc</a>. and President of <a href="http://www.conncaptives.org/" rel="nofollow" target="_blank">CCIA</a>.</li> <li><a href="https://www.linkedin.com/in/christopher-gallo-5a08137a/" rel="nofollow" target="_blank">Christopher Gallo</a>, Insurance Accredited Financial Examiner, CFE at <a href="https://portal.ct.gov/cid" rel="nofollow" target="_blank">State of Connecticut Insurance Department</a></li> <li><a href="https://www.linkedin.com/in/janeanne-lubin-szafranski-7972b9164/" rel="nofollow" target="_blank">Janeanne Lubin-Szafranski</a>, Of Counsel at <a href="http://www.npmlaw.com/" rel="nofollow" target="_blank">Neubert, Pepe &amp; Monteith, P.C</a>.</li> <li><a href="https://www.linkedin.com/in/christopher-day/" rel="nofollow" target="_blank">Christopher Day</a>, North America-Business Development and Sales at <a href="http://www.rapidqube.com/" rel="nofollow" target="_blank">RapidQube Digital Solutions</a></li> <li><a href="https://www.linkedin.com/in/dawne-ware-0a74a657/" rel="nofollow" target="_blank">Dawn Ware</a>, CEO, <a href="https://www.wareconsultllc.com/" rel="nofollow" target="_blank">Ware Consulting LLC</a> and Independent Director</li></ul>

Ep.59 – USA roadtrip – blockchain & insurance

Hedera Hashgraph

For this week podcast we continue our theme on how to build effective governance solutions in a blockchain ecosystem. This time we had the pleasure of having Mance Harmon, CEO of Hedera join us to share his insights on how to build effective governance.   What is blockchain? At a very high level, blockchain is an evolution of database technology. In traditional database technology you can have a multi master database solution, which is essentially like having multiple copies of a same master database. It’s a replicated database with identical information in every instance. As users connect to these master databases to make updates to them you sometimes have what is called a write conflict. Meaning that the collection of all these databases need to come to an agreement on which one of those master databases was modified first. The assumption has always been that one organisation would manage all of those master databases. Whilst that may be fine in some scenario it doesn’t quite work in one where for example you’d ask Amazon to take one of its masters from its multi master database solution and give it to Google to run and administer. What blockchain initially provided was for the first time the ability to take this multi master database solution and give away the masters to different legal entities, different organizations and do so securely. The 1st generation of blockchains, Bitcoin being an example of them, uses a very linear process. Each node in the network has a local copy of this chain and as new blocks get published the community decides which blocks to put on top of the chain and what order and everyone does that in this sort of linear fashion. For Mance this isn’t very efficient.   Difference between Hashgraph and Blockchain?  Hashgraph like blockchain is a form of distributed ledger technology (DLT). However unlike blockchain it doesn’t have a chain of blocks. Hashgraph is a graph that represents the flow of transactions, changes to the database across the network as well as an algorithm for determining which of these transactions to apply in a given order.  A hashgraph is a patented algorithm that promises the benefits of the blockchain, distribution, decentralisation and security through the use of hashing, without the drawback of low transaction speed. While Bitcoin allows for approximately 5 transactions per second and Ethereum allows for approximately 15 transactions per second, a hashgraph can process thousands of transactions per second. Hashgraph can achieve such speed and security because it adds a tiny amount of information on top of any transaction between databases. That tiny amount of information, or metadata, essentially keeps. A record of the last received transaction and the last one created. By taking those metadata one can build a picture of the flow of information within a network.   What is governance? Governance refers to the process that a governing body goes through to determine what the product roadmap will be? What features are going to be added to the product? When those features will go to market? What rates are paid to the nodes in the network for their participation? What the fees are for the use of the network? Governance can be thought of by using different model points as reference points. On one end you’ve got a dictatorship model where one person is calling the shots whilst on the other you have a full democracy.    Governance council type of model A council type model is an alternative approach. Just like you wouldn’t have every person that holds a US dollar to be voting on monetary policy. However, a council of experts on monetary policy to be governing the money supply can work. A governance council type of model is one where you have a large population that votes and a subset of the population that acts as experts of the council to making complex decisions. That is the model used by Bitcoin for example where you have 11 or 12 core developers deciding what goes into Bitcoin.   