Many commentators have predicted that the use of blockchain technology will greatly expand in the coming years. They envision uses in all types of business, including the healthcare sector, financial services arena, and supply chains.
Blockchain is the technology that makes Bitcoin work. Satoshi Nakamoto—the creator of Bitcoin—described it as a “peer-to-peer network using proof-of-work to record a public history of transactions.” As Forbes recently put it, blockchain technology is “a distributed and immutable (write once and read only) record of digital events that is shared peer to peer between different parties (networked database systems).” Just last week, the Minneapolis Federal Reserve Bank President said that the “conventional wisdom now is that blockchain and the underlying technology is probably more interesting and has more potential than maybe Bitcoin does by itself.”
In January, Accenture and McLagan released a report finding that blockchain may “reduce infrastructure costs for eight of the world’s ten largest investment banks by an average of 30 percent, translating to $8 billion to $12 billing in annual cost savings for those banks.” Earlier this year, Accenture teamed up with BP, BNY Mellon, Intel, JP Morgan, Microsoft, Thomson Reuters, and UBS, among others, to form an alliance to works towards putting blockchain to use for businesses.
While blockchain is said to increase security, the technology is not without its risks. See Hunton’s article regarding blockchain and security risks, which can be found here. In 2015, Interpol said that hackers could use blockchain to transfer malware to computers. In 2013, a blockchain in the Mt. Gox Bitcoin exchange, which was handling 70% of all bitcoin transactions, suffered a glitch resulting in Bitcoin temporarily shedding a quarter of its value.
Thus, companies should consider how their insurance policies and particularly how their cyber insurance policies can protect them against risks arising out of the use of blockchain technology. To take one example, one insurer’s policy form provides coverage for the “failure or violation of the security of a Computer System,” and defines “Computer System” to include “‘cloud computing’” and other hosted resources operated by a third party service provider . . . .” It is not clear whether the insurer would consider blockchain technology to fall within this definition, particularly because blockchains are peer-to-peer networks not operated by a third-party.