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July 22, 2016

Disrupters set to be disrupted as EY warns of blockchain threat to cloud providers

News: Blockchain is expected to reach critical mass in finances in the next five years.

By James Nunns

For many cloud is one of the most disruptive technologies to have hit businesses, but even those innovative disruptors are having to look over their shoulder at blockchain technology.

The hype around blockchain, the distributed ledger technology, has been growing significantly in the financial services industry but now it seems that cloud companies could face their own disruption if they don’t develop their own offerings leveraging it.

According to a report by EY, ‘Blockchain reaction: Tech plans for critical mass’, cloud companies may see a new generation of blockchain driven vendors take their place.

The report looks at how blockchain is posing a threat to existing vertical tech vendors saying: “We anticipate critical mass in financial services technology in a 3- to 5-year time horizon, with other industries following quickly.”

Warning that those who responded slowly to the mobile or cloud disruption “paid a high price” the report suggests that the same may be true for blockchain technology.

“Blockchain technology has the potential to streamline and accelerate business processes, increase cybersecurity and reduce or eliminate the roles of trusted intermediaries (or centralized authorities) in industry after industry,” said the report.

The reason why the technology poses a threat to cloud is that blockchain is a good mechanism for distributing a computing workload, the report said: “Already, a blockchain start-up offers ‘distributed cloud storage.”

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While it may be some time until blockchain starts to threaten cloud service providers it is already beginning to have an impact in financial services.

One reason why blockchain is considered to be heading towards critical mass faster than previous technologies is because it is arriving in the midst of the digital transformation period, the report said.

As businesses look increasingly at new technologies to replace their legacy systems the chances that they will look at something like blockchain is increased. Previously with legacy systems firmly entrenched it would have been less likely for something like distributed ledger technology.

“Consequently, despite the obstacles still to be overcome, businesspeople and governments are preconditioned to recognize blockchain’s potential. Tech companies have already established much of the digital infrastructure required to realize blockchain business visions,” the report said.

Many barriers still exist for blockchain to overcome such as the perception of it and practical technical issues, however, these are issues that should be overcome as the technology matures and more work to improve it.

Despite the barriers the report goes on to suggest a few potential scenarios for the technology such as embedded finance. It is predicted that the long-term blockchain vision is of markets that run by themselves, with finance embedded directly into natural activities occurring within those markets, “the finance industry will look very different than it does today,” EY said.

One of the possible scenarios for embedded finance would be using the technology to host all-inclusive records of an automotive ecosystem. This would mean that ownership, financing, registration, insurance, and other transactions could all be tracked together.

According to the report this would make it possible for a manufacturer of driverless cars to place its cars in a ride-hailing company’s fleet.

“Every time the car is paid for a ride, a blockchain smart contract with embedded financing delivers a revenue share to the manufacturer,” said EY.

Currently there is a huge amount of hype around the technology but with banks and others very much still in the testing and proof of concept phase it just remains potential rather than a reality.

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