Differences in governance between open source blockchain and private blockchain The problem in the public blockchain market is that everything is open-source, and what that means practically, is that the governing council whatever form that takes doesn’t have any teeth. They can’t actually compel the nodes in the network to actually adopt the changes that they’re proposing. If there is disagreement around the nature of those changes then a portion of that public blockchain may choose to split or hard fork of the network and go create their own. Hard Fork. By: Coin Telegraph   A good example of this is when Bitcoin Cash decided to hard fork out of Bitcoin. See Coin Telegraphs article about this fork. Whilst forks have fostered innovation they also represent a certain level of risk for business manager considering building enterprise applications on top of a platform that may fork. In a private blockchain network the governing body grants permission to players to enter the network and issues them with the relevant rights to participate in. In such a network the governing body has the necessary teeth to govern.   Hashgraph’s governance approach Hashgraph as an algorithm is patented. Whilst it has similarities to open source it is not open sourced. As open source project is open to review, it is transparent, accessible and has no licensing requirements to use. However, due to its patent it has a governing body that has the authority to compel the nodes within the market to adopt the changes that the governing body decides upon. The governing body has legal controls and technical controls to compel the nodes in the network to adopt the upgrades and to prevent the network from hard forking or splitting into competing networks. These controls ensure for the first-time stability in a public distributed ledger network that hasn’t previously existed. When building the governing body Mance took inspiration from Dee Hock, founder of the Visa Network back in the 1960s and author of the book  “One from Many: VISA and the Rise of Chaordic Organization”. 39 global blue chip organisations with the largest market capitalisation chosen across 18 sectors of the global market to ensure broad distribution across all sectors and geographically distributed. Each of them are term limited to ensure they aren’t council members for life. They are members of a corporation with real teeth. Hedera Hashgraph is an LLC, a Delaware based LLC and these council members are formal members of the LLC. So, there is a board of managers for example that has five representatives selected from the 39 and the board of managers have the authority to hire and fire the CEO, Mance Harmon. The 39 blue chip organisations select 5 members of a board of managers who are responsible for day to day matters in order to ensure quick responses. In addition to the board of managers, there are committees such as a technical steering committee, a legal and regulatory committee and a marketing committee for example. Each committee have oversight over the relevant operations of the company but they are not operational. They do however help decide product roadmap and policy for example. Once a blue chip organisation term is ended a membership committee that is made up of some of the 39 members will look at potential replacements and make recommendations to the 39 at large and then vote on who they want to invite into the committee. In the future Mance predicts they will have participating organisations that will be able to make contributions but won’t be able to vote. Those participating organisations will also form a clear pool of possible replacements for the governing members when their terms ends.   Governance learnings from running both a public and private blockchain Hedera Hashgraph initially started off as Swirlds a blockchain platform for permissioned networks for enterprises. Mance and Leemon then also created Hedera Hashgraph as a public ledger. Private blockchains are a lot easier than public ones. Public blockchains have cryptocurrency which means there are legal and regulatory issues that need to be addressed. A global governing body is required to look at legal and regulatory issues in every jurisdiction. A private network doesn’t have a cryptocurrency associated with it and in general it’s a smaller group with a set of bylaws to govern themselves. However, Mance points out that the way Hedera Hashgraph is set up it more closely resembles private blockchain networks in the manner that they are governed. In general, public blockchains have governing challenges due to their lack of teeth to enforce changes to the code with open source. Mance doesn’t believe that long term public networks will succeed if they’re always trying to persuade the members of the community to adopt the latest set of changes. It’s governance through crisis, where progress is made forward only through crisis.   Top tips for creating a blockchain ecosystem In creating a private network the top tip is to get as many of the potential members of the ecosystem involved as early as possible because there are lots of subtleties in the governance bylaws that have to be worked out. It helps in getting the members buy into the eventual governance set of bylaws.   Your Turn Thank you Mance for sharing some great insights on how to build effective governance solutions within a blockchain ecosystem. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Mance a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.

