{"id":4707,"date":"2018-02-02T11:00:12","date_gmt":"2018-02-02T05:30:12","guid":{"rendered":"http:\/\/gtm360.com\/blog\/?p=4707"},"modified":"2022-01-26T15:50:41","modified_gmt":"2022-01-26T10:20:41","slug":"flight-delay-insurance-why-blockchain","status":"publish","type":"post","link":"https:\/\/gtm360.com\/blog\/2018\/02\/02\/flight-delay-insurance-why-blockchain\/","title":{"rendered":"Flight Delay Insurance \u2013 Why Blockchain?"},"content":{"rendered":"<p>I covered two Blockchain flight delay insurance products in <a href=\"https:\/\/gtm360.com\/blog\/2018\/01\/05\/axa-fizzy-the-new-kid-on-the-blockchain\/\" target=\"_blank\" rel=\"noopener\"><strong>AXA Fizzy &#8211; The New Kid On The Blockchain<\/strong><\/a> and <a href=\"https:\/\/gtm360.com\/blog\/2018\/01\/19\/atlas-etherisc-another-new-kid-on-the-blockchain\/\" target=\"_blank\" rel=\"noopener\"><strong>Atlas Etherisc \u2013 Another New Kid On The Blockchain<\/strong><\/a>.<\/p>\n<p>In this post, I\u2019ll address the \u201cWhy Blockchain?\u201d question.<\/p>\n<p><a href=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2018\/01\/blockchain-fi-2.jpg\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-4709 size-full\" src=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2018\/01\/blockchain-fi-2.jpg\" alt=\"\" width=\"630\" height=\"280\" srcset=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2018\/01\/blockchain-fi-2.jpg 630w, https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2018\/01\/blockchain-fi-2-200x89.jpg 200w\" sizes=\"auto, (max-width: 630px) 100vw, 630px\" \/><\/a><\/p>\n<p>Here\u2019s a quick recap of the background to this question from the first of the above two posts:<\/p>\n<blockquote><p>&#8230;the techie in me started wondering\u00a0what stopped someone from developing a similar flight delay insurance product on a traditional centralized database architecture&#8230;\u00a0Is there any intrinsic shortcoming with a centralized database architecture that compels one to launch this product only on the distributed database architecture facilitated by Blockchain?<\/p><\/blockquote>\n<p>I\u2019ll first examine what AXA Fizzy and Atlas Etherisc say on the subject and then share my thoughts.<\/p>\n<p>Given below is an extract from the FAQ section of AXA Fizzy&#8217;s website:<\/p>\n<blockquote><p><strong>FAQ: Why does Fizzy use Blockchain technology?<\/strong><\/p>\n<p>When you purchase a policy, fizzy writes the transaction terms (price,\u00a0compensation, expected time of arrival, arrival time to trigger compensation\u2026)\u00a0on a blockchain called Ethereum. The interest of the blockchain is the\u00a0inability to remove previously-written transactions. What\u2019s more, the Ethereum\u00a0Blockchain is public, any crypto developer can therefore check the validity of\u00a0the information we store there. fizzy doesn\u2019t ask you to trust it, rather\u00a0proves it through trustful processes. Last thing, we never share your personal\u00a0information on Ethereum, your data is safe with us.<\/p>\n<p><strong>FAQ: What if I don\u2019t agree with the delay reported by fizzy?<\/strong><\/p>\n<p>fizzy is based on redundant data which enables us to trust its reliability.\u00a0Besides, as we are a party to your insurance transaction, we made sure that\u00a0the payment of your compensation is not decided by fizzy but directly by the\u00a0plane data provider. You don\u2019t have to trust our honesty! In spite of these\u00a0measures, you can contact us through the contact tab in case of any problem.\u00a0You can also find here information on the EU Online Dispute Resolution:\u00a0http:\/\/ec.europa.eu\/odr<\/p><\/blockquote>\n<p>I didn\u2019t find any justification on Atlas Etherisc&#8217;s website for its decision to use Blockchain.