When is a blockchain not a blockchain? Microsoft pushes further into distributed ledger world with R3

Microsoft Corp. continued its drive to become a key player in blockchain technology this month, signing a deal with technology provider R3 and therefore opening the door to dozens of banks at the same time.

R3 is a technology firm that has signed partnerships with more than 40 banks to develop blockchain technology that will create distributed ledgers for the financial industry. It has signed banks including Barclays Plc, Credit Suisse Group AG, Wells Fargo Securities LLC and UBS Group AG.

The financial industry is increasingly interested in blockchains as a way to streamline key processes in the banking industry, many of which are outdated and cumbersome.

Instead of processing all transactions on a central computer and using a central ledger to keep track of everything, blockchain technology enables multiple participants to process the transactions together, providing a decentralized ledger that everyone has a copy of. The advantage is that it cuts out the central party, eliminating a bottleneck and making the entire process more transparent.

Large technology companies have seen the benefit of blockchain technology, and many of them are building out their capabilities in this area. Microsoft is among the leaders, and has been steadily building out its Blockchain-as-a-Service technology, based on its Azure cloud system. It has signed many blockchain technology providers as partners, putting their technology on Azure. These include Ethereum, which is viewed as the leading light in the alternative blockchain space, along with Ethereum developer Consensys, and Eris Industries, a company offering a blockchain development platform that is focusing heavily on the financial sector.

R3 had tested its technology with other potential partners, including Amazon and IBM, the latter of which is also developing its own public blockchain technology. The Microsoft deal grants its member banks access not just to its Blockchain-as-a-Service tools, but also to the suite of tools from other vendors on its platform. There will also be a team of staff dedicated to serving projects by R3 members.

When is a blockchain not a blockchain?

All of this moves the blockchain concept further away from the decentralized operation that its original advocates envisaged. Cloud computing workloads can be distributed between different datacentres, meaning that software could be more easily run in a variety of regions to avoid the kinds of Azure service failures that we’ve seen lately. However, if it ran on Azure, those instances would still all be on Microsoft’s infrastructure, creating centralization of a sort.

As blockchains move into the financial sector, many of the original design principles of the original bitcoin blockchain appear to be falling by the wayside. A day after it announced the Microsoft deal, R3 launched Corda, a distributed ledger which its CTO Richard Brown explicitly said is not a blockchain. Instead of allowing everyone to see and agree on every transaction, it allows only those parties privy to a transaction – including the regulator – to see it.

In his blog post on the subject, Brown summed up why banks don’t need parts of the original blockchain paradigm – and probably cemented the financial industry’s departure from that model, given R3’s impressive partner base.

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Jim Love, Chief Content Officer, IT World Canada

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Danny Bradbury
Danny Bradburyhttp://www.wordherder.net
Danny Bradbury is a technology journalist with over 20 years' experience writing about security, software development, and networking.

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