<p>For this week podcast we continue our theme on how to build effective governance solutions in a blockchain ecosystem. This time we had the pleasure of having <a href="https://www.linkedin.com/in/manceharmon/" rel="nofollow" target="_blank">Mance Harmon</a>, CEO of <a href="https://www.hedera.com/" rel="nofollow" target="_blank">Hedera</a> join us to share his insights on how to build effective governance.</p> <p> </p> <h2>What is blockchain?</h2> <p>At a very high level, blockchain is an evolution of database technology. In traditional database technology you can have a multi master database solution, which is essentially like having multiple copies of a same master database. It’s a replicated database with identical information in every instance. As users connect to these master databases to make updates to them you sometimes have what is called a write conflict. Meaning that the collection of all these databases need to come to an agreement on which one of those master databases was modified first. The assumption has always been that one organisation would manage all of those master databases. Whilst that may be fine in some scenario it doesn’t quite work in one where for example you’d ask Amazon to take one of its masters from its multi master database solution and give it to Google to run and administer.</p> <p>What blockchain initially provided was for the first time the ability to take this multi master database solution and give away the masters to different legal entities, different organizations and do so securely. The 1st generation of blockchains, Bitcoin being an example of them, uses a very linear process. Each node in the network has a local copy of this chain and as new blocks get published the community decides which blocks to put on top of the chain and what order and everyone does that in this sort of linear fashion. For Mance this isn’t very efficient.</p> <p> </p> <h2>Difference between Hashgraph and Blockchain?</h2> <p></p> <p>Hashgraph like blockchain is a form of distributed ledger technology (DLT). However unlike blockchain it doesn’t have a chain of blocks. Hashgraph is a graph that represents the flow of transactions, changes to the database across the network as well as an algorithm for determining which of these transactions to apply in a given order.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2019/04/BlockchainVsHashgraph.png" rel="nofollow" target="_blank"></a></p> <p>A hashgraph is a patented algorithm that promises the benefits of the blockchain, distribution, decentralisation and security through the use of hashing, without the drawback of low transaction speed.</p> <p>While Bitcoin allows for approximately 5 transactions per second and Ethereum allows for approximately 15 transactions per second, a hashgraph can process thousands of transactions per second.</p> <p>Hashgraph can achieve such speed and security because it adds a tiny amount of information on top of any transaction between databases. That tiny amount of information, or metadata, essentially keeps. A record of the last received transaction and the last one created. By taking those metadata one can build a picture of the flow of information within a network.</p> <p> </p> <h2>What is governance?</h2> <p>Governance refers to the process that a governing body goes through to determine what the product roadmap will be? What features are going to be added to the product? When those features will go to market? What rates are paid to the nodes in the network for their participation? What the fees are for the use of the network?</p> <p>Governance can be thought of by using different model points as reference points. On one end you’ve got a dictatorship model where one person is calling the shots whilst on the other you have a full democracy.</p> <p><a href="http://insureblocks.com/wp-content/uploads/2019/04/Democracy-vs-Dictatorship.jpg" rel="nofollow" target="_blank"></a></p> <p> </p> <h2>Governance council type of model</h2> <p>A council type model is an alternative approach. Just like you wouldn’t have every person that holds a US dollar to be voting on monetary policy. However, a council of experts on monetary policy to be governing the money supply can work.</p> <p>A governance council type of model is one where you have a large population that votes and a subset of the population that acts as experts of the council to making complex decisions. That is the model used by Bitcoin for example where you have 11 or 12 core developers deciding what goes into Bitcoin.</p> <p> </p> <h2>Differences in governance between open source blockchain and private blockchain</h2> <p>The problem in the public blockchain market is that everything is open-source, and what that means practically, is that the governing council whatever form that takes doesn’t have any teeth. They can’t actually compel the nodes in the network to actually adopt the changes that they’re proposing. If there is disagreement around the nature of those changes then a portion of that public blockchain may choose to split or hard fork of the network and go create their own.</p> <a href="http://insureblocks.com/wp-content/uploads/2019/04/Hard-Fork.png" rel="nofollow" target="_blank"></a><p>Hard Fork. By: Coin Telegraph</p> <p> </p> <p>A good example of this is when Bitcoin Cash decided to hard fork out of Bitcoin. See <a href="https://cointelegraph.com/bitcoin-cash-for-beginners/what-is-bitcoin-cash#story-of-the-hard-fork" rel="nofollow" target="_blank">Coin Telegraphs article</a> about this fork.</p> <p>Whilst forks have fostered innovation they also represent a certain level of risk for business manager considering building enterprise applications on top of a platform that may fork.