<\/p>\n<p>Addressing the potential buyer of its insurance product, AXA Fizzy&#8217;s answers emphasize <em>Trustlessness<\/em>, which is one of the two low-hanging fruits for a Blockchain decentralized app (<em>Robustness<\/em>\u00a0being the other).<\/p>\n<p>As one such prospective customer, here&#8217;s what I think about AXA&#8217;s replies:<\/p>\n<ul>\n<li>I need to trust fizzy to write the transaction terms on the Ethereum Blockchain. Going by <a href=\"http:\/\/lnr.li\/t0cSJ\" target=\"_blank\" rel=\"noopener\"><strong>my experience with Atlas Etherisc<\/strong><\/a>, this is a non-trivial step<\/li>\n<li>The Ethereum Blockchain was rolled back after <a href=\"https:\/\/www.coindesk.com\/ethereum-executes-blockchain-hard-fork-return-dao-investor-funds\/\" target=\"_blank\" rel=\"noopener\">DAO hack<\/a>. Therefore, I don&#8217;t agree with fizzy\u2019s claim that previous transactions are immutable on the Blockchain. While it could be argued that hard forks leading to rollbacks are very rare in the Blockchain world, point is, when they do happen, they&#8217;re driven unilaterally by a very few people who resemble a secret cabal in which the Average Joe \/ Jane Customer has no say<\/li>\n<li>An average air traveler is not a cryptodeveloper, so doesn&#8217;t gain anything from its assurance that &#8220;any crypto developer can check the validity of the information we store there (on the Blockchain)&#8221;<\/li>\n<li>After fizzy has written the transaction on the Blockchain, I may not need to trust AXA to pay out but I still do need to trust its Flight Data Provider (FlightStats.com or whoever it is).<\/li>\n<\/ul>\n<p><em>Prima facie<\/em>, the claim of trustlessness lacks depth.<\/p>\n<p>It becomes even shallower when I compare these two insurance dApps with\u00a0a conventional insurance product running on a centralized database architecture (herewith &#8220;cApp&#8221;):<\/p>\n<ul>\n<li>Once I buy the policy, I get a policy document. I can take a printout to prove the original transaction in case the Insurer tries to change it later. Besides, in my experience of buying dozens of insurance policies in four countries over three decades, <em>not a single insurer has ever changed the terms of the policy after issuing it<\/em><\/li>\n<li>I don\u2019t need to be a cryptodeveloper to understand the basic terms of the policy. Even an average air traveler can understand parameters like price, compensation, expected time of arrival, arrival time to trigger compensation (it&#8217;s another matter that even a cryptodeveloper won&#8217;t be able to understand the fineprint in an insurance policy).<\/li>\n<\/ul>\n<blockquote class=\"twitter-tweet\" data-width=\"550\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">Is <a href=\"https:\/\/twitter.com\/AXA?ref_src=twsrc%5Etfw\">@AXA<\/a> then implying that it tampers with past transactions on its non-Blockchain insurance policies? <a href=\"https:\/\/t.co\/uiX7j9LngR\">pic.twitter.com\/uiX7j9LngR<\/a><\/p>\n<p>&mdash; GTM360 (@GTM360) <a href=\"https:\/\/twitter.com\/GTM360\/status\/915509365758726144?ref_src=twsrc%5Etfw\">October 4, 2017<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>I know Blockchain is evolving. But, at this juncture, it&#8217;s hard to accept that either of the two flight delay insurance dApps I&#8217;ve encountered exhibits trustlessness.<\/p>\n<p>And I\u2019m not alone. I&#8217;ve read at least two serious rebuttals to Blockchain&#8217;s claim to being inherently trustworthy:<\/p>\n<p>As <a href=\"https:\/\/www.btcethereum.com\/blog\/author\/btcethereumadmin\/\" target=\"_blank\" rel=\"noopener\"><strong>btcethereumadmin<\/strong><\/a> says\u00a0<a href=\"https:\/\/www.btcethereum.com\/blog\/2017\/10\/25\/trustlessness-in-action-particls-model\/\" target=\"_blank\" rel=\"noopener\"><strong>here<\/strong><\/a>:<\/p>\n<blockquote><p>\u201cEven an open-source project like Bitcoin that is constantly being reviewed can have trust issues, not from the code but by the developers and reviewers of the code. So trustlessness is more of a term describing an ideal state on the blockchain where code is law with the <strong><em>caveat that humans write code and to err is human<\/em><\/strong>.