Blockchain Technology and Life Insurance

There are also inherent problems that perhaps should be considered pertaining to centralized banking and fiat currencies, the foremost of which concerns the manipulation of currencies by central banks (i.e., the Federal Reserve).

Well-known Bitcoin proponent and influencer Robert Breedlove may have best summarized the emerging crypto ideology best, in talking about the printing of money as devaluation of currency. He refers to this devaluation by governments and central banks as theft or a kind of de facto taxation by governments without the political ramifications.

DeFi: An Entirely New Solution, or Revamping the Old?

Congressional officials posed the question to prominent crypto industry leadership, oversimplified here, as to whether the crypto industry is reinventing something or rehashing the old model. This questioning related largely to the advent of what are called "stable coins" tied to the U.S. dollar.

The point is that, in some ways, DeFi requires the same components for success as centralized systems. Both systems need a stable currency and a wide variety of uses and cases. DeFi components take the form of stable coins, which are dramatically increasing, and the current belief is that the central banks intend to issue their own stable coins.

But the old model vanishes with the advent of "smart contracts," which provide the framework for the functioning of DeFi apps and services because they encode the necessary terms and activities to function with total autonomy.

For example, a smart contract for a lending app would contain the exact terms and conditions for lending and borrowing. So lending is conducted by a specific code rather than a lending institution.

To get a bit more "techy," a software stack contains the components of a decentralized finance system. This stack would have four layers: settlement, protocol, application and aggregation.

Settlement, Protocol, Application and Aggregation Layers

An oversimplification of these layers is that the settlement layer is the programmable framework (application) such as Ethereum.

The protocol layer is where the rules are.

The application layer is where the "consumer facing" application is, such as an exchange like Coinbase.

Finally, the aggregation layer is where aggregators connect services from the previous application layer to provide a service to investors, such as lending platforms on a crypto exchange.

Despite respectable market caps such as Ethereum's, which, as of this writing, is at just over $500 billion, DeFi is assuredly in its infancy.

The DeFi ecosystem is still plagued with structural problems, and scams are an ever-present concern.

There are also questions concerning DeFi regulatory problems due to its open and relatively distributed nature when financial regulations are designed around the idea of separate financial jurisdictions.

Still, DeFi, while uncertain, is arguably forging a valuable path toward a new kind of finance, offering access and a forum that may become more reliable than the current centralized system for the reasons discussed above.

The Inevitable Collision Between Life Insurance and Blockchain Technology

Bitcoin, DeFi and blockchain technology offers many possibilities, most of which would be highly speculative at this stage. To reiterate what we know a bit more clearly, life insurers are cautiously getting involved, as mentioned concerning forward-thinking companies such as MassMutual and MetLife.

Future adoption of blockchain technologies appears likely due to its autonomous, fast and secure nature. The expansion of Bitcoin investment by the companies themselves also appears likely as an alternative to gold and the lack of alternatives to hedge against inflation.

On another level, there are aspects to permanent life insurance and its utilization as an asset (or alternative source private financing), that is oddly synergic with the philosophies that appear to be driving the emergence of Bitcoin, blockchain and DeFi.

For example, high-cash-value whole life proponents invoke originators such as Nelson Nash in aiming sharp criticism at central banking practices like fractional reserve banking. These observations, which are decades old, square pretty well with Breedlove's concerns about aptly named "fiat currencies."

With all of the above in mind, we do know is that current monetary practices are driving a fair amount of concern, given inflation, huge national debt, printing currency and interest rates hanging in the balance. Only time will tell how the future is shaped by these emerging new monetary technologies and the impact on the life insurance industry as a whole.

Steve Gibbs is the co-founder and owner of Insurance and Estates. He is admitted as an attorney in California and Florida, and he is a licensed life and health insurance agent in 50 states.

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(Image: Adobe Stock)