Laurent Benichou AXA Next

The Blockchain Predictions

Future of insurance
Sep 13, 2017

Blockchain raises a lot of questions. Some say it will change the world, some have more doubts. One thing is certain: blockchain is a technology worth studying, with the potential to disrupt entire industry sectors. So, will Blockchain put an end to banks, put a stop to fraud or corruption, and even enable citizens to produce and sell their own energy? Here are our predictions on the blockchain revolution!

Prediction #1: The rise of blockchain will put an end to banks

Is blockchain technology a threat to the future of banks? Some say yes, but the answer is not that simple.

The big attraction of blockchain is its promise to eliminate the trusted third party, ensuring the reliability of peer-to-peer (P2P) transactions without an intermediary. But the founding role of banks is precisely that – to act as a trusted third-party and guarantee the security of transactions between individuals and/or companies. So, are banks a thing of the past?

Not really. First, because banks themselves can use blockchain technology to reduce their costs, both as suppliers of payment solutions and as suppliers of savings products. Second, bitcoin and other cryptocurrencies constitute a new asset class that banks – as traders, market makers and suppliers of savings products – can monetize. Some funds already offer investments in currencies like bitcoin and working to have these cryptocurrency investments included in traditional investment vehicles. For example, Grayscale Investment, Winklevoss Bitcoin Trust and SolidX have filed with the US regulatory authority to create an exchange traded fund (ETF) based on the price of bitcoin.

All things considered, blockchain will definitely revolutionize the banking sector, but in the short term, banks will probably adopt the technology themselves.

In the longer term, however, projects like bitcoin and its Lightning Network overlay may be a fierce competitor in the payment business currently dominated by banks. The Lightning Network overlay makes it possible to defer the sending of transaction data to the blockchain and register only the balance of transactions. This enables a higher volume of trading and transactions. Furthermore, Initial Coin Offerings (ICO) will provide a way for some companies to raise funds using blockchain and circumvent the restrictions that apply to traditional investment funds. ICOs may become more widespread, first disrupting fundraising activity and then trading itself.

Prediction #2: With blockchain tech, people will be able to produce and sell their own energy

A dream come true for all those who dread the arrival of their monthly electric bill! The idea of producing and selling energy using blockchain may not be as far-fetched as it seems.

In fact, with SolarCoin, the sale of self-produced electricity is already a reality. SolarCoin is a cryptocurrency generated by the production of solar energy: any owner of a solar PV system, whether an individual or a business, can earn SolarCoins. Today, blockchain also makes it possible to certify the quantity of energy traded and sold, using systems like TransActive Grid. This cooperative system in Brooklyn, New York plays the role of a local electricity grid and enables households in the neighborhood to trade electricity securely in a decentralized way. But these grids are rare, limited to one area with a few thousand residents at most.

That means there's a problem, and it can be defined in two words: storage and distribution. Currently, renewable energies are difficult to store. If you install solar panels on your roof, you can supply your immediate consumption of electricity, but you can't store it to use it later. Trading electricity requires storage infrastructure, which is still much too costly for the average consumer.

As long as affordable storage solutions are not available, P2P power trading on a large scale is not an option. Initiatives are being taken to overcome this obstacle, such as the Tesla Powerwall, a device that does enable the storage of renewable energy at home. But this equipment is far from being widely available for now.

If it were, would a radical change be in store for the electricity grid? Nothing is sure. The telecom network is an example of a centralized system that the Internet P2P network has not rendered obsolete. Furthermore, transmission over high-voltage lines reduces loss, having a two-level centralized network with both high-voltage and distribution lines will probably be the norm for years to come.

Scientific advancements in superconductivity, i.e. developing materials with zero resistance when carrying electricity, will eventually eliminate losses in the grid. Add that to better power capture and storage equipment, and we can envisage a sustainable P2P energy production and distribution system.

Prediction #3: Will blockchain put a stop to fraud and corruption?

Blockchain operates as a completely decentralized ledger, verified in real time by thousands of miners all around the world. That's why it is said to be tamperproof. But is it really?

Until now, the best-known blockchain, the bitcoin blockchain, has confirmed the truth of the statement. No one has succeeded in hacking the system to forge a document or embezzle money.

However, all blockchain systems do not guarantee the same level of security: consensus can be achieved in various ways – using proof of work, proof of stake, practical Byzantine fault tolerance, Paxos, etc. – and employ cryptography of varying effectiveness. Considering the technical weakness of some types of consensus, one might even say they undermine the very concept of blockchain.

In addition, even if we accept that the technology is secure, everything outside of the technology is not. For example, it is said that blockchain can be used to validate diplomas. True, once a diploma enters the network it can no longer be tampered with. But nothing stops a person from forging a diploma before depositing it into the blockchain system. Therefore, security must also be guaranteed upstream, which is not, strictly speaking, under the responsibility of the blockchain system. It is also necessary to know who is injecting data into the blockchain, whether that person has a secure key, etc. The whole architecture of the solution outside of the blockchain itself must be secured and un-attackable for an element or document that is not an integral part of the blockchain be traded risk-free.

In the area of payments and accounting, bitcoin is particularly well-suited to ending accounting fraud. All bitcoin transactions can be traced and easily grouped together in one accounting system. Bitcoin can also facilitate tasks such as declaring VAT (which would be done automatically) and might enable tax authorities to directly verify the accuracy of corporate financial statements. However, this implies a paradigm where all payments are made in bitcoin, which will probably never happen. Currently, bitcoin is a supplemental currency in addition to commonly used legal currencies like the euro, the dollar and the pound. In the future, it is likely that alternative cryptocurrencies, such as Monero, Zcash or Bitcoin “v2”, will reinforce the privacy of data to keep information about financial transactions using blockchain from becoming publicly accessible: in sum, they will combine the benefits of blockchain security with greater privacy surrounding the data it contains.