Risks of Blockchain

Technology is at the infatuation stage. Adoption of new-age technologies without proven mechanisms could bring potential risk to your organization. One of the biggest technology buzzwords of recent years is the blockchain. It is much hyped as the ‘next Internet’ for the predicted impact it is set to have on the world, across all industries. It was only in 2009 that we saw cryptocurrency and Blockchain come into existence. Similar to the internet, Blockchain was initially the underlying technology for cryptocurrency transactions. It only gained popularity after Bitcoin became a hot selling cake.

There has been an increasing interest in blockchain technology from the Insurance and health care sector in the last couple of years. The value proposition for using blockchain technology in the health care sector is to share sensitive patient data among health care entities securely and to empower patients.

Blockchain technology allows patients to have an active role in developing and updating their own data. However, is blockchain technology really the silver bullet it seems to be?

When innovation and security implications concerning blockchain technology in health care were discussed it was found that there is a need for more use cases to ensure the secure sharing of data within the health care sector. It was found that blockchain technology will not solve the issues encountered by the health care sector; in fact, it may raise more issues than it will solve.

More than 20% of global executives are of the opinion that blockchain technology is all hype, as doubts about its industrial applicability increase due to the recent collapse of the Blockchain Insurance Industry Initiative (B3i), as per GlobalData.

While the blockchain technology promises to drive efficiency or reduce costs, it has certain inherent risks. It is imperative that firms understand these risks and the appropriate safeguards in order to reap the benefits of this technology. Additionally, it’s important to understand the evolution of regulatory guidance and its implications.

Whilst blockchain and distributed ledger technology is certainly complex, uses have emerged in the insurance industry, notably in parametric insurance for natural disasters and catastrophes. B3i consisted of many key players in the (re)insurance industry. That none of them seem to have the impetus to revive the project suggests many do not see a viable endgame to the initiative.

“Blockchain has often been a poorly defined and misunderstood topic. It’s association with the world of cryptocurrencies and digital assets has left it with a poor reputation among many people.” After a few years of hype around 2019 and 2020, negative sentiment appears to be creeping back in for blockchain, which is likely also driven by the collapse of cryptocurrency values in 2022.

As per Deloitte, Blockchain technology will transform business models from a human-based trust model to an algorithm-based trust model, which might expose firms to risks that they may have not encountered before. In order to respond to such risks, firms should consider establishing a robust risk management strategy, governance, and controls framework.

S Mohini Ratna, Editor, VARINDIA