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The Potential of Blockchain To Ensure True Insurance

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Financial insurance is an important component of many people’s financial stability worldwide. People acquire financial insurance in order to ensure they can fulfill their and/or their loved ones’ financial needs if an emergency were to leave them in danger of being financially destitute. Since the unexpected can strike at any moment, the market of financial insurance is a prosperous business.

As of the end of the year 2019, 54 percent of the adults who lived in the United States of America were reported to have life insurance. Judging from the fact in which failing to possess car insurance as a car owner is illegal in every U.S state besides New Hampshire and Virginia, the approximately two hundred eighty million vehicles in operation in the U.S in the year 2019 can be assumed to represent almost two hundred eighty million people in the U.S who each purchased car insurance in the year 2019 or beforehand.

The number of United States residents who purchased insurance is staggering but not as great as the amount of insurance-related personal information which is in the possession of United States insurance-providing corporations nationally.

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People need to give out a lot of personal information to insurance companies in order to purchase certain types of insurance. This personal information is required in order for insurance brokers to be able to provide insurance packages that will best financially recuperate specific potential customers to the same potential customers. The personal information people typically need to give up to insurance companies in order to purchase life insurance are their home address, social security number, and driver’s license number.

Another piece of personal information people usually must give up in order to purchase life insurance is their medical history. Since a person’s personal information can be used to unlock confidential private components of their life, a main moral obligation insurance companies must fulfill is protecting the personal information of their customers. Unfortunately, research has shown United States insurance companies have repeatedly failed to fulfill this moral obligation.

Data breaches of information belonging to insurance companies have been frequent in the past. Three of the approximately twenty-two hundred reports of health-related data which were hacked into by unauthorized personnel between the years 2010 and 2017 which were researched by U.S chief medical professionals concerned more than fifty percent of the U.S health data breaches which occurred in the same timespan.

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This fact was discovered by the United States Department of Health and Human Services Office for Civil Rights, an organization that is legally obligated to inform the appropriate U.S federal authorities of reports of U.S patient records being hacked into by unauthorized personnel.

These health insurance plans can be assumed to contain the medical histories of certain customers of health insurance because people need to provide their medical history to the insurance company they are buying a health insurance plan from, in order to purchase a health insurance plan for themselves. If this assumption is correct, the medical weaknesses, including allergies and chronic illness, of the owners of these health insurance plans can be used by untrustworthy people to impose biological harm on the previously mentioned owners of health insurance plans.

This biological harm can include purposely being exposed to physical allergies and having their essential medicine stolen from them. Other findings have shown hackers have possessed information from insurance customers which can be used to ruin these same customers financially.

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In the early fall of the year 2020, it was reported by professionals that the insurance brokerage company named Arthur J. Gallagher Insurance Brokerage had financial information, which belonged to them and/or their customers,  stolen from them by computer-based hacker. These computer-based hackers could use this financial information to steal money that the insurance brokerage company in question requires in order to fulfill the insurance-based needs of their customers.

In another instance, the bank insurance company, First American Financial suffered a data breach in 2019 in which eight hundred eighty-five pieces of the insurance company’s customer-related information, each containing insurance customer-owned bank account numbers and social security numbers, were stolen by hackers. These computer-based hackers could have used this financial information to steal money that the customers of these insurance companies in question need to pay rent, buy food, and pay other essential bills.

If these insurance carriers used efficient computer information security systems to secure the insurance-related information in the health and financial stability of their insurance customers would be more secure.  The security system of insurance-based information stored on computers can be improved with the implementation of an efficient computer-based information security program. A computer-based information security program which is capable of initializing this desired improvement is Blockchain.

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With proper utilization, Blockchain allows computer programmers to neatly organize transactions into sections called “blocks” and then create a blockchain out of those blocks. In order for Blockchain to be properly used, each block is titled with a specific name that is different from any other name in a blockchain and contains certain information. After each and every block is inputted into a single blockchain, the same blockchain is automatically secured. Of course, you can learn more when you contact blockchain consultants with a deep knowledge of this specific knowledge.

The security of a blockchain is assumingly entirely based on the requirement of passing a complicated computer-based mathematical inquiry in order to access and edit the blockchain in question. This complicated computer-based mathematical inquiry can only be solved by someone who has “proof of work” on the blockchain in question or by someone who is willing to use up a tremendous amount of the computer-based data and assumedly leave the device they used to hack into the blockchain in question unable to function.

