Why is blockchain a disruptive technology?
In the previous chapter, you learned what exactly constitutes a blockchain, how it works, and what are the architecture and ecosystems behind the technologies. But why is this technology in the news so often, and why are most IT-driven companies saying it is the most disruptive technology in decades?
Blockchain is going to celebrate its tenth birthday in 2018. Originally developed to support Bitcoin, it has gone beyond the world of cryptocurrencies and into the world of business IT. What started as a shared ledger that can process and settle financial payments in near real time (minutes) using cryptographic computer algorithms, without the need for a third party to verify transactions, has since evolved as an open source technology that can be used by many other applications that need the support of a distributed ledger—from finance to insurance to health care. The technology has the potential to be as disruptive to these industries, and to global financial services in particular, as Amazon was for the retail industry. For example, banks can move away from paper-based financial and legal contracts to smart and secure contracts to manage transactions from loan entry to final settlement.
What truly makes blockchain disruptive is that, in essence, it's a trustless system. It is a system where there is no requirement for trust, since the consensus protocol serves this purpose. Trust is built in to the blockchain through different entities validating transactions redundantly and distributing their results to all other nodes in order to verify that transactions are real and can be performed. The way that the blockchain and the consensus mechanisms work, as explained in the previous chapter, makes the technology very secure and is a major factor in its adoption. It is nearly impossible for anyone to tamper with transactions or ledger records that are present in blockchain. Blocks are digitally secured with a fingerprint that is based on its data, and when someone tampers with that data, the fingerprint will be different and easily recognized by other nodes.
Since blockchain started as an open source technology, no single vendor or corporation owns the basic technology and can patent its design and implementation. The further development of the technology is carried out by the open source community, which includes large vendors such as Oracle, IBM, and Microsoft. There are other kinds of distributed ledger technologies from vendors that are patented, but they work differently and don't contain the core concepts of blockchain. This means that blockchain technology can easily adjust when future needs arise, which is another powerful aspect of blockchain.
Instead of a traditional system of records having a centralized database, blockchain functions as a distributed network model in which transactions are broadcast to and stored in all nodes of that network. There is no single point of failure, so nodes can appear, disappear, or malfunction without affecting the group as a whole. Operations happen in real time on the blockchain, and whenever a transaction occurs, it is broadcast to all validating nodes. One of the nodes validates the transaction and adds it to the blockchain. With many of the consensus protocols out there, the node that creates the block gets a compensation for the work performed. Thus, when some of the validating nodes go offline, they do not impact real-time operations because other nodes can validate the transaction. Inherent in its distributed model, the blockchain is very scalable. Blockchain follows an architecture in which each node (or peer) in the network can run independently of others by having its own processing and storage capability.
The blockchain serves as the underlying engine of your platform. It can support many other applications that require digital and distributed ledger types of operations. For example, road or fire accidents can be registered in a decentralized platform using this technology. Besides using a digital ledger, the more evolved blockchains are programmable. Using programmable IF-THEN-ELSE rules called smart contracts, which can replace financial and legal contracts, you can extend the blockchain by running your backend application directly on it. This creates the opportunity to run your own business models by implementing proprietary customizations.
Blockchain is here to stay, and with every passing day, the interest in this technology is growing. It has been adopted by major companies and investors from banking and non-banking sectors, and it has been endorsed as a primary future technology for banking, insurance, healthcare, and others.