</p> <p>In a private blockchain network the governing body grants permission to players to enter the network and issues them with the relevant rights to participate in. In such a network the governing body has the necessary teeth to govern.</p> <p> </p> <h2>Hashgraph’s governance approach</h2> <p>Hashgraph as an algorithm is patented. Whilst it has similarities to open source it is not open sourced. As open source project is open to review, it is transparent, accessible and has no licensing requirements to use.</p> <p>However, due to its patent it has a governing body that has the authority to compel the nodes within the market to adopt the changes that the governing body decides upon. The governing body has legal controls and technical controls to compel the nodes in the network to adopt the upgrades and to prevent the network from hard forking or splitting into competing networks. These controls ensure for the first-time stability in a public distributed ledger network that hasn’t previously existed.</p> <p>When building the governing body Mance took inspiration from <a href="https://en.wikipedia.org/wiki/Dee_Hock" rel="nofollow" target="_blank">Dee Hock</a>, founder of the Visa Network back in the 1960s and author of the book  “<a href="https://www.amazon.co.uk/One-Many-VISA-Chaordic-Organization/dp/1576753328" rel="nofollow" target="_blank">One from Many: VISA and the Rise of Chaordic Organization</a>”.</p> <p>39 global blue chip organisations with the largest market capitalisation chosen across 18 sectors of the global market to ensure broad distribution across all sectors and geographically distributed. Each of them are term limited to ensure they aren’t council members for life. They are members of a corporation with real teeth. Hedera Hashgraph is an LLC, a Delaware based LLC and these council members are formal members of the LLC. So, there is a board of managers for example that has five representatives selected from the 39 and the board of managers have the authority to hire and fire the CEO, Mance Harmon.</p> <p>The 39 blue chip organisations select 5 members of a board of managers who are responsible for day to day matters in order to ensure quick responses. In addition to the board of managers, there are committees such as a technical steering committee, a legal and regulatory committee and a marketing committee for example. Each committee have oversight over the relevant operations of the company but they are not operational. They do however help decide product roadmap and policy for example.</p> <p>Once a blue chip organisation term is ended a membership committee that is made up of some of the 39 members will look at potential replacements and make recommendations to the 39 at large and then vote on who they want to invite into the committee.</p> <p>In the future Mance predicts they will have participating organisations that will be able to make contributions but won’t be able to vote. Those participating organisations will also form a clear pool of possible replacements for the governing members when their terms ends.</p> <p> </p> <h2>Governance learnings from running both a public and private blockchain</h2> <p>Hedera Hashgraph initially started off as <a href="https://www.swirlds.com/" rel="nofollow" target="_blank">Swirlds</a> a blockchain platform for permissioned networks for enterprises. Mance and Leemon then also created Hedera Hashgraph as a public ledger.</p> <p>Private blockchains are a lot easier than public ones. Public blockchains have cryptocurrency which means there are legal and regulatory issues that need to be addressed. A global governing body is required to look at legal and regulatory issues in every jurisdiction. A private network doesn’t have a cryptocurrency associated with it and in general it’s a smaller group with a set of bylaws to govern themselves.</p> <p>However, Mance points out that the way Hedera Hashgraph is set up it more closely resembles private blockchain networks in the manner that they are governed.</p> <p>In general, public blockchains have governing challenges due to their lack of teeth to enforce changes to the code with open source. Mance doesn’t believe that long term public networks will succeed if they’re always trying to persuade the members of the community to adopt the latest set of changes. It’s governance through crisis, where progress is made forward only through crisis.</p> <p> </p> <h2>Top tips for creating a blockchain ecosystem</h2> <p>In creating a private network the top tip is to get as many of the potential members of the ecosystem involved as early as possible because there are lots of subtleties in the governance bylaws that have to be worked out. It helps in getting the members buy into the eventual governance set of bylaws.</p> <p> </p> <h2>Your Turn</h2> <p>Thank you Mance for sharing some great insights on how to build effective governance solutions within a blockchain ecosystem. If you liked this episode, <a href="https://itunes.apple.com/gb/podcast/insureblocks/id1361820676?mt=2" rel="nofollow" target="_blank">please do review it on iTunes</a>. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Mance a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.</p>

Ep.54 – Building effective governance in a blockchain ecosystem – Insights from Hedera Hashgraph Network