After a person who is not authorized to access blockchain hacks into the same blockchain, the computer or computers they used to undergo the hacking will not be able to use the information from the blockchain which the hackers endeavor to steal. Sometimes following the creation of a blockchain, the same blockchain is reiterated onto each and every computer of a chain of computers.

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The computer-based impracticality of attempting to hack into a blockchain is amplified by the fact that in order for someone to reconfigure a block in the same blockchain at a certain point they must also reconfigure all the following blocks of the same blockchain.

The implementation of blockchain in insurance security would make it nearly impossible for hackers to access information related to the purchase of an insurance package. Therefore, the rate of identity fraud incidents, bank account information theft, and medical information theft related to insurance data breaches are significantly likely to decline in the upcoming three years if Blockchain was used to secure the insurance-related information of the customers of many insurance companies. This computer information system will ensure that insurance customers are truly insured.

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Benefits of Blockchain Technology to Businesses

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The year 2008 saw the introduction of bitcoin (decentralized electronic cash system). Since then, many more cryptocurrencies have been introduced to the market and turned doubters into believers. Those who had misgivings have slowly and surely embraced it as the future and alternative to fiat currency. Indeed, it is correct to say that the blockchain technology has greatly evolved and with it, a whole lot of benefits across industries (from finance to medicine).

Many businesses across different sectors are now looking for ways in which they can integrate the blockchain technology into their infrastructure. Without a doubt, it is correct to say that the future is here. We are firmly in the era of the blockchain technology and cryptocurrencies are slowly providing a paradigm shift to the way we view fiat currency and even transact. That said, how do businesses benefit from the blockchain technology?

If you thought that solutions brought about by blockchain are confined to the exchange of cryptocurrencies, you couldn’t be more wrong. Through its decentralized nature, businesses across various sectors and industries stand to benefit in the following ways.

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1. Increased And Greater Efficiency

As a decentralized digital currency, blockchain has fully done away with the need for middlemen especially when making payments or engaging in transactions of whatever nature be it in the real estate or any other lucrative industry. When you compare blockchain to conventional financial services, there is no denying that it’s faster, instantaneous, and its peer to peer decentralized nature made transactions to be more efficient.

2. Transparency

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If there is something that puts blockchain on a different level, it has to do with the fact that transaction ledgers for public addresses is accessible for viewing by pretty much anyone. This level of transparency and an unprecedented layer of accountability is one of the reasons why blockchain has become very popular with businesses. This greater transparency has in essence held businesses to higher standards and essentially made them to be more open and ascribe to higher levels of integrity in so far as their dealings with customers is concerned.

Source: Pixabay

3. Traceability

The beautiful thing about the blockchain ledger is that every single time there is an exchange of goods or a transaction recorded in the blockchain, there is an audit trail. This audit trail is instrumental in providing an irrefutable proof of ownership or simply to let a person know where goods came from. This improved traceability provided by blockchain is instrumental especially in industries or sectors where verifying authenticity of transactions or traded assets improves efficiency and customer confidence.

4. Security

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Where security is concerned, blockchain is way ahead of other record keeping systems. Why is this the case? Well, every new transaction is not only linked to a previous transaction but also encrypted. There are zero chances of a transaction being altered and this gives individuals a sense of security and trust. The decentralized nature of blockchain also ensures that individuals can transact without having to answer to central governments.

To sum it up, if you are a business in whatever sector, you cannot afford to wish away the key benefits of blockchain outlined in this post. If you are keen on being transparent, efficient, and keen on winning the trust of your customers through secure transactions, blockchain is the way to go. The future that was blockchain is now here with us.

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Private distributed ledger technology or public blockchain?

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Some people think that permissioned distributed ledger technology can perform better than open blockchain because it is tweaked to address the issues of the latter. Such systems are also called “permissioned blockchain,” as if blockchain is a high-level concept and “permissioned” is one of its variants. But this statement is controversial and down below, you will come to understand why.

Is “permissioned” decentralized?

There are a lot of other options to choose from in DLTs: permissioned, private, enterprise, federated DLT, etc. And frankly, sometimes, it is not easy to distinguish between them. Therefore, for this level of discussion, let us compare just DLTs vs. blockchain.

A permissioned DLT and the mentioned variety thereof are not decentralized. There should not be any fallacy around this, as it might be fatal for a project. While some opponents to this statement might claim that decentralization can have a degree, and of course, permissionless blockchain is more decentralized.

