Sergey Nazarov is the co-founder of Chainlink, a decentralised oracle network that provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain. In this podcast we discuss the fundamental opportunity blockchains along with smart contracts, connected to real world data via oracles, can provide in creating a level of hyper reliability for transactions to occur that hasn’t been possible up to now.

We also discussed how blockchain, smart contracts and oracles can create better insurance products and transform insurance cash flows into securitised tokenised assets.

 
What is blockchain?
Blockchains are tamper proof data structures that end up creating an immutable highly reliable record of smart contract state or contractual agreement between parties.

The way they do that is through the use of cryptography they prove that the data and the proof within a blockchain is actually reflective of what happened.

For Sergey the fact that you have a system of record and a system of executing transactions that’s hyper reliable is actually a very unique innovation in the history of contracts and in the history of how people interact with each other. Because traditionally what you would have had are multiple parties, within a transaction, keeping their version of what happened.

That means two important things. (1) that version of history, is their vision of history, whether it’s right or wrong. That version for example may have been corrupted or manipulated to their benefit. (2) It's a version of history that they can't easily present as a reliable proof of what happened to other parties, whether that's the counterparty or whether that's a regulator. This inability to prove what's happening in a transaction or prove what the underlying value of an asset or prove what happened in an insurance kind of agreement is what leads to the big problems in the global financial system as was seen in the 2008 financial crisis.

The 2008 financial crisis was really a problem of proving that certain assets were in a certain state, and that certain people were in a certain state of solvency. Because everybody had their own version of history, and no one had a unified, single trustworthy version of history, the markets became dislocated and disconnected from reality.

Blockchain provides the ability for all parties in a transaction to have one single, hyper reliable form of history that everyone knows is true. And therefore, nobody even needs to keep their own copy.

 
Smart contracts
A smart contract is a tamper proof digital agreement that is represented on a blockchain. Blockchain provides a data structure, where the data about a transaction is hyper reliable. With smart contracts you now have a certain logic and conditions that gets executed, as coded into the contract. This is a hyper reliable system that sits outside the control of any of the people in the contract.

Sergey believes that smart contracts should instead be named tamper proof digital agreements. Smart contracts take standard digital agreements and provide a level of unique guarantee that digital agreements can’t provide because they’re not secured cryptographically on a blockchain.

 
Trust in a brand vs cryptography
The relationship and the brand of an insurance company or financial institution is there to assure you of solvency and of reputational loss if the contract is mishandled, misrepresented or not executed properly.  Reputation brand is essentially a mechanism to guarantee reliability.

The internet has created a paradigm shift by being able to reliably guarantee a relationship between a user and the outcomes they expect from an internet base...