153k Ether Stolen in Parity Multi-Sig Attack

I think if you examine all the assumptions leading up to your conclusion you may find that it is erroneous.

You point out the non-trivial nature of building a system like we have today. I'd argue that Ethereum, with smart contracts and an immutable public blockchain is a useful innovation that I consider a useful building block for creating and improving the kinds of institutional relationships and interactions that you describe.

A system of insurance implemented on Ethereum would need to have the same sorts of moving parts that you describe. Ethereum would make some aspects of this harder and others far easier.

There would still be a need for collateral, escrow, etc. My comments are not meant to argue that these mechanisms become useless, they simply become more transparent and when viewed in terms of the rule of law, become significantly more resilient when markets become politicized and the rule of law is in danger of breaking down.

Things that would potentially be far easier in an Ethereum based system would be:

- assessing/auditing the books of an entity. Things like proof of solvency become much easier, and also looking at assets which are accounts receivable that depend on another entity's solvency. The modern financial system has very course-grained and inadequate ways of looking at this sort of systemic risk, which makes cascading firm failures truly devastating and nearly impossible to insure against, since any cascading firm failure will involve many ad-hoc regulatory interventions and rule changes that essentially nullify a large number of pre-existing contracts/hedges that might have existed.

- forcing precise regulations. One of the pre-2008 meatspace glitches was the too-little-too-late regulatory decision to force firms to mark certain types of assets to market even if their accounting approach determined that doing so inflated or deflated their balance sheets incorrectly. With a public ledger it would be possible to easily test a new accounting rule's impact on a firm's financial statements.

Think about what puts contracts at risk.

- enforceability. If your neighbor borrows your car and agrees to pay you $20 but never does, you are screwed. With Ethereum the smart contract could lock the door to the car until funds are received. Verbal contracts for low-priced transactions are rarely enforced.

I had a landlord who simply decided not to return my deposit, so I was out $5K. He stole the money simply because I didn't have time to fly back to that city and proceed with small claims court. With Ethereum, there could be an unbiased oracle that verifies the state of an apartment at end-of-lease and allows a contract to refund the deposit as agreed. The oracle could stop by for 15 minutes on move-in day and snap some pictures, then stop by on move-out day and verify the condition and deduct any money from the deposit as previously agreed. Also the contract could enforce that the money was held in escrow as required by law.

- regulatory risk. In some cases, regulators use their aesthetic to determine that some legal contracts are (in hindsight) bad, and they wipe them out. This drastically limits the usefulness of contracts as a planning mechanism and is essentially a tax (in the form of uncertainty) on all contracts. It's like having a buggy VM that does things arbitrarily differently now and then.

- higher confidence in the outcome of a contract. With paper meatspace contracts, the language is hard to understand and is pieced together from legal boilerplate based on court decisions where the court interpreted a sentence to mean something precise, etc. This makes these contracts difficult for a layperson to understand even though they are written in English. When you sign a contract you don't know how many times it has been reviewed by a court and whether the court found any of it to be unenforceable or to otherwise mean something different from what you think it means when you sign it.

We are always signing TOS agreements, license agreements, leases, waivers, etc. etc. Most of these are virgin legal territory, untested in the court system and designed by lawyers to be overly aggressive in favor of the entity the consumer is doing a transaction with. While it's great that all these contracts might one day be reviewed by a court if the stakes get high enough, a much better approach would be to have very simple, easily enforceable terms. How many unique smart contracts for doing insurance does the world need? Probably about as many as it needs AES implementations. Code that matters would be reviewed with far more scrutiny than most verbal contracts ever get, and composing contracts would also be far easier with well-defined, vetted behavior.