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Let us put it simply. If there is someone between two counterparties in a transaction, and you can do nothing about this, it is centralized. In a public blockchain, if an ordinary user does not want to rely on a miner for their transaction to be included in a block, they can draft their transaction, and mine a block themself. If the block is valid, the network will accept it. Of course, mining nowadays requires enormous computational resources, but there are no technical or formal barriers to it — you don’t need to seek permission to mine. In DLT, users of the network have different roles and authority, and ordinary users are not able to create and validate blocks. There is nothing wrong with having a centralized system; it is just a matter of understanding what you are dealing with.

Permissioned DLTs can be decentralized only from one perspective, i.e., by having a consortium of independent members (organizations, companies, etc.) running the network with the exclusive authority to create blocks. Having a few affiliated companies controlled by one beneficiary will not make it decentralized.

And keep in mind, any consortium structure with independent members can be decentralized but only for these members — it will always be centralized for all those outside of the consortium.

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Is DLT a cartel?

A consortium (private/permissioned) DLT can be considered a cartel. Sooner or later, an antitrust body may question this. A safe strategy would ensure that the terms and conditions of the consortium were built in compliance with the antitrust laws.

By the way, to be completely centralized system is much safer. But a centralized system will never achieve the same level of reliability and credibility that blockchain can. It will be vulnerable as any other centralized system is, and here is why.

A centralized DLT is not immutable. The ledger can be rewritten arbitrarily by the one (or more) who controls it or due to a cyberattack. Because of its open and competitive nature (mining, staking, etc.), any blockchain can achieve immutability and hence its records will be credible. Thousands of independent nodes can ensure an unprecedented level of resistance to any sort of attack.

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Usually, it comes next after the discussion about immutability. How to correct a mistake? What if you need to change your smart contract? What if you lost your private key? There is nothing you can do retroactively — alteration in the blockchain is impossible. What’s done is done. In this regard, the DLT is usually the opposite of an alternative to blockchain. You will hear that DLTs can be designed so that those who control the network verify transactions on entry and therefore, non-compliant transactions are not allowed to pass through. But it would be a fallacy to think that censorship in the network will ultimately exclude all mistakes and unwanted transactions. There will always be a chance for a mistake. Then what? A retroactive change as the last resort? But if you can alter history, you undermine the whole idea of blockchain. No other technology can ensure such a level of the immutability of data. It is not one of the advantages of blockchain — this is its distinguishing advantage.

Nevertheless, immutability is perceived as something that impedes its legal application. Say, your circumstances changed, and you need to alter the smart contact. The answer to this is the proper design of an application that does not undermine the immutability of the ledger. The smart contract should be designed in a way that the user can attach a new transaction to reflect a change toward the previous one. Blocks are firmly chronological and only the latest transaction will reflect the current state of affairs, while all previous transactions will be a historical reference. You don’t need to change history. The blockchain is a public repository of evidence for everything that happened. There are different methods of designing applications that address all possible legal issues; for example, this and this academic paper proposed solutions to manage property rights in blockchain registries. These issues are also discussed in the series of articles that I published last year.

Permissioned is not blockchain

If anyone questions it regarding your system, they will be right. Further discussion about why permissioned is not a blockchain can be found in this academic paper, but in a nutshell: Not every chain of blocks is a blockchain. Connecting timestamped chunks of data with hashes was invented by Haber and Stornetta in 1991. But nobody has ever called it “blockchain” because blockchain is more than just a chain of blocks. It is about how these blocks are created and validated. Blocks that are created are the result of an open, decentralized and uncensored competition. This is the definition of blockchain and this is what Satoshi Nakamoto designed. Hence, anything that is centralized (permissioned, private, etc.) is whatever but not blockchain.

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Unfortunately, anyone is free to attribute the word “blockchain” to any technology they want, as there is no legal copyright or any legal protection to this word. DLT proponents tried hard to erase the boundary between these concepts. But it is only a matter of time until a few high-profile knockdown hacks of private DLTs show the real difference between DLT and blockchain and dramatically change the situation. There is a big difference in how many nodes ensure the security of the network, i.e., a handful of known nodes in the DLT network, or thousands and anonymous nodes around the world in the blockchain network.

We can argue about this on the theoretical level, but when it comes to losing money due to vulnerabilities in the system, nobody will listen to enthusiastic speeches about DLT. People will start asking questions. If you use “private/permissioned,” you should be ready for this.

If you still want permissioned

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A safe strategy would be to use the word “DLT” in all communications. It might not address possible vulnerabilities, but you can then say: “We had never said it was blockchain.” By the way, ENISA (the European agency on cybersecurity) always uses “distributed ledger” instead of blockchain in their reports. Conversely, their colleagues in the National Institute of Standards and Technology in the United States used “blockchain” in their earlier report.