\u201d<\/p><\/blockquote>\n<p>And to forgive is not divine \u2013 at least not to IT services companies who make tons of money from SIT, UAT and other testing phases of a software project! To quote\u00a0Stephan Karpischek,\u00a0Co-founder of Etherisc and disrupt consulting, from\u00a0<a href=\"https:\/\/medium.com\/the-future-requires-more\/flight-delay-dapp-lessons-learned-a59e4e39a8d1\" target=\"_blank\" rel=\"noopener\"><strong>Flight Delay Dapp\u200a\u2014\u200alessons learned<\/strong><\/a>,<\/p>\n<blockquote><p>Of course we want decentralized governance! Yes, please! In the end this is one of the main reasons why we are so excited about blockchain. However, we all know that <strong>bugs are inevitable, and bugs in smart contracts tend to have drastic consequences<\/strong>. So some form of emergency control and upgrade paths are necessary, and this is much easier to realize with central control.<\/p><\/blockquote>\n<p>And as Kai Stinchcombe explains in <a href=\"https:\/\/medium.com\/@kaistinchcombe\/decentralized-and-trustless-crypto-paradise-is-actually-a-medieval-hellhole-c1ca122efdec\" target=\"_blank\" rel=\"noopener\"><strong>Blockchain is not only crappy technology but a bad vision for the future<\/strong><\/a>:<\/p>\n<blockquote><p>When the novelist proposes the smart contract, <strong>you take an hour or two to make sure that the contract will withdraw only an amount of money equal to the agreed-upon price, and that the book\u200a\u2014\u200arather than some other file, or nothing at all\u200a\u2014\u200awill actually arrive<\/strong>. Auditing software is hard! The most-heavily scrutinized smart contract in history had a small bug that nobody noticed\u200a\u2014\u200athat is, until someone did notice it, and used it to steal fifty million dollars. If cryptocurrency enthusiasts putting together a $150m investment fund can\u2019t properly audit the software, how confident are you in your e-book audit? Perhaps you would rather write your own counteroffer software contract, in case this e-book author has <strong>hidden a recursion bug in their version to drain your ethereum wallet of all your life savings<\/strong>? It\u2019s a complicated way to buy a book! <strong>It\u2019s not trustless, you\u2019re trusting in the software (and your ability to defend yourself in a software-driven world), instead of trusting other people<\/strong>.<\/p><\/blockquote>\n<p>Technology is full of X-less claims e.g.<\/p>\n<ol>\n<li>ebilling will drive paperless billing<\/li>\n<li>digital payments will lead to cashless societies, and<\/li>\n<li>digital channels will result in branchless banking.<\/li>\n<\/ol>\n<p>Most of them have failed at their mission to eliminate X. But many of them have indeed created a less-X outcome in the process e.g.<\/p>\n<ol>\n<li>ebilling has driven less paper billing<\/li>\n<li>digital payments has led to less cash societies, and<\/li>\n<li>digital channels have resulted in less branch banking.<\/li>\n<\/ol>\n<p>I was about to conclude that, in the same vein, Blockchain will aspire to trustless but will at least achieve lesstrust.<\/p>\n<p>I changed my mind when I saw the following screen on the Atlas Etherisc website.<\/p>\n<p><a href=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2018\/01\/BLOCKCHAIN-SMART-CONTRACT-STAMP-DUTY-1.jpg\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-4710\" src=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2018\/01\/BLOCKCHAIN-SMART-CONTRACT-STAMP-DUTY-1.jpg\" alt=\"\" width=\"500\" height=\"482\" srcset=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2018\/01\/BLOCKCHAIN-SMART-CONTRACT-STAMP-DUTY-1.jpg 500w, https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2018\/01\/BLOCKCHAIN-SMART-CONTRACT-STAMP-DUTY-1-200x193.jpg 200w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><\/p>\n<p>Yes, you saw that right: Stamp duty for a Smart Contract!