Najib Rehman, Data Strategy Lead, at FarmaTrust and Raja Sharif, CEO and Founder of FarmaTrust join us in this exciting podcast on how they use AI and blockchain technology in the pharmaceutical and healthcare industry to help resolve some of its problems.   What is blockchain? Blockchain is essentially a database that is distributed for all relevant parties to have access and visibility. Where it differs from traditional databases is that it doesn’t have a sole controller. With blockchain if all the parties have an agreement, a consensus around what the distributed dataset looks liken, then it’s very difficult to game the system. Blockchain makes it easier to identify the bad actors.   Fraud &amp; challenges in the pharmaceutical and healthcare industry  The World Health Organisation estimates that up to 700,000 people die every year due to complications caused by counterfeit Tuberculosis and Malaria vaccines. PWC estimates that counterfeit pharmaceutical is a $200bn annual business. This is quite a significant percentage of the $1.2 trillion pharmaceuticals global trade. In the UK alone, the NHS is dealing with large amounts of waste within various hospital institutions such as how inventory is managed, how it’s being leveraged and used within each hospital by healthcare professionals or not being used. Due to the very nature of healthcare, hospitals can’t afford not to have something on the shelf to treat a patient, as the consequences could be catastrophic for the patient. So, there is a large amount of excess stock that’s often floating and often sadly not used to ensure that patient safety and patient lives are the priority.   The World Health Organisation estimates that more than 50% of drugs sold online in the West is fake. In Europe the Falsified Medicines Directive and in the US the Drugs Supply Chain Security Act are both trying to address this challenge by stipulating that pharmaceutical companies need to have individual serialisation and digitisation of the packs of medicine. So, all packs in developed markets now have to have an individual identity that therefore makes the use of distributed ledger technology quite suitable for this challenge Combination of AI and machine learning can help identify patterns to help healthcare professionals ensure that patients are treated but without the waste that we’re seeing today.   Data standards in healthcare GS1 is a global data standard that is used across industries including in healthcare. It is a standard that is used for products for tracking and identification. These standards aren’t always adhered to. Companies and entities will create their own identifiers for a product which then conflicts. How to address this problem is an important question that needs to be addressed by companies, governments and agencies. Blockchain and its associated technologies can help to address this problem.   FarmaTrust and its vision FarmaTrust is essentially a blockchain and AI solution for the pharmaceutical and healthcare industry. FarmaTurst works in three verticals:  Pharmaceutical tracking and data services– tracking a product or a medical device from the point of manufacture to the point of consumption. Clients of FarmaTrust for this vertical are the US FDA (Food &amp; Drug Administration) and McKesson here in Europe. Cell and gene therapy (personalised medicine) – providing technical solutions behind the production of treatments, such as carti type treatments for late stage cancer of blood cancers, stem cell therapies and pharmaceutical personalised medicine. Clinical trials – providing clarity and transparency around global clinical trails using blockchain solutions    Why blockchain? The most interesting quality of blockchain is the immutability and incorruptibility of the data. Once you can ensure you have good data and ensure data integrity that has lots of knock on effects in terms of data analytics and artificial intelligence. Smart contract also plays an important role. You can automate many of the processes and with FarmaTrust it allows to automate functions like automatic purchase ordering, automated regulatory reporting and automated payments. Thus, ensuring that FarmaTrust can digitize every part of the process in the healthcare and pharmaceutical sector. For the incumbents FarmaTrust bring a lot of cost savings, efficiencies and visibility or transparency For the end user it means they can trust the medicines they are taking and if done properly can help reduce the costs and future proof of operations. FarmaTrust uses Quorum as its blockchain technology. From an AI perspective, its utility is about optimization of inventory and ensuring that the right product is in the right place at the right time.   FarmaTrust ongoing project – inventory tracking FarmaTrust is working with a major pharmaceutical wholesaler in helping them optimise inventory tracking. They had a legacy system infrastructure that wasn’t providing them with the transparency to their staff in their warehousing facility nor to the drug manufacturers. FarmaTrust system sits alongside the wholesaler’s legacy technology by optimising the value chain from production to wholesaler to the ultimate point of dispensation, be it a hospital or pharmacy. The blockchain provides the audit trail, the immutability of the data and alongside machine learning it can help optimise what is the optimal stock level at every point along the value chain. FarmaTrust is also running a pilot with the FDA and Systech to provide compliance, traceability, anti-counterfeit and product safety solutions, enabling clients to ensure product authenticity from the manufacturing floor to a patient’s hands. Najib believes that they’re the only pilot on the drug supply chain security at to pilot this using blockchain technology.   Your Turn Thank you, Najib and Raja, for sharing your insights on blockchain &amp; AI in pharmaceutical and healthcare. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Antony a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.

