Blockchain Vocab Every Insurance Professional Will Want to Know
Blockchain technology is beginning to modify insurance operations, helping the industry to overcome some of its challenges. The use of different blockchain technologies within business, including in the insurance industry, varies according to its inception.
Cryptocurrency, like Bitcoin, has been around for more than a decade, but institutions (including insurers) are now starting to hold it as a hedge against inflation.
Enterprise blockchain, in which a private permissioned blockchain network is leveraged to share data and improve multiparty business processes, launched a little over half a decade ago and is just now showing signs of moving toward production within insurance.
Newer uses of blockchain technology — such as decentralized finance, non-fungible tokens and decentralized autonomous organizations — are on the near-term horizon for the industry.
Each of these blockchain technologies will play a role in redefining the insurance industry in the years to come.
For industry professionals, and for everyone else looking to these technologies, it’s paramount to understand exactly what we’re working with. Below is a list of some key terms used in this space.
A distributed ledger that maintains a continuously growing list of chronologically added records called “blocks.” In most blockchains, new blocks and the data within them (transactions, smart contracts and so forth) are confirmed and verified through a decentralized consensus. This verification process removes intermediary validation and establishes trust without the use of a centralized authority.
A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Decentralized Applications (dApps)
Digital applications or programs that exist and run on a blockchain or peer-to-peer network of computers instead of a single computer. dApps (also called “dapps”) lie outside the purview and control of a single authority.
Decentralized Autonomous Organization
An organization that is run through smart contracts and maintains financial records and program rules on a blockchain.
Decentralized Finance (DeFi)
A system by which financial products become available on a public blockchain network.
A type of private permissioned blockchain that can be used to streamline business processes at scale. Enterprise blockchain technology helps to achieve coherent, effective and secure ways of doing business.
Gartner’s Hype Cycle
A graphic depiction of a common pattern that arises with each new technology or other innovation. The five phases in the Hype Cycle are: technology trigger, peak of inflated expectations, trough of disillusionment, slope of enlightenment and plateau of productivity.
Non-fungible Token (NFT)
A unique and noninterchangeable unit of data stored on a blockchain. NFTs can be associated with reproducible digital files such as photos, videos and audio. &