<\/p>\n<p>Stamp duty comes into picture while registering an agreement with a government agency. When a Smart Contract attracts stamp duty,\u00a0it introduces government as a Middleman and thereby belies the claim that Blockchain helps two parties conduct business without an intermediary. By needing stamp duty, Blockchain insurance policies issued by Atlas Etherisc do have an intermediary, namely, the government of Malta.<\/p>\n<p>Based on this experience, a smart contract not only calls for trust in technology but also requires the blessings of a government.<\/p>\n<p>This means that Blockchain demands even <em>more trust<\/em> than a centralized application.<\/p>\n<p>I know this sounds like a sacrilege to Blockchain purists, so I&#8217;m bracing myself for brickbats from them!<\/p>\n<hr style=\"width: 70%;\" \/>\n<p>Let&#8217;s move on to <em>Robustness<\/em>, the second raison d&#8217;\u00eatre for Blockchain dApps.<\/p>\n<p>To ensure high availability of a cApp on a centralized database, its developer not only needs to buy servers, operating system and database software but also needs to do the following things:<\/p>\n<ol>\n<li>Hire DBAs to provision access rights to ensure integrity of the database<\/li>\n<li>Hire Cybersecurity specialists to protect the database and application from DOS attacks and otherwise being hacked<\/li>\n<li>Set up ACTIVE:ACTIVE clustering to provide redundancy \/ fault tolerance<\/li>\n<li>Invest in secondary disaster recovery site for business continuity.<\/li>\n<\/ol>\n<p>All of this costs a lot of money in manpower, hardware, software and real estate.<\/p>\n<p>I&#8217;m sure that every insurance company running cApps spends money on #1.\u00a0 However, I strongly doubt if many of them will be able to justify the high costs of #2, 3 and 4 for a flight delay insurance system. I&#8217;m led to this conclusion after my exposure to a high value payment system owned by a major financial institution:<\/p>\n<ul>\n<li>The FI couldn&#8217;t find a strong enough business case for investing in ACTIVE:ACTIVE infrastructure<\/li>\n<li>When I quizzed its CIO about the FI&#8217;s Business Continuity Plan after floods once struck the English town in which the FI&#8217;s primary datacenter was located, he quipped, &#8220;Mops and buckets&#8221;!<\/li>\n<\/ul>\n<p>Contrast this with a Blockchain dApp. Transactions are cryptographically locked down, so automatically permissioned. Data is distributed across multiple nodes, so there&#8217;s no single point of failure (apart from the hosting provider of the dApp website, that is). As a result, a dApp is intrinsically shielded from data breaches and inherently enjoys fault tolerance. More on this in\u00a0\u201c<a href=\"https:\/\/www.multichain.com\/blog\/2016\/03\/blockchains-vs-centralized-databases\/\" target=\"_blank\" rel=\"noopener\">Blockchains vs Centralized Databases<\/a>\u201d, an excellent article from\u00a0Gideon Greenspan of Multichain.<\/p>\n<p>In a nutshell, you pay virtually nothing to get a highly hardened application on the Blockchain (virtually nothing by way of fixed cost, that is. dApps do attract variable cost in the form of Gas Fees but that&#8217;s a story for another day.)<\/p>\n<blockquote class=\"twitter-tweet\" data-width=\"550\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">Whoa 33% processing charge for an ETH payment. Blockchain or black market? <a href=\"https:\/\/t.co\/1xLr5aQtPu\">pic.twitter.com\/1xLr5aQtPu<\/a><\/p>\n<p>&mdash; GTM360 (@GTM360) <a href=\"https:\/\/twitter.com\/GTM360\/status\/952820223895310336?ref_src=twsrc%5Etfw\">January 15, 2018<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<hr style=\"width: 70%;\" \/>\n<p>AXA Fizzy spins its choice of Blockchain as a customer benefit by emphasizing trustlessness. (I didn&#8217;t see any spiel for Blockchain on Atlas Etherisc&#8217;s website.)