<p><a href="https://www.linkedin.com/in/najib-rehman-54011412/" rel="nofollow" target="_blank">Najib Rehman</a>, Data Strategy Lead, at <a href="https://www.farmatrust.com" rel="nofollow" target="_blank">FarmaTrust</a> and <a href="https://www.linkedin.com/in/rsharif/" rel="nofollow" target="_blank">Raja Sharif</a>, CEO and Founder of <a href="https://www.farmatrust.com" rel="nofollow" target="_blank">FarmaTrust</a> join us in this exciting podcast on how they use AI and blockchain technology in the pharmaceutical and healthcare industry to help resolve some of its problems.</p> <p> </p> <h2>What is blockchain?</h2> <p>Blockchain is essentially a database that is distributed for all relevant parties to have access and visibility. Where it differs from traditional databases is that it doesn’t have a sole controller. With blockchain if all the parties have an agreement, a consensus around what the distributed dataset looks liken, then it’s very difficult to game the system. Blockchain makes it easier to identify the bad actors.</p> <p> </p> <h2>Fraud &amp; challenges in the pharmaceutical and healthcare industry</h2> <p><a href="http://insureblocks.com/wp-content/uploads/2019/07/Counterfeit-drugs.png" rel="nofollow" target="_blank"></a></p> <p>The World Health Organisation estimates that up to <a href="http://www.bbc.com/future/story/20190222-the-ingenious-new-tricks-to-beat-disease" rel="nofollow" target="_blank">700,000 people die every year</a> due to complications caused by counterfeit Tuberculosis and Malaria vaccines. <a href="https://www.strategyand.pwc.com/media/file/Fighting-counterfeit-pharmaceuticals.pdf" rel="nofollow" target="_blank">PWC estimates</a> that counterfeit pharmaceutical is a $200bn annual business. This is quite a significant percentage of the <a href="https://pharmaceuticalcommerce.com/business-and-finance/global-pharma-spending-will-hit-1-5-trillion-in-2023-says-iqvia/" rel="nofollow" target="_blank">$1.2 trillion</a> pharmaceuticals global trade.</p> <p>In the UK alone, the NHS is dealing with large amounts of waste within various hospital institutions such as how inventory is managed, how it’s being leveraged and used within each hospital by healthcare professionals or not being used. Due to the very nature of healthcare, hospitals can’t afford not to have something on the shelf to treat a patient, as the consequences could be catastrophic for the patient. So, there is a large amount of excess stock that’s often floating and often sadly not used to ensure that patient safety and patient lives are the priority.</p> <p> </p> <p>The World Health Organisation estimates that more than <a href="https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)00394-3/fulltext" rel="nofollow" target="_blank">50% of drugs sold online</a> in the West is fake. In Europe the <a href="https://ec.europa.eu/health/sites/health/files/files/eudralex/vol-1/dir_2011_62/dir_2011_62_en.pdf" rel="nofollow" target="_blank">Falsified Medicines Directive</a> and in the US the <a href="https://www.fda.gov/drugs/drug-supply-chain-integrity/drug-supply-chain-security-act-dscsa" rel="nofollow" target="_blank">Drugs Supply Chain Security Act</a> are both trying to address this challenge by stipulating that pharmaceutical companies need to have individual serialisation and digitisation of the packs of medicine. So, all packs in developed markets now have to have an individual identity that therefore makes the use of distributed ledger technology quite suitable for this challenge</p> <p>Combination of AI and machine learning can help identify patterns to help healthcare professionals ensure that patients are treated but without the waste that we’re seeing today.</p> <p> </p> <h2>Data standards in healthcare</h2> <p><a href="https://www.gs1.org/industries/healthcare/standards" rel="nofollow" target="_blank">GS1</a> is a global data standard that is used across industries including in healthcare. It is a standard that is used for products for tracking and identification. These standards aren’t always adhered to. Companies and entities will create their own identifiers for a product which then conflicts. How to address this problem is an important question that needs to be addressed by companies, governments and agencies. Blockchain and its associated technologies can help to address this problem.