Blockchain Architecture – The Complete Guide for Beginners 2019

​Which was the last disruptive technology? The answer is – the Internet.

The blockchain architecture affect our lives in a similar way in the future. But what is blockchain technology and ​what can we expect from it?

The following guide provides everything you need to know about blockchain architecture. Blockchain architecture is already penetrating plenty of sectors within the global economy. On a macro and micro levels.

Blockchain architecture

​What Is Blockchain ​Technology?

​When most people hear blockchain, they immediately think of bitcoin. Blockchain architecture is the main reason behind the success of the cryptocurrency sector. It is now considered a prevalent technology. Suitable for application and optimization of all types of processes within different structures.

​The idea behind the technology is to reach a higher level of security. By decentralization which is achieved with the help of a network. Built from separate nodes where each node can be a user’s computer, for example.

​Blockchain Architecture – a Distributed, Decentralized Public Ledger Technology

 It consisting of a set of records (also known as “blocks”). They are linked together with the help of cryptography.

Storing copies of the records all around the network means that there is no possible risk of losing information.

So:

  • The way the technology is built, as well as
  • the fact that it removes the need of having an intermediary with a central information hub

brings bring transparency. Because everyone on the network can check the copy of the blockchain, stored on his computer.

​Blockchain Architecture Reduces the Risk of Frauds

Because the information can be recorded and distributed, but not modified.

​“Whereas most technologies tend to automate workers on the periphery doing menial tasks. Blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” - Vitalik Buterin, Co-founder of Ethereum and Bitcoin Magazine

KPMG’s research quantified the expected benefits of blockchain adoption. The results are as follows:

  • ​Up to 95% reduction in errors;
  • ​Up to 40% increase in efficiency;
  • ​Up to 25% improvement in customer experience;
  • Up to 75% reduction in costs;

One of the best characteristics of blockchain architecture is its robustness. Up to date, there is no reported point of fail.

But why is the blockchain considered a nearly-perfect technology?

The blockchain architecture should enter a state of consensus.

Or in other words – to receive confirmation from all nodes around the network.

It turns blockchain architecture into a robust and self-auditing ecosystem.

Blockchain checks itself on a certain time frame. This minimizes the risk of errors, frauds, and manipulation.

The History of Blockchain Architecture

The first idea of a blockchain-like cryptographically-secured system was born way back in 1991.

The idea was to provide incorruptible, transparent and efficient technology.

In its current form, the blockchain architecture appeared for the first time in 2008. It was when Satoshi Nakamoto came up with the idea of bitcoin.

His main concept was to create a “purely p2p version of cash”. To achieve that, he decided to refine the initial idea of the blockchain.

The innovation that helped the ledger technology become what it is today was:

  • the method of adding new blocks to the chain without the need of having a third party authorization.
  • the confirmation happens within the system making it a self-sufficient solution.

That way, over time, the blockchain architecture started instilling trust. It was establishing itself as an efficient and transparent way to optimize operations.

​The Current State of the Blockchain Architecture

Blockchain technology and architecture have not even matured yet. But we are already witnessing how it can improve our economy and the way we run our businesses.

Blockchain became famous due to its crucial role in the rise of digital currencies.

Nowadays it has proven efficient in many other niches as well.

The success and the hype around the cryptocurrency industry just helped companies. From various industries recognize the advantages of blockchain architecture.

Today, its blockchain architecture is applied in many industries. For the optimization of a wide range of processes. But we will divide them into two groups:

  • non-finance and
  • finance related:

​​General Application of Blockchain Architecture

At first, the blockchain technology appeared within the digital asset sector. It is now adopted for a wide range of tasks within all types of companies.

One of the most popular applications is for data collection and storage. That's because it provides a  nearly-perfect alternative to the cloud storage services.

Blockchain architecture is starting to evolve as a preferred way to manage information. Within governments, regulatory authorities and high-profile institutions.

The blockchain adoption is eased further by the idea of smart contracts. Smart contracts are the digital version of a real contract in its physical form.

​Due to its decentralized nature, the distributed ledger technology has the power to prevent all types of frauds. Which makes it a perfect solution for handling crucial tasks and processes. Like transaction authorization, identity verification, electronic voting, etc.

