In the world of insurance and financial services, permissioned blockchains and Distributed Ledger Technology (DLT) have been touted as a panacea to reduce administrative friction and replace creaking infrastructure. Successful trials have taken place, such as the B3I consortium’s Codex1 prototype for managing catastrophe excess reinsurance contracts, but these mostly augment systems overdue an upgrade anyway.

Digitalising insurance is a worthwhile aim, but blockchain can be reduced to a brand name as core features are removed to satisfy the projects’ demands, usually by permitting a central body to manage the decentralised system. At this stage, a traditional centralised database would be more suitable and much cheaper. According to a former consultant for the banking-focused R3 blockchain consortium, “in some cases, [DLT] clearly makes matters more complex and generally worse… simply using Blockchain/DLT also does not remove problems that innate to the business.”

Every blockchain project should consider whether the technology matches the use case, and carefully asses the risks of deploying the technology. Using popular protocols entails climate risk, due to the extreme electricity demands required to validate transactions. The enterprise-grade Ethereum protocol currently consumes as much energy as 1.8 million US households, or the entire nation of Tunisia. This could conflict with corporate responsibility pledges, entailing reputational risk. More immediately, core features of blockchain conflict with GDPR. The regulation requires data to be minimised, erasable and attributable, raising compliance risks for decentralised systems.  

Blockchain technology will continue to mature; the World Economic Forum recently highlighted productive experiments in supply chain management and digital payments. But as projects move beyond the research and development phase, it will be painfully obvious which projects are fit for purpose and which have simply created a slower, more expensive database.