</p> <p> </p> <h2>FarmaTrust and its vision</h2> <p>FarmaTrust is essentially a blockchain and AI solution for the pharmaceutical and healthcare industry. FarmaTurst works in three verticals:</p> <ul> <li><strong>Pharmaceutical tracking and data services</strong>– tracking a product or a medical device from the point of manufacture to the point of consumption. Clients of FarmaTrust for this vertical are the US <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;cad=rja&amp;uact=8&amp;ved=2ahUKEwiylrSLprXjAhWFmFwKHeazA1kQFjAAegQICBAC&amp;url=http%3A%2F%2Fwww.fda.gov%2Fhome&amp;usg=AOvVaw1PafMTKpG3Pd_2XlUZicD6" rel="nofollow" target="_blank">FDA</a> (Food &amp; Drug Administration) and <a href="https://www.mckesson.com/" rel="nofollow" target="_blank">McKesson</a> here in Europe.</li> <li><strong>Cell and gene therapy (personalised medicine) </strong>– providing technical solutions behind the production of treatments, such as carti type treatments for late stage cancer of blood cancers, stem cell therapies and pharmaceutical personalised medicine.</li> <li><strong>Clinical trials </strong>– providing clarity and transparency around global clinical trails using blockchain solutions</li> </ul> <p> </p> <h2>Why blockchain?</h2> <p>The most interesting quality of blockchain is the immutability and incorruptibility of the data. Once you can ensure you have good data and ensure data integrity that has lots of knock on effects in terms of data analytics and artificial intelligence.</p> <p>Smart contract also plays an important role. You can automate many of the processes and with FarmaTrust it allows to automate functions like automatic purchase ordering, automated regulatory reporting and automated payments. Thus, ensuring that FarmaTrust can digitize every part of the process in the healthcare and pharmaceutical sector. For the incumbents FarmaTrust bring a lot of cost savings, efficiencies and visibility or transparency</p> <p>For the end user it means they can trust the medicines they are taking and if done properly can help reduce the costs and future proof of operations.</p> <p>FarmaTrust uses <a href="https://www.goquorum.com" rel="nofollow" target="_blank">Quorum</a> as its blockchain technology.</p> <p>From an AI perspective, its utility is about optimization of inventory and ensuring that the right product is in the right place at the right time.</p> <p> </p> <h2>FarmaTrust ongoing project – inventory tracking</h2> <p>FarmaTrust is working with a major pharmaceutical wholesaler in helping them optimise inventory tracking. They had a legacy system infrastructure that wasn’t providing them with the transparency to their staff in their warehousing facility nor to the drug manufacturers.</p> <p>FarmaTrust system sits alongside the wholesaler’s legacy technology by optimising the value chain from production to wholesaler to the ultimate point of dispensation, be it a hospital or pharmacy. The blockchain provides the audit trail, the immutability of the data and alongside machine learning it can help optimise what is the optimal stock level at every point along the value chain.</p> <p>FarmaTrust is also running a pilot with the FDA and <a href="https://www.systechone.com/" rel="nofollow" target="_blank">Systech</a> to provide compliance, traceability, anti-counterfeit and product safety solutions, enabling clients to ensure product authenticity from the manufacturing floor to a patient’s hands. Najib believes that they’re the only pilot on the drug supply chain security at to pilot this using blockchain technology.</p> <p> </p> <h2>Your Turn</h2> <p>Thank you, Najib and Raja, for sharing your insights on blockchain &amp; AI in pharmaceutical and healthcare. If you liked this episode, <a href="https://itunes.apple.com/gb/podcast/insureblocks/id1361820676?mt=2" rel="nofollow" target="_blank">please do review it on iTunes</a>. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Antony a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.</p>

Ep. 66 – Blockchain & AI in Pharmaceutical & Healthcare – insights from FarmaTrust

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