What is a Distributed Ledger?

What is a distributed ledger? A ledger is just a list of transactions. It can contain additional information, of course, but it is not supposed to be gigabytes of data per transaction. You may have lots of blockchains that could connect together but the key aspect is that it is a chain. One transaction follows another transaction. That doesn’t mean per organisational transactions, they could be different insurance carriers inputting those transactions but they are joined up.

That means the transactions exist in a chain that can’t be broken without reconstructing the chain around it and taking the link out and putting it back in again. That makes it very difficult for the records and the data in a blockchain to be hacked or deleted.
As Gary Nuttal explains: “A ledger is a record of every single transaction. A ledger shows money transfers typically. A distributed ledger is when everyone has an entire copy of that database.

At the moment the entire Bitcoin database is about 50GB, which means I can fit the entire database on a laptop – the complete history of transactions since 2008. So it’s not a big database at the moment but once we start throwing in other things that will change. Bitcoin is a protocol that “The” Blockchain uses. There are other Blockchains which use a Distributed Ledger approach but not all Distributed Ledgers necessarily use a (or the) Blockchain.”

London Market Blockchain?

The distributed element of this means there are many copies of the blockchain – some complete copies, some partial copies. From a London market perspective it means that you can authenticate the validity of a transaction around the market or around the other users’ copies. There is clear and obvious potential for the Lloyd’s subscription market, for example.

This is also probably going to be a game changer in claims. The data is distributed so the next question that the market will ask is if it’s distributed that means everyone can read the details of our claims? The answer is no because these details are encrypted with technology that allows it to be decrypted potentially by multiple authorised people. Those that participate in the market would have access to the blockchain and would be authorised to add transactions and read transactions.

Blockchain Features

What features might develop then? Some services I see developing are transactional analysis. You want to know how much business you have written in a certain area? Well you can have someone do that for you, by providing them with “read access” to your blockchain entries. It will become possible to pull the data out so it won’t be necessary to ship large amounts of information to large data houses. You can continue to do that but you can have it validated.

We are going to see lots of potential services spinning out to capture industry oriented information. Whether that is organisations providing value back to the insurers or other people in the chain or it could be reinsurers. This isn’t just a business to consumer offering, it’s not just a B2B offering in the insurance sector, it’s also an insurance to reinsurance (I2R) offering so there will be reinsurance blockchains as well.

The business case may come through stripping intermediary inefficiencies out of the (re)insurance value chain. Now it won’t come through all classes of business straight away as there are clearly many classes where brokers add significant value. Most of the inefficient ones have been pushed out but that does not mean that more efficiencies can be gained. In my next blog I look at the security and resilience implications of blockchain.