Originally Published by Financial IT
Cast your mind back to the emergence of cloud around a decade ago. Financial Services (FS) organisations that adopted cloud technology early benefited from increased scalability, flexibility, improved security, and reduced maintenance responsibilities. This gave them the edge over competitors, who were – and in many cases still are – encumbered with a fragmented patchwork of systems running on legacy infrastructure.
Fast forward to today, and we’re on the cusp of another technological shift in the FS sector – the rise of enterprise blockchain. Many businesses in the financial sector have already seen the value of blockchain, with early adopters like JP Morgan and HSBC investing heavily in proprietary solutions.
Enterprise blockchain is not to be confused with the hype-driven world of cryptocurrency. Instead, it’s about the underlying technology, a database mechanism that provides a secure, decentralised way to store information that is tamper-proof and immutable. In the FS sector – and beyond – blockchain-based applications help organisations ensure greater traceability, transparency, and operational efficiency. Common use cases include securitisation, payments and settlements, tokenisation, and syndicated loans.
The Right Approach
There’s no doubt that blockchain has the potential to truly revolutionise financial services, however, it must be approached correctly. Hosting and storing blockchain-based applications on-premise poses significant efficiency, reliability, and security challenges and is not the best approach for leveraging the technology’s full power and capabilities. Instead, FS companies considering blockchain should look to the cloud. Cloud hosting is a natural fit for this revolutionary technology and is the only way to capitalise on the full potential that blockchain offers.
The Perfect Match
If you understand basic blockchain functionality, it’s easy to see why cloud hosting is the best option for this new tool. By definition, blockchains are decentralised, distributed ledgers. This means that decision-making power is not held by one central body, but instead is distributed across a network of users – also called nodes – building on the blockchain. The users decide by majority rule which new blocks can be added to the chain, and which cannot. The more nodes there are, the safer the blockchain becomes as there are more people checking each other’s work and ensuring that no faulty code is added to the chain. Additionally, more nodes help protect against network failure, as even if one node or group of nodes is compromised, there are many others still supporting the network. In a nutshell, blockchains are stronger when they are broadly accessible. With more users across regions participating, the network is naturally more secure and resilient. Cloud hosting is perfectly suited to enabling this broad access, which is crucial to ensure the security and redundancy that financial services companies require.
Driving efficiency is another focus for the FS sector. Blockchain applications are complex and can require significant energy to run, which in turn can drive up costs. Buying and managing on-premise servers to support a blockchain network is both time-consuming and inefficient, not to mention expensive. Working with a reliable cloud provider who can offer a globally distributed cloud infrastructure is the most efficient and cost-effective approach to managing blockchain applications. Having an extensive network is critical to ensuring the security and redundancy previously mentioned, but a wide network also helps reduce drag and downtime and preserve continuity, all of which are crucial for this sector. In addition, a distributed cloud network delivers scalability that on-premise hosting cannot, which gives the flexibility needed for growth and expansion.
Tailored Hosting
What kind of cloud you choose depends on the specifics of your application. When there are heavy processing requirements at scale and constant use (not bursting), it’s more cost-effective to go with a private cloud. However, when looking at heavy usage for a short time (bursts), a public cloud can be the better option. Look for a cloud hosting provider who can offer both options and who has the experience and expertise in the space to advise on the best path for your needs. Cloud hosting experts can provide a level of consultancy and management that is hard to achieve with on-premise options. Experienced providers can help you analyse and overcome any challenge related to your blockchain technology stack and provide the ongoing maintenance and support needed to drive productivity.
There’s no questioning that blockchain technology holds immense potential for the FS space, with several early adopters already reaping its benefits. However, blockchain remains a nascent technology, and approaching it correctly is crucial. Utilsing cloud infrastructure is the most efficient, secure, reliable, and cost-effective approach to running blockchain applications in the FS sector, and truly across industries. The cloud offers myriad benefits over on-premise hosting and is the perfect complement to blockchain’s distributed approach. For forward-thinking companies considering blockchain, choosing the cloud to host their infrastructure is critical to unlocking the potential of this powerful new tool.
