 The financial revolution has begun, blueprints for decentralized institutions are being drawn up and certain securities are embracing the blockchain. I'm MJ, the student's act tree, and in this video I want to talk about how catastrophe bonds will benefit from being placed on the blockchain. Now this video is part of a series on blockchain and finance that is sponsored by smart cash, and so what we're going to be doing is giving away $25 worth of smart cash to the top comments, but I'll talk more about that at the end of this video. First off, I want to start off by explaining what a catastrophe bond is. I'm then going to describe a blockchain feature called granularization, and I'm going to conclude with how granularization will make catastrophe bonds available to all investors and the benefits that this will bring to society. But let's start with catastrophe bonds, what are they? Well, they're simply an instrument that transfers risk from one party to another. It's kind of like insurance, but an easy way to think of a catastrophe bond is to think of insurance in reverse. Let me explain with an example. Let's pretend I buy a beautiful new car. Now I spend a lot of money on it and I'm worried that if I crash I won't be able to cover the cost to repair it. I don't want this risk and I'm prepared to pay someone to transfer the risk to them. So, with traditional insurance, I pay a monthly premium, let's say $100 to an insurance company. If I don't crash my car, they keep my premium. If I do crash my car, they'll pay me a benefit, let's say $2,500 to repair my car. So I'm paying the premiums upfront and I get the benefit after the risk event occurs. So after my car crashes, then I get the money. With a catastrophe bond, the opposite happens. I receive the benefit at the beginning. So I'm going to get $2,500 upfront and I'm only going to pay this back along with the premium, let's say the total is $3,000 then, if I don't crash my car. If I do crash my car, I don't have to repay this and what is nice is that I'm going to have the money upfront so that I can immediately repair my car and get back on the road. I don't have to wait about that whole claim process. Now catastrophe bonds are only made available to parties with the highest level of trust as there is a risk that they may not be repaid. Parties that are considered very trustworthy are large cities like San Francisco and Tokyo. These cities can use catastrophe bonds to cover the damages of a natural disaster, such as an earthquake or a tsunami. But let me explain with another example. Investors will give San Francisco billions of dollars at the beginning of the year. If an earthquake occurs, San Francisco can use this money to immediately pay for the rescue services and repair the damages. If an earthquake doesn't occur by the end of the year, then San Fran will return the billions of dollars plus a premium. The premium is usually a little bit more than the fixed interest rate to accommodate the investor for the additional risk. Now I've mentioned that the risk transfer mechanism requires trust and most of us are aware that blockchains can help reduce the need for trust. But that's not what I want to talk about. Instead, I want to talk about this blockchain feature called granularization. And granularization is the idea that each bitcoin can be fragmented into one million pieces, commonly known as satoshis. Now how does this apply to catastrophe bonds? Well catastrophe bonds are huge billion dollar instruments that can only be enjoyed by the largest of investors. Investors such as Fidelity Investments. I mean these guys have 2.1 trillion dollars under management. Other examples are BlackRock with 6.2 trillion and Vanguard with 4.5. Now they can enjoy catastrophe bonds. And I'm going to use the word enjoy because catastrophe bonds are less correlated to other asset classes. So because they're less correlated, they're going to give more of a diversification benefit to the portfolio, which means the overall holding has a better risk to reward ratio. Basically what this means is that they're going to make a lot more money in their portfolio due to the way they've assigned the risk. Now granularization allows this giant catastrophe bond that could only be enjoyed by the largest of investors and it can be fragmented into tiny little pieces that your everyday investor can afford. Imagine buying a $1 Los Angeles fire coin. If a fire occurs, the city can use that money to repair the city, in which case the coin's value might drop to say 50 cents. But if no fire occurs and the city remains peaceful, then the value of the fire coin is going to rise as the city is going to reward the investors. Now what this does is that it creates a financial instrument very similar to a catastrophe bond, but it's going to have a lot more liquidity because there's going to be so many more investors and it's going to be so easy to trade. But another thing that it's going to do, it's going to be a cryptocurrency with incredible price stability. There's no speculation, we know what the price is going to be and how it's going to change through time. And this is going to make it a lot more attractive when it comes to be used as a bartering tool over the internet and as a payment mechanism. But that's not the end of it. Blockchain plus catastrophe bonds brings a heap of other benefits to society. What they do is they allow cities to transfer catastrophe risk to investors all around the world. They give diversification benefits to your everyday investors portfolio, which means they're all going to benefit from those things that we mentioned earlier. This is also going to make catastrophe bonds more popular and allowing all cities to have access to immediate finance in case disaster strikes. This is going to allow cities to find emergencies and save thousands of lives. The crypto market is maturing from these get rich quick schemes to initiatives that add value to society. And that's why I'm really happy to have partnered up with smart cash and we're going to be releasing a series of videos around these topics. So make sure you subscribe because coming up next week we're going to be talking about reinsurance transfer in blockchain. Then we're going to be talking about tax systems and blockchain in the following week and we're going to end off with foreign markets and blockchain. So like I say, this is going to be coming out one every week starting now. So make sure you subscribe so that you get the alerts. I've also created another video which just describes what smart cash is. So make sure you check that video out and remember that if you've got a smart cash address, it's very easy to get it. I'll put a link in the description below and how to do that. And your comments on this video include your address. And if it's a good comment, you're going to be rewarded with some smart cash. Thanks to this amazing coin. Anyway, thanks so much for watching guys. Cheers.