21 million Bitcoin; infinite risks, infinite opportunities

21 million Bitcoin; infinite risks, infinite opportunities

If you spend any time speculating on what a blockchain enabled future will look like, it is difficult to disregard 21. Twenty one is one of the few companies that has both a grand vision and the resources (it has raised $116 million from a stellar lineup of investors) to build out a total stack infrastructure for Bitcoin and roll it out globally.

At RiskBazaar, we take superb interest in the markets that are springing up around public blockchains such as Bitcoin and Ethereum. Part of it is curiosity — it is titillating to go after a space that is attracting the talent and spurring the innovation that these ecosystems are. But more importantly, we are building a platform to facilitate risk contracts (such as insurance contracts) and some of the most attractive opportunities for us are marketplaces that are already facilitating trade on-blockchain using cryptocurrency. There have been a number of ideas generated by the twenty one team and some present opportunities for RiskBazaar. These opportunities can be separated into three distinct buckets.

Fresh contracts

There are a number of risk contracts that become viable in a future being built by 21. (Recall a risk contract is defined as a contract that pays out conditional on the occurrence of a future event.) The Sensor21 network permits you to earn bitcoin micropayments in comeback for collecting environmental data. Crop insurance is already a conventional insurance product but with weather sensors in specific neighborhoods, you open up the prospect of micro weather contracts in specific locations such as insuring against rain on a wedding day or warm weather during a ski excursion. We think that the micropayments made possible by twenty one will permit for a shift in public perception of insurance from a necessary evil to a product that you consider when planning out your life; even your daily routine. The payoff from these contracts can act to offset frustration and perhaps more importantly provide funds for alternative courses of act.

Another risk that will pose opportunities is the variations in the hashing power of the Bitcoin network. At the moment, mining is powerfully centralized but if twenty one succeed, everyone will be considering whether to get a twenty one enabled device that is mining continuously in the background. Suppose a business is considering purchasing a twenty one enabled device and projecting forward whether it will suggest a sufficient financial comeback. One way of hedging a lower than expected financial come back would be to buy a derivative on the hashing power of the network (or to purchase shares on a prediction market such as Augur). Another startup, Hedgy has recently pivoted from cryptocurrency derivative contracts but there will certainly be request for these type of contracts in future especially if cryptocurrencies go on to be traded and/or held by financial institutions.

The request for insurance springs up wherever there is trade. OpenBazaar (protocol for decentralized peer-to-peer online commerce) is so titillating because trade is now bubbling up on the blockchain that provides opportunities for transaction insurance (insurance against not receiving the promised good/service or a refund). The Machine economy that twenty one is facilitating with machines trading data and services for bitcoin provides a similar chance wherever there is the possibility of default. This may be due to a device malfunctioning or the coded contract not executing as planned. As the machine economy evolves, the opportunities it presents RiskBazaar should become a little clearer.

Pricing

Fresh sources of data also suggest opportunities for pricing risk contracts. The existing paradigm is that corporations like Google, Facebook and LinkedIn own your online identity and your private data. A fresh paradigm that is beginning to be built on the blockchain mitts ownership of identity and private data back to the individual user. This data need only be released when in the interest (financial, social or convenience) of that user. The same goes for reputational data. At the moment all reputation data on sharing economy platforms is possessed by specific platforms (e.g. Uber, Lyft, Airbnb). This means that drivers who have built up a reputation on Uber are incapable to leverage this reputation to generate business on Lyft. Ebay sellers will practice the same problem when seeking to bootstrap their existing reputation on Ebay to a fresh marketplace such as OpenBazaar.

21 micropayments will provide a channel for consumers to sell their data to research organizations or sales representatives of companies. It may be the case that users release data to specific parties for free in exchange for receiving cheaper services (e.g. insurance premiums). However, when selling or advertising directly to a consumer, it is in the interest of the seller to know as much about the target consumer as possible and they now have the option of using micropayments to coax consumers to release this data.

Claims settlement

The machine-payable web facilitated by twenty one will see machines transferring value inbetween themselves. Funds can now sit at the device level (locked with a cryptographic private key on the device) rather than on a centralized database at a bank or an insurer. From an insurance perspective, this has evident implications for digital supply chains that increasingly contain sensors and Internet of Things devices. When there is a minor disruption or a petite claim event at some point on the supply chain, it is now possible for the situation to be resolved without resorting to a central fund or direct interaction with the insurance company. This means that smaller, predictable claims can be processed efficiently and at near-zero cost.

Another project that interested us was a Mechanical Turk service embarked by Jeff Garzik that provides an API for automating and comparing work by human workers. Albeit some insurance claims will be able to be processed without human oversight, many in the brief term will require humans to verify that evidence provided by the policyholder justifies a claim payout. For example, imagine you want to make a claim on a policy that insures you against mobile phone theft. You will need to submit evidence (e.g. a police report) that your phone was stolen to receive the claim amount. Albeit it is certainly plausible that machine learning or AI could verify a valid police report in future, for now we will predominantly need to rely on human oversight hence the need for Mechanical Turk like services.

These are a few of our preliminary ideas when musing over some of the twenty one releases and projects thus far. Some will evolve in unexpected directions but you certainly can’t argue that there isn’t a lot for the next wave of Bitcoin developers to get their teeth into!

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