Blockchain And Cloud: Kissing Cousins

John Bertrand

Last year, an article in the Wall Street Journal predicted that 2017 is the year that formerly resistant big banks will adopt the public cloud. Even the regulators have given cloud a green light, so no more excuses. It’s time to get a move on! An unlikely accelerant may come in the form of blockchain. The two technologies have a lot in common, and deploying your blockchain pilot projects in the cloud lets you harness the many benefits of both at once.

Let me explain. Both cloud and blockchain have security protection and data encryption baked into them. Cloud’s options of private, community, and public deployment models mirror blockchain’s ability to target specific members in the chain, including regulators and auditors.

Both are strongly resistant to cybercrime. Blockchain is designed to remain a golden source regardless of what cyber criminals on the Internet throw at it. Cloud providers pride themselves on the measures they have in place to create a cyber-risk-free zone. This includes round-the-clock monitoring for suspicious activities and real-time response to such activities. Cloud providers know cyber defense is key and “zero trust” the byword.

And of course, both cloud and blockchain significantly reduce costs. Blockchain, like cloud, removes inefficiencies from its processes. Blockchain could reduce banking infrastructure costs by up to $22 billion, and (unless you’ve been living in a cave) cloud’s efficiencies around infrastructure-as-a-service are well known.

In some of my own research and conversations, I’ve quantified that the five biggest UK banks have an average cost-income ratio of 61% (some individual banks are much higher). They’re all weighed down by silos and restrictions of old legacy systems. It’s hard to be slick and efficient when you’re wading through the legacy quagmire. New challenger banks, on the other hand, have planned a much lower average cost-income ratio; they are starting from a clean sheet of paper, and their 35% cost to serve is considerably less.

While cloud removes old legacy systems, blockchain removes the middleman within such systems. Why would you want to deploy your shiny new blockchain project on an old, restrictive, expensive, and possibly less than safe on-premises system?

Cloud also opens up the bank to immense scale, as we are now seeing with Black Friday, Cyber Monday, and Singles Day, which saw US$17 billion in sales on just one day in 2016. Imagine the supply chain finance activities needed to support that single day’s activities. The traditional legacy system was to build more capacity by buying more computers and more software and hiring more IT people. The cloud provides cybersecurity and pay-as-you-go, so you can scale in safety.

A second generation of banking is coming. We’re already on the cusp of it, and banks are running out of time before they become completely marginalized. As digital transformation sweeps through all aspects of the front and back office, banks must pull their heads out of the metaphorical sand pit. Every single bank is going to need a blockchain strategy, and every single bank is going to need a cloud strategy.  Piloting your blockchain projects in the cloud is not only a no brainer, it’s a necessity.

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