Like mobile and cloud, blockchain — first implemented in the original source code of bitcoin in 2009 — stands poised to profoundly disrupt business. If it lives up to its promise, it won't just be financial institutions that are disrupted.
"If you can transfer money or something of value through the internet just like another form of data, what else can you do with it? It provides a way to establish trust in the digital world," says Angus Champion de Crespigny, Financial Services Blockchain and Distributed Infrastructure Strategy Leader, Ernst & Young. "How do you ensure something is the original copy of something on the internet? Prior to blockchain technology, you couldn't."
"If you want to prove something happened in the digital world, there is no more secure place to do that," he adds. "Once information is recorded on there, it is, for all intents and purposes, impossible to go back and retroactively change that. When there are such drastic new technologies that emerge, it isn't just a matter of looking at your business and thinking how this technology is going to make your business more effective. What you should be doing is considering that maybe your business isn't structured correctly for this new world."
History repeats itself with blockchain?
In the early days of the Italian Renaissance, Hindu-Arabic numerals from the east and a system of accounting used by the Italian mercantile houses of the various northern Italian republics came together to disrupt the very foundation of business. With the birth of modern double-entry bookkeeping, merchants were able to ensure the integrity of the financial values recorded in their ledgers. Today the system is used in every business.
In some ways, blockchain is a modern form of digital double-entry bookkeeping, but on steroids. Don Tapscott and son Alex Tapscott, authors of Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, And the World, say blockchain represents the second generation of the internet, with "the potential to transform money, business, government and society.
In an article for Time they describe blockchain as "the first native digital medium for peer-to-peer value exchange. Its protocol establishes the rules — in the form of globally distributed computations and heavy duty encryption — that ensure the integrity of the data traded among billions of devices without going through a trusted third party. Trust is hard-coded into the platform. That's why we call it the Trust Protocol. It acts as a ledger of accounts, a database, a notary, a sentry and clearing house, all by consensus."
In essence, blockchain is a distributed database, or "timestamp server," as it was called by the mysterious Satoshi Nakamoto in the paper that proposed bitcoin. The blockchain consists of blocks of items — each block is a timestamped batch of valid individual transactions and the hash of the previous block, creating a link between the two. Because each timestamp includes the previous timestamp in its hash, it forms a chain. Each new transaction must be authenticated across the distributed network of computers that form the blockchain before it can form the next block in the chain.
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