The cloud is already transforming how we access and consume computing resources. The blockchain, an emerging concept, envisions a world where people, organizations and machines interact and transact with little to no friction and, perhaps most importantly, without the involvement of intermediaries. What happens when these two technologies meet?
The 451 Take
We don't see the blockchain as a replacement for cloud computing, but rather as an automated execution and enforcement layer that can help resolve trust, identity, accountability and data security challenges. In addition, we believe it has the potential to usher in new use cases, redefine business models, and reshape our economic and social systems. As with other foundational technologies, regulatory, governance, organizational and societal barriers to adoption will have to fall, but we believe that the blockchain presents vast potential for the future. Cloud storage is a major use case that can benefit from blockchain technology. However, it's not only about what the blockchain can do for the cloud, but also what the cloud can do for the blockchain – experimentation with the blockchain will get easier and less risky as cloud service providers launch blockchain-as-a-service offerings via their clouds.
A blockchain is a decentralized, distributed and replicated digital ledger of transactions, which are created by and accessible to trusted parties within a business network that enter into contractual relationships.
The 451 Take
We don't see the blockchain as a replacement for cloud computing, but rather as an automated execution and enforcement layer that can help resolve trust, identity, accountability and data security challenges. In addition, we believe it has the potential to usher in new use cases, redefine business models, and reshape our economic and social systems. As with other foundational technologies, regulatory, governance, organizational and societal barriers to adoption will have to fall, but we believe that the blockchain presents vast potential for the future. Cloud storage is a major use case that can benefit from blockchain technology. However, it's not only about what the blockchain can do for the cloud, but also what the cloud can do for the blockchain – experimentation with the blockchain will get easier and less risky as cloud service providers launch blockchain-as-a-service offerings via their clouds.
A blockchain is a decentralized, distributed and replicated digital ledger of transactions, which are created by and accessible to trusted parties within a business network that enter into contractual relationships.
Context
The blockchain codifies and controls essential negotiation conditions necessary in business and contractual relationships by requiring consensus among the parties, tracking the chronology of entries and their ownership, and assuring that the entries are coherent, final and can't be modified after created. All this is achieved without the involvement of a trusted third party or central authority.
The blockchain was born with Bitcoin, as the underlying technology developed in 2009 for creating and trading the virtual currency, but it became quickly apparent that its potential goes far beyond. The future of Bitcoin is uncertain (given it is fueled by speculation); however, its lasting legacy is likely to be the blockchain.
An example of that is Ethereum, launched in 2015, which expands Bitcoin's capabilities. Ethereum is not just a distributed ledger, it's also a distributed computer, able to process 'smart contracts' (essentially pieces of code, and probably the most transformative blockchain application at the moment) and record them.
Whether data is moved, processed or stored in the cloud, the blockchain can add traceability (openness and transparency) by telling you what happened to the data – who accessed it, where/when it was moved, etc. Individuals and organizations administering, accessing, or using the cloud can essentially be held accountable for their actions, as the immutable and cryptographically secured blockchain allows verification of what happened when, without the involvement of any third parties.
The blockchain does not replace cloud computing; rather, it helps further decentralize the cloud by adding a layer of automated trust and enforcement. It can run business applications, probably the most promising of which are smart contracts, where the business logic or rules are represented by software code that runs on a decentralized architecture. Physical resources are managed by the trusted parties within a business network, in a crowdsourced-like manner.
Smart contracts automate the verification, execution and enforcement of the terms and conditions of a contractual arrangement. Basically, any task that can be written as a piece of code can be automated without any central authority. This is in stark contrast to how the majority of business transactions are organized today.
Overall, we believe that the blockchain is a foundational technology that has the potential to accommodate new types of businesses, and disrupt established business models and entire industries. Many compare its potential future impact to that of the internet (TCP/IP). As we discussed in a previous report, the blockchain and smart contracts can enable decentralized applications (DApps) and decentralized autonomous organizations (DAOs), which would create new foundations for our economic and social systems.
