Microsoft Execs Discuss Blockchain's Potential for Industry Disruption

More than 500 people attended a panel discussion Wednesday to hear Microsoft officials explain the company's plans to become a leading provider of enterprise blockchain software and services. Microsoft is among a rising number of IT infrastructure providers and customers that believe blockchain, the distributed ledger technology that has helped enable Bitcoin and the mounting number of cryptocurrencies like it, is poised to disrupt almost every industry.

Two key leaders at the center of Microsoft's marathon effort to build out robust private blockchain capabilities via its Azure cloud service described the technology's potential to upend the economics of many industries during a session at the company's Inspire partner conference, which took place this week in Washington, D.C. The two officials -- Yorke Rhodes, Microsoft's global strategist for blockchain, and Craig Hajduk, a principal program manager for blockchain engineering -- joined myself, Jeremy Epstein and moderator Eric Rabinowitz, CEO of Nurture Marketing, to explain what blockchain is and how they see it bringing about major changes across various industries by removing intermediaries from various processes and transactions.

Microsoft's blockchain efforts, code-named "Project Bletchley," started about two years ago. In the last year, the company has made a push to build Azure blockchain as a service as well. The efforts have gained credibility in the banking, capital markets and insurance industries. They are also of interest in sectors such as manufacturing, logistics and healthcare, where record keeping and security are needed for transactions.

"This technology allows us to digitize assets in a way that we've never been able to do so before," Rhodes said during Wednesday's session. "As soon as I digitize a cow, I can do futures. There's tremendous things going on and this wave of interesting technology is taking us places we've never believed that we could get to before." Panelist Jeremy Epstein, CEO of Never Stop Marketing, has focused most of his time these days working with startups using or offering blockchain-based technology such as Storj.io, OpenBazzar and Everledger because "this thing is like a tsunami 50 miles off the coast, and basically no one knows it's coming," Epstein said.

Blockchain is best known as the open source distributed ledger (think of a shared write-once, read-many shared spreadsheet), that enables bitcoin transactions. Bitcoin, the peer-to-peer cryptocurrency, was considered a breakthrough when it was invented in 2009 because it "was a very novel, creative combination of existing technologies that were out there applied in an interesting way, solving the problem that researchers and computer scientists have struggled to solve up until that point," Hajduk explained in his remarks.

"Blockchain refers to the technologies that sit behind that cryptocurrency and, in fact, there are over 75 different distributions of blockchain or distributed ledger technologies that are available on the market today," Hajduk continued. The amount is actually much higher, evidenced by the number of initial coin offerings (ICOs), or new cryptocurrency startups launched (it's important to point out that these fall outside traditional regulated markets and venture capital fundraising requirements). "There's a lot that you can go into, but the thing to know is that there's a lot of choices for customers and partners today. There's [also] a lot of excitement and hype -- that means it can be very hard to separate what's real from what is just pure hype," he said. "The engineering talent here is frickin' mind blowing, but the marketing is just horrific."

However, it's still early days for blockchain. And while hundreds of large organizations are exploring it and running pilots, no one knows how quickly it will take off.  But there's significant interest and hype around the technology. If you've struggled to get a grasp of what blockchain might portend for existing infrastructure and applications, you're not alone -- it has confounded many veteran IT experts. Rhodes, who also teaches electronic commerce at New York University, said it took him some time and extensive research to get up to speed.

"I discovered blockchain by reading about directed acrylic graphs in the summer of 2015 after Ethereum was launched," Rhodes said. "I started to read, and I started realizing that there were all these new nouns and verbs and I had no clue what they meant, so I studied literally for six months on and then came together with another colleague, some of you may know Marley Gray, and we started this engine and ourselves down the blockchain road."

Having met both of them in May 2016 during the inaugural ID 2020 Summit at the United Nations, Microsoft's extensive blockchain focus came to light for me. That event, and last month's follow-up, put forth the notion that blockchain could someday give everyone a secure and private digital identity, but especially to the estimated 1.2 billion undocumented individuals -- many of whom are exploited and deprived of basic human rights. At last month's ID 2020 gathering, attended by 300 people, Accenture and Microsoft announced that they have jointly developed a digital biometric identity that's based on blockchain.

Microsoft, through its key role in organizing and sponsoring the inaugural ID 2020 event, put the spotlight on how blockchain could become more than just a mechanism for removing intermediaries from financial transactions, a notion that already had the financial services establishment on edge with an urgency to act before upstarts beat them to the punch. Microsoft has quickly won over a large number of well-known banks, financial service market firms and exchanges because of its focus on enabling private blockchains based on Ethereum, along with its commitment to supporting other blockchains such as Chain Core, the IBM-Linux Foundation-backed Hyperledger Fabric and J.P. Morgan's open source Quora in the Azure Marketplace.

"I would tell you that about 50 percent of the investment right now in blockchain-based applications is going into the financial sector," Hajduk said. "Not surprising, [since] this technology came from cryptocurrencies, it does value transfer very well. On the other hand, retail or manufacturing supply chain is an area where there's a lot of participating investment. We also see it in healthcare. It's very important in the public sector as well. So, this is a technology that has broad applicability and has broad interest. It's not really about cryptocurrency -- it's about the shared source of truth and it's about rethinking, reworking and transforming your business. That, folks, is what drives the excitement about distributed ledger and blockchain technology, and that's also why we're here today."

Still, everyone on the panel cautioned that the hype cycle around blockchain has reached fever pitch. "If you look a distributed ledger technology as a whole, the hype is still deafening," Hajduk warned. "I'd say in probably six out of 10 cases [or] seven out of 10 cases, when the engineering team sits down with a customer, they say, 'Oh we really want to do a blockchain project.' When you start to talk about the use cases, most of the use cases will actually not be appropriate for a distributed ledger."

For background on blockchain, see this month's Redmond magazine cover story, "Microsoft's Bet on a Blockchain Future," which explains why blockchain is important to IT pros and developers. Microsoft's blockchain technology is further discussed in an article by Terrence Dorsey, "Inside Microsoft's Blockchain as a Service," while partner efforts are described in the Redmond Channel Partner article, "Microsoft Aims to Eliminate the Middleman with Blockchain."

Posted by Jeffrey Schwartz on 07/14/2017 at 12:28 PM