Do you want to create your own public blockchain network? It is not necessarily a good idea unless you have reliable technology and a robust plan. First, [permissionless] blockchain does not mean safe by default. To achieve a decent level of immutability and resistance to attacks (hence, credibility and a high capitalization of your coin), you need thousands of independent nodes all over the world. If you have enough resources to create your community on this hard path, your network will survive and you will reap the rewards. But what are the odds?

DLT economy

If you are still considering creating your private or permissioned network, think about how this infrastructure will be maintained. If this is solely your network, you can have a solution to this because its maintenance can be covered by the commercial applications that you develop on it. But you have to understand — the network maintenance is completely on your shoulders.

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If you have a consortium of members, how do they redeem expenses on infrastructure? In a blockchain, there is a native mechanism to this — cryptocurrency. Independent nodes compete to mine coins. This is how the whole infrastructure is created and maintained. Those who develop applications on the blockchain need to worry about fees, not infrastructure.

But how about your DLT? Is your DLT only for private use among the members of the network? In this case, the end must justify the means, so the reason why independent players on the market created their own DLT network must cover the cost they bear to create and support it.

Consider another story about DLT by members who develop a network for outside users. Inevitably, you will need to design a viable economic model for the network members. No one will spend their resources for nothing or the resources will be applied unfairly — you will end up with a common tragedy. A possible solution to this is to create a native token of the network — say hello to cryptocurrency.

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Private DLT o a blockchain?

Is a permissioned/private DLT better than a blockchain? This is not an appropriate question. They are different and their use depends on what you are trying to achieve. But it would be a fallacy to attribute the features of blockchain to a permissioned DLT.

Leading existing blockchains can provide you with reliable infrastructure for an application. The idea that immutability impedes the application of blockchain is a misconception. On the contrary, it is the major advantage as no other technology can provide such a level of credibility to records. Various methods exist to create mature applications without bumping up against the immutable ledger.

A solely controlled DLT is centralized and therefore requires as much attention to cybersecurity as any other centralized technology. A consortium DLT is decentralized for its members, but will always be centralized for outside users (if, of course, the DLT is designed for public use). At the same time, the use of such a DLT can be fruitful in a private application among independent members, but be careful with objectives as it can be considered a cartel and questioned by antitrust bodies.

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Visa Announces Layer 2 Payments Channel for CBDCs and Stablecoins

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Credit card giant Visa is delving into cross-chain interoperability for digital asset transfers with the announcement of a Universal Payment Channel.

On Sept. 30, Visa’s Global CBDC Product Lead, Catherine Gu, wrote that the company’s research and product teams are working on a new blockchain initiative called Universal Payment Channel (UPC).

The cross-chain interoperability hub will connect different DLT networks to facilitate transfers of digital assets.

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Gu used the example of splitting a bill between friends using different types of money, such as a central bank digital currency (CBDC) and a stablecoin like Tether. She described it as a kind of universal adaptor for money:

“Think of it as a “universal adapter” among blockchains, allowing central banks, businesses, and consumers to seamlessly exchange value, no matter the form factor of the currency.”

Visa to Settle Cryptocurrencies?

Visa is confident that digital currencies will be a part of daily financial life in the future. The payments giant is also confident that there will be more CBDCs launched, even if the United States is still dragging its feet on that front.

Visa’s UPC aims to connect all of these newly released CBDCs and stablecoins in one cross-chain platform to enable seamless transfers. The UPC hub would connect dedicated payment channels between blockchains such as CBDC networks for different countries or vetted private stablecoin networks.

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Gu also pointed out that there were certain transaction speed advantages that Visa could offer over existing public blockchains that are much slower, though she didn’t name names. The new platform would act as a layer 2, processing transactions off the main chains.

“UPC’s specialized payment channels would be established off the blockchain and leverage smart contracts to communicate back with the various blockchain networks, delivering high transaction throughput securely and reliably and improving speeds overall.”

The UPC solution aims to serve as a network of blockchain networks, she added, “adding value to multiple forms of money movement, whether they originate on the Visa network, or beyond.”

There was no mention of the ability to transfer cryptocurrencies such as Bitcoin or Ethereum, but the infrastructure laid out would most likely permit it. Visa referred to BTC as digital gold earlier this year and is clearly eager to be a part of the space.

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Cardano Partner COTI Launches Visa Debit Cards

In a related development on Sept. 30, digital fintech platform COTI announced new products that will provide Visa debit cards and bank accounts to users.

In July, Visa approved the first debit card that would allow Bitcoin payments for the Australian market.

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