There are many challenges and barriers – technological, organizational, regulatory and societal – that need to be overcome before the blockchain can reach widespread use and adoption. However, its potential shouldn't be overlooked. It will take time for the blockchain to seep into our economic and social systems; however, there are practical examples of how blockchain technology can substantially change (and arguably evolve) cloud computing, as we discuss below.
Cloud storage
One, if not the most, important area to be transmuted by the blockchain is data storage and sharing. Currently, when we use cloud storage, we trust third parties to keep our data secure. This is similar to how we trust banks to keep our money safe. A blockchain can be used to create a distributed and decentralized storage market, where unused storage capacity meets storage demand.
Data and files are encrypted and distributed across nodes. Payments can also take place over the blockchain. Benefits include decentralization, redundancy, transparency and improved privacy (no one but the end user holds the key to the encrypted data), all at an arguably reduced cost.
Storj.io, created in 2014 and out of beta in March 2017, is a blockchain-based cloud storage service, where anyone can sell extra storage space, and the owner of the data is the only one who has access to it. Storj.io does not host the infrastructure, but instead uses a distributed and decentralized network of devices, which means that even if the storage service fails, users are still able to retrieve their data and files.
The startup claims it can make file storage cheaper, faster and more secure. It offers storage for $0.015 per gigabyte/month, which it compares to AWS S3 at $0.023 per gigabyte/month, and Microsoft Azure at $0.030 per gigabyte/month (although comparisons vary greatly by capacity, bandwidth usage and region).
It also competes with Dropbox, the popular file sharing and synchronization service, that offers 1TB of storage capacity for $8.25. Dropbox charges a flat rate even if just a fraction of the capacity is used. Storj.io, like AWS and Microsoft, charges only for what is used.
A key differentiator from most cloud storage services is that Storj.io is built on open source software released under the MIT license (more permissive for proprietary modifications than the more widely adopted GPL), which makes it relatively easy for developers to integrate it with their applications either for internal use or for services built on top of Storj.io.
The startup recently decided to switch from the Counterparty to the Ethereum platform, to benefit from an environment where development is more active, features are added regularly, bugs are quickly fixed, and transactions are usually confirmed within seconds to minutes, among other things. Storj.io shreds and encrypts all data on the client side, and not on the server side, like other competing services.
Storj.io is not the first attempt at a peer-to-peer storage service. Wuala, launched in 2008 and shut down in 2015, allowed end users to store each other's data, only paying if they used more capacity than they offered to the service. Blockchain technology has the potential to reenergize this segment by offering the unique combination of p2p data transfer, cryptography and distributed ledgers that guarantee the integrity and safety of data without the involvement of a central authority – just like with cryptocurrencies, data cannot be copied or transferred without the owner's key.
The Storj.io distributed cloud storage service is an early example of the vast possibilities blockchain-based data storage and sharing can do. In the future, it may also be used to enable dynamic pricing for storage capacity based on supply and demand trends (e.g., via an open capacity market), as well as peer-to-peer encrypted data/file sharing between devices such as smartphones and connected machines.
Further application areas include digital identification and authentication systems, instant messaging and inter-organizational record keeping and database sharing, to name a few.
Blockchain as a service (BaaS)
As previously mentioned, there are challenges that must be resolved before blockchain-based business applications can enjoy widespread adoption, and adoption will most likely be gradual.
However, experimenting with the blockchain will get easier as cloud service providers such as IBM, Microsoft and AWS launch their blockchain services using their clouds. Organizations can use these services to test out single-use applications, learn the ropes, and move on to more advanced applications.
Besides the opportunity to experiment, these services allow end users to easily create private and public blockchain environments. IBM Blockchain is a set of cloud services that allows customers to create, deploy and manage blockchain networks. It leverages Hyperledger Fabric v1.0 from The Linux Foundation, and is available through a beta program on IBM Bluemix.
