What is blockchain technology?
ZHANG: Blockchain is the underlying technology behind bitcoin and, to put it simply, consists of two parts: one part is block and the other part is chain. The latter is a chain of ownership. The digital coin of bitcoin is represented by the total history of ownership passing from the initial owner to the next owner to the next. All of these transactions are securely encrypted. Block refers to putting transactions—it could be a couple or hundreds or thousands—together into a block. These blocks would be validated by the “validation nodes” in the bitcoin network. If we look into the mechanism behind it, blockchain is actually a distributed database, or ledger, where the nodes in the network keep the balances of all the other nodes. Any node automatically keeps the history of the transactions of all the other nodes. That is the distributed layer of a blockchain, which makes it so special.

On top of that, you can have a smart contract layer. If you think about the bitcoin blockchain as cash transactions, basically this is additions and subtractions on the distributed ledger of balances. If you extend that to more sophisticated math, you can have programs on these distributed ledgers. You can have stocks, bonds, credit default swaps, insurance contracts, all of these can reside on the distributed ledger, and that is what we call smart contracts.

How does this idea of smart contracts change transactions?
EITELWEIN: Blockchain has the potential to provide us a system where we can store transactions, even contracts, in a distributed manner. In the past, we had to have one central database where we put it all together to have a consistent view, and now we can have the same distributed across thousands of nodes provided by all participants. This makes it immutable—unless you can control all of the nodes. We could do transactions, store contracts on this network of nodes, and we wouldn’t need an intermediary that manages this and ensures that everything is consistent. This is quite a new concept for IT architecture, but it’s also a very new concept on how you organize transactions across parties. And that’s the magic of the blockchain as far as we see it.

Is it being used today in insurance and other industries?
EITELWEIN: In a B2B environment, we have pilots and proofs of concept, but we’re not using it productively yet. It is a very new, and still not mature, technology. The potential use cases are pretty apparent: any kind of contract we have in paper or PDF today could be translated into a smart contract on the blockchain. You could close such contracts online, and they would be immediately available to all the participants. A contract would be immutable and could even have program code embedded that executes automatically based on events or a certain point in time. There are a lot of contracts and transactions in insurance and other industries, and these could be modeled, transacted and stored on a blockchain—providing more transparency and more convenience to all.

What are the benefits for customers?
EITELWEIN: As a customer, first of all, I can get rid of paperwork and have a fully digital means of closing a contract in a very secure manner. The second I click “OK,” it would be secured and stored, and it would be active. My ID would be verified automatically. The speed of transaction, the clarity, is something that I find very attractive.

As a customer, I would certainly value this.