​​These computer protocols can ease and verify a certain transaction. Blockchain architecture processes are trackable but irreversible. That's without the need for third parties. In business, smart contracts are used with the main idea to make it easier to track. Whether different parties act by specific terms.

​Blockchain Architecture Makes Sure That the Contractual Terms Are Implemented

At least once all pre-set conditions are met. One of the most common forms of smart contracts is developed under an IFTTT code. If this – then that logic can execute itself upon pre-defined rules.

But what are the real-life applications of smart contracts? Smart contracts are used in the health care sector. For example, where patients’ information is stored under a private key.

That way each patient has its own, easily accessible medical history. Smart contracts also help streamline the communication process between:

  • patients,
  • healthcare facilities and
  • insurance companies.

Once a patient goes through a surgery, the information goes to the insurance company. It happens as a proof-of-delivery. Digital contracts are used for general management issues. Such as drugs supervision, regulatory compliance, supply management, result testing, etc.

They are often used in the music industry as well. Smart contracts can help solve problems like:

  • copyright infringement,
  • royalty distribution, etc.,

by creating a decentralized music rights database within blockchain architecture.

​Blockchain ​Architecture within the Financial Sector

The financial sector is progressively leaning towards blockchain technology. The reason for that is not only the cryptocurrency asset class. In fact, it helps financial institutions streamline their operations in many different ways.

For example:

Anti-money laundering (AML) compliance procedures are optimized by digitizing their legal frameworks.

This helps banks and big financial institutions automate their regulatory reporting processes. Also, it ensures a much-easier transaction verification.

​The Blockchain Technology Helps to Streamline the Order Settlement in Stock Trading as Well

Usually, the settlement procedures are expensive and somewhat risky. Particularly those of cross-border transactions.

That is all because the process involves many parties. Such as brokers, custodians and settlement managers.

Each of them is required to keep personal transaction records. This significantly increases the costs and the risk of potential errors.

Some of the fastest growing companies worldwide rely on blockchain and artificial intelligence. For example, Trade Ideas currently ranks #3012 in the INC5000 2018 with a 3-year growth rate of 134%.

​The blockchain technology benefits the investors by removing the need for intermediaries. They are streamlining the whole process. The transaction process becomes more efficient. And it helps to reduce the costs for authorization and settlement procedures.

​A large number of investment apps are already using this technology. The biggest investment houses will soon launch their first products on the market. It remains to be seen what role classic brokerage accounts will play.

By Encrypting All Stored Records, It Significantly Minimizes the Risk of Errors

In the insurance sector, the blockchain architecture helps optimize the claim processing activities.

Manually-handled time-consuming tasks such as:

  • identifying fraudulent claims,
  • abandoned policies or
  • dealing with highly fragmented data sources

need a significant amount of work which means that there is a large room for errors.

Through encryption, the blockchain architecture helps insurance companies. It identifies the ownership of a specific asset in an easier, risk-free and very transparent way.

​​The Future of Blockchain Architecture

The blockchain technology is expected to become the dominant infrastructure.

Within private and public organizations. The rapid technological development means that we would need to store more and more data.

But it is not only about the volumes.

The storage should be transparent, robust and efficient in every possible aspect. Blockchain provides all that.

Finally, it seems that we have an all-in-one solution.

Future projections do also confirm that:

  • The business value added by blockchain is expected to surpass $176 billion by 2025 and $3.1 trillion by 2030.
  • Blockchain will go mainstream in three main categories. Mobile payments, supply chain, and identity-related issues.
  • The blockchain architecture will completely change the future of finance as well.

The distributed ledger technology will continue to improve the way information is stored. Blockchain architecture will streamline:

  • the accounting services,
  • payment processing,
  • day trading, and
  • investment activities,
  • collateral management,
  • asset registers,
  • etc.

​​Conclusion about Blockchain Architecture

Blockchain architecture has proven to have exceptional potential.

Some of the biggest companies already recognize this potential. They launched their blockchain programs.

To some extent,

  • JP Morgan,
  • IBM,
  • Spotify,
  • Goldman Sachs,
  • Google,
  • Deloitte,
  • Visa

 and plenty of others are all involved with the technology.

Some of them are investing in it. Others are running accelerator programs for startups.

One thing they all have in common is that none of them is letting blockchain architecture pass by.

They are taking advantage of it.

Updated: May 6, 2019