Microsoft's Blockchain as a Service is designed to work with the Ethereum blockchain (Microsoft is a founding member of the Enterprise Ethereum Alliance). The company provides a set of templates on Azure that allow customers to deploy custom blockchain networks. Customers are only charged for the underlying infrastructure – consumed compute, storage and network resources. By offering Ethereum as part of Azure, Microsoft is making it available to a large number of cloud users, and is helping spur further innovation.
To round out the list of major cloud providers supporting blockchain, AWS teamed up with the Digital Currency Group to create a BaaS offering for financial services firms in 2016.
The blockchain codifies and controls essential negotiation conditions necessary in business and contractual relationships by requiring consensus among the parties, tracking the chronology of entries and their ownership, and assuring that the entries are coherent, final and can't be modified after created. All this is achieved without the involvement of a trusted third party or central authority.
The blockchain was born with Bitcoin, as the underlying technology developed in 2009 for creating and trading the virtual currency, but it became quickly apparent that its potential goes far beyond. The future of Bitcoin is uncertain (given it is fueled by speculation); however, its lasting legacy is likely to be the blockchain.
An example of that is Ethereum, launched in 2015, which expands Bitcoin's capabilities. Ethereum is not just a distributed ledger, it's also a distributed computer, able to process 'smart contracts' (essentially pieces of code, and probably the most transformative blockchain application at the moment) and record them.
Whether data is moved, processed or stored in the cloud, the blockchain can add traceability (openness and transparency) by telling you what happened to the data – who accessed it, where/when it was moved, etc. Individuals and organizations administering, accessing, or using the cloud can essentially be held accountable for their actions, as the immutable and cryptographically secured blockchain allows verification of what happened when, without the involvement of any third parties.
The blockchain does not replace cloud computing; rather, it helps further decentralize the cloud by adding a layer of automated trust and enforcement. It can run business applications, probably the most promising of which are smart contracts, where the business logic or rules are represented by software code that runs on a decentralized architecture. Physical resources are managed by the trusted parties within a business network, in a crowdsourced-like manner.
Smart contracts automate the verification, execution and enforcement of the terms and conditions of a contractual arrangement. Basically, any task that can be written as a piece of code can be automated without any central authority. This is in stark contrast to how the majority of business transactions are organized today.
Overall, we believe that the blockchain is a foundational technology that has the potential to accommodate new types of businesses, and disrupt established business models and entire industries. Many compare its potential future impact to that of the internet (TCP/IP). As we discussed in a previous report, the blockchain and smart contracts can enable decentralized applications (DApps) and decentralized autonomous organizations (DAOs), which would create new foundations for our economic and social systems.
There are many challenges and barriers – technological, organizational, regulatory and societal – that need to be overcome before the blockchain can reach widespread use and adoption. However, its potential shouldn't be overlooked. It will take time for the blockchain to seep into our economic and social systems; however, there are practical examples of how blockchain technology can substantially change (and arguably evolve) cloud computing, as we discuss below.
Cloud storage
One, if not the most, important area to be transmuted by the blockchain is data storage and sharing. Currently, when we use cloud storage, we trust third parties to keep our data secure. This is similar to how we trust banks to keep our money safe. A blockchain can be used to create a distributed and decentralized storage market, where unused storage capacity meets storage demand.
Data and files are encrypted and distributed across nodes. Payments can also take place over the blockchain. Benefits include decentralization, redundancy, transparency and improved privacy (no one but the end user holds the key to the encrypted data), all at an arguably reduced cost.
Storj.io, created in 2014 and out of beta in March 2017, is a blockchain-based cloud storage service, where anyone can sell extra storage space, and the owner of the data is the only one who has access to it. Storj.io does not host the infrastructure, but instead uses a distributed and decentralized network of devices, which means that even if the storage service fails, users are still able to retrieve their data and files.
