Building a Risk Market for the Digital Age Using Bitcoin

The Internet was originally developed as a network for information exchange. Now, a multitude of entrepreneurs and software developers are building the Internet for value exchange. The next logical progression is to build the Internet for risk exchange.
Just as units of currency can be transferred to a third party, insurance contracts transfer risk exposures to a third party. Blockchain technology has the potential to radically transform how the insurance industry operates and how risk exposures are shared and distributed.
While Bitcoin offers a protocol for peer-to-peer value transmission bypassing the traditional banking system, an insurance industry leveraging a public blockchain presents an opportunity for individuals and entities to retain, share or transfer risk exposures without the requirement for risk exposures to sit on an insurance company’s balance sheet.
Science fiction frequently offers inspiration for what an industry could look like in the future. The short speculative fiction titled “Know When to Hold ‘Em” by K. G. Jewell is a somewhat dystopian vision of futuristic insurance, but it does explain how the user interface of a peer-to-peer insurance market could operate.
In the story, the lead character, Jonas, acts as an insurer on the platform MicroRisk. Among the microrisks he chooses to provide insurance coverage for are vacation sickness, exam results, fashion (two individuals wearing the same outfit at an event) and being stood up on a first date. He is required to post collateral into his MicroRisk account before insuring a risk and is able to audit claims before paying out on them. The policyholder’s premium and the insurer’s collateral are frozen in escrow until the contract closed.

This post was published at Bitcoin Magazine on September 30th, 2015.