Directors & officers need to be aware of potential risks from blockchain, cryptocurrency and ICOs. (Photo: Shutterstock)

We can’t turn on a television, go online, or engage in a conversation during a cocktail reception without blockchain or cryptocurrency coming up. But beyond the usual exchange of lofty ideas for obtaining exponential returns on an investment, there is typically little discussion of the practical application of the blockchain technology, and even less about the attendant risks associated with investments in cryptocurrencies utilizing the technology. Recent litigation has defined exposure that insurance professionals, particularly those operating in the financial institutions space, should be keenly aware of.

For the uninitiated, blockchain is also often referred to as distributed ledger technology, or DLT. Not coincidentally, the technology operates, at its most basic level, just as its name suggests. The blockchain is a digital ledger that is verified by the users of a network, with the transactions stored in units of data called blocks — and the blocks are securely linked to each other, forming a chain back to the beginning of the ledger. As it relates to digital currency like Bitcoin, the network of peers has a record of all Bitcoin transactions, which have been verified through public and private keys and confirmed through Bitcoin miners. Although this an extremely high-level overview, the technology is best described as a means to make an immutable record of historical transactions.

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