Blockchain within the insurance domain
Insurance – 101 / What’s the purpose?
Insurance can be defined as a kind of societal cushion against potential disaster – people lose their lives, leaving their families in dire financial straits, they experience ill health, they lose their homes in natural disasters, their pets have illnesses, and they face hardships during their travels. The value of insurance is not fully understood by many people, and specifically, there is practically no public awareness with regards to how blockchain is being harnessed within the insurance domain.
The blockchain confers the capacity to develop trust within a trust less framework through the deployment of distributed ledger technology (DLT), public ledgers, and cybersecurity deployments. Blockchain within the insurance domain has led to many interesting developments, owing to its inherent nature. The ledgers are public, there is no concept of “privilege” here, it is a democratic framework.
In essence, insurance serves as a reprieve in times of loss. A trend within the blockchain domain is DeFi insurance, which is essential for the trade of bitcoins – specifically in DeFi.
DeFi explained – DeFi 101
DeFi can be expanded as decentralized finance. This is a terminology that is harnessed to speak about financial apps developed on the blockchain platform. Blockchain confers upon DeFi all of its intrinsic advantages, and the traits of DeFi are an extension of the traits of blockchain itself.
- Permissionless: The distributed ledger technology is available to everyone, universally. There is only one truth – the publicly accessible truth.
- Transparent: All activities and transactions are recorded on the public ledger, the blockchain. There is no shady business of smoke and mirrors, like, for example, in an MLM.
- Trust less: It is not reliant on the beliefs of the entities taking part, it is neutral and unbiased. Bias, in any form, is poison, and anathema to the truth.
OK, then how exactly can insurance be decentralized?
Decentralized Finance (DeFi) has been in the limelight as of late, and its various extensions like Lending, Commodity Futures Trading (Futures), Derivatives etc, have become a trending subject.
A lesser discussed topic which warrants more attention from the general public is Decentralized Insurance. When it comes to general risk accounts, it is critical to maintain a mechanism to safeguard from risks and threats. A decentralized insurance centre is one of the ideas that can function as protection for DeFi sectors.
Crypto exchanges are extremely susceptible to hacking, Okex, Mtgox, Binance, and lately Kucoin. Or take for instance, the Dapps as a service hack that created shockwaves within the Ethereum community in 2017 that was directly was behind the HardFork call for ETH & ETC. These aforementioned reasons was behind damage not just to end-users but additionally to exchanges themselves. The damages are to the tune of billions and billions of dollars.
What a decentralized insurance centre does is assist in minimizing risk in such scenarios.
The Differing variations of Decentralized Insurance
Crypto wallet insurance: This format is really simple. You might also receive compensations when your digital wallet experiences a hacking event.
Lending cryptocurrency insurance: In the scenario where you borrow DAI cryptocurrency and collateralize it with ETH on compound. If the collateral furnished by the borrower is destroyed or undergoes marking, the loan will be paid back leveraging the policy security.
Etherisc, combined with various other enterprises like Sweetbridge, Celsius, Nexo, Libra Credit, and various others has developed a consortium that safeguards and secures loans that have crypto as collateral, a great application.
Mac McGary, President of the Sweetbridge Alliance stated:
“In the prevailing scenario of volatility, Crypto Loans Insurance (Lending) facilitates borrowers and lenders with a feeling of security regarding cryptocurrency lending networks, which is a crucial step in the push for blockchain proliferation and adoption.
Smart Contract Cover: Insurance coverage will encompass failure components if the address smart contract is identified and harnessed for manipulation, like loss of funding from an investor’s account or if funds are transmitted to an address, i.e. one not owned by the original investor.
It also includes buffers where the money is gone forever and can no more be retrieved. As an outcome, investors and lenders can lend cryptocurrency on the exchange without being too concerned about repaying or losses. Nexus Mutual is one of the enterprises that produced the Smart Contract Cover.
Advantages of Decentralized Insurance
Its offerings provide total safeguards with DeFi deposits. Hedging against cryptocurrency fluctuations and crashes in pricing increases and reduces in an aggressive manner in addition to furnishing security against the potential risk of upgrades and attacks by malicious actors on crypto wallets. It ensures users against any potential DeFi issues, safeguarding technical and financial risks, therefore, developing a feeling of security amongst investors.
Not just this, the platforms also make the total submission, claim, and processing procedure really secure, reliant, and transparent.
The following are the ten leading advantages of DeFi insurance.
- DeFi Deposits Protection (Defi Deposits)
- Protection against cryptocurrency volatility and flash crash (sudden devaluation for example, when bitcoin depreciates by 1-2k$, other altcoins lose 80-90%)
- Obtain crypto-assets instantly.
- Safeguard from theft and compromises on crypto wallets.
- Safeguards from funding being compromised on exchanges.
- Technical and financial hedging.
- Instantaneous payments upon requisition.
- Trust and transparency.
Decentralized insurance holds promise owing to the transparency and security it confers upon investors.
There are just a few products available currently but it definitely has the prospect to grow and experience expansion in the future. DeFi and its applications such as Decentralized Finance will go on to be a dominant force in the market in the upcoming years