The startup claims it can make file storage cheaper, faster and more secure. It offers storage for $0.015 per gigabyte/month, which it compares to AWS S3 at $0.023 per gigabyte/month, and Microsoft Azure at $0.030 per gigabyte/month (although comparisons vary greatly by capacity, bandwidth usage and region).
It also competes with Dropbox, the popular file sharing and synchronization service, that offers 1TB of storage capacity for $8.25. Dropbox charges a flat rate even if just a fraction of the capacity is used. Storj.io, like AWS and Microsoft, charges only for what is used.
A key differentiator from most cloud storage services is that Storj.io is built on open source software released under the MIT license (more permissive for proprietary modifications than the more widely adopted GPL), which makes it relatively easy for developers to integrate it with their applications either for internal use or for services built on top of Storj.io.
The startup recently decided to switch from the Counterparty to the Ethereum platform, to benefit from an environment where development is more active, features are added regularly, bugs are quickly fixed, and transactions are usually confirmed within seconds to minutes, among other things. Storj.io shreds and encrypts all data on the client side, and not on the server side, like other competing services.
Storj.io is not the first attempt at a peer-to-peer storage service. Wuala, launched in 2008 and shut down in 2015, allowed end users to store each other's data, only paying if they used more capacity than they offered to the service. Blockchain technology has the potential to reenergize this segment by offering the unique combination of p2p data transfer, cryptography and distributed ledgers that guarantee the integrity and safety of data without the involvement of a central authority – just like with cryptocurrencies, data cannot be copied or transferred without the owner's key.
The Storj.io distributed cloud storage service is an early example of the vast possibilities blockchain-based data storage and sharing can do. In the future, it may also be used to enable dynamic pricing for storage capacity based on supply and demand trends (e.g., via an open capacity market), as well as peer-to-peer encrypted data/file sharing between devices such as smartphones and connected machines.
Further application areas include digital identification and authentication systems, instant messaging and inter-organizational record keeping and database sharing, to name a few.
Blockchain as a service (BaaS)
As previously mentioned, there are challenges that must be resolved before blockchain-based business applications can enjoy widespread adoption, and adoption will most likely be gradual.
However, experimenting with the blockchain will get easier as cloud service providers such as IBM, Microsoft and AWS launch their blockchain services using their clouds. Organizations can use these services to test out single-use applications, learn the ropes, and move on to more advanced applications.
Besides the opportunity to experiment, these services allow end users to easily create private and public blockchain environments. IBM Blockchain is a set of cloud services that allows customers to create, deploy and manage blockchain networks. It leverages Hyperledger Fabric v1.0 from The Linux Foundation, and is available through a beta program on IBM Bluemix.
Microsoft's Blockchain as a Service is designed to work with the Ethereum blockchain (Microsoft is a founding member of the Enterprise Ethereum Alliance). The company provides a set of templates on Azure that allow customers to deploy custom blockchain networks. Customers are only charged for the underlying infrastructure – consumed compute, storage and network resources. By offering Ethereum as part of Azure, Microsoft is making it available to a large number of cloud users, and is helping spur further innovation.
To round out the list of major cloud providers supporting blockchain, AWS teamed up with the Digital Currency Group to create a BaaS offering for financial services firms in 2016.
Csilla Zsigri
Senior Analyst, Cloud Transformation & Blockchain
Csilla Zsigri is a Senior Analyst for 451 Research’s Cloud Transformation channel. Csilla also works on custom research, providing strategic guidance, as well as market and competitive intelligence, to technology vendors, service providers and enterprises.
Daniel Bizo
Senior Analyst, Datacenter Technologies
Daniel Bizo is a Senior Analyst for Datacenter Technologies Channel at 451 Research. His research focuses on advanced datacenter design, build and operations, such as prefabricated modular datacenters, highly efficient cooling and integrated facilities and IT management to achieve superior economics.
Keith Dawson
Principal Analyst
Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.