<\/p>\n<p>I don&#8217;t buy it.<\/p>\n<p>Based on my current knowledge and experience on the subject,\u00a0<strong><em>Robustness<\/em><\/strong>\u00a0is a stronger driver for choosing Blockchain. More specifically, <strong><em>lower cost of achieving robustness<\/em><\/strong>.<\/p>\n<p>Although that seems like another example of\u00a0<a title=\"Permanent Link to Hiding Your Secret Sauce\" href=\"https:\/\/gtm360.com\/blog\/2015\/11\/06\/hiding-your-secret-sauce\/\" target=\"_blank\" rel=\"bookmark noopener\">Hiding Your Secret Sauce<\/a>, it&#8217;s <em>per se<\/em> not a bad thing.<\/p>\n<p>Lower cost is a benefit for insurance providers but higher robustness is a customer benefit.<\/p>\n<p>This was driven home for the <em>n<\/em>th time when I had to link my insurance policies to my Aadhaar Number (per government mandate). All the three times I visited my insurer&#8217;s website to carry out the so-called &#8220;Aadhaar seeding&#8221;, the website was down.<\/p>\n<p>It struck me that, if only the insurance company had used the Blockchain for its insurance applications, it would have delivered 24*7*365 operations at no cost and delivered superior CX compared to a traditional centralized database architecture.<\/p>\n<p>PS: Since I published the above post, I&#8217;ve come across many updates around Blockchain and dApps that have either reinforced my skepticism about decentralization or raised new doubts about resilience or both. I&#8217;ve consolidated them into a follow on post entitled\u00a0<strong><a title=\"Permanent Link to Blockchain \u2013 Calling BS On Decentralization &amp; Resilience\" href=\"https:\/\/gtm360.com\/blog\/2019\/02\/08\/blockchain-calling-bs-on-decentralization-resilience\/\" target=\"_blank\" rel=\"bookmark noopener\" data-slimstat=\"5\">Blockchain \u2013 Calling BS On Decentralization &amp; Resilience<\/a><\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>I covered two Blockchain flight delay insurance products in AXA Fizzy &#8211; The New Kid On The Blockchain and Atlas Etherisc \u2013 Another New Kid On The Blockchain. In this post, I\u2019ll address the \u201cWhy Blockchain?\u201d question. Here\u2019s a quick recap of the background to this question from the first of the above two posts: &#8230; <a title=\"Flight Delay Insurance \u2013 Why Blockchain?\" class=\"read-more\" href=\"https:\/\/gtm360.com\/blog\/2018\/02\/02\/flight-delay-insurance-why-blockchain\/\" aria-label=\"Read more about Flight Delay Insurance \u2013 Why Blockchain?\">Read more<\/a><\/p>\n","protected":false},"author":4,"featured_media":4709,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18,6,14,13,1],"tags":[],"class_list":["post-4707","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-b2-product-v-services","category-bfsi","category-cx","category-product","category-mandatory-category"],"_links":{"self":[{"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/posts\/4707","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/comments?post=4707"}],"version-history":[{"count":17,"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/posts\/4707\/revisions"}],"predecessor-version":[{"id":9071,"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/posts\/4707\/revisions\/9071"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/media\/4709"}],"wp:attachment":[{"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/media?parent=4707"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/categories?post=4707"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gtm360.com\/blog\/wp-json\/wp\/v2\/tags?post=4707"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}