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Hip to be square: Microsoft gets in early on blockchain technology

The tech giant announces a partnership with big banks to develop blockchain technology. Also in Searchlight: IT spending expected to slide; Trump hotels get hacked -- again.

Microsoft kicked off its Envision conference in New Orleans on Monday with news of a partnership with a group of 40-plus banks to collaborate on blockchain, the distributed-ledger technology the cryptocurrency bitcoin is based on.

Hearing details about anything distributed or like a ledger doesn't sound like an ideal way to work up an appetite for crawfish étouffée and a night in the French Quarter. But blockchain technology, which can store transaction history of all kinds of records, is getting a lot of attention from tech companies and other corporations as a way to reduce costs and cut out fraud, especially in the finance sector -- and Microsoft is staking a lot on the deal. 

Essentially, a tech startup called R3 and the consortium of banks it started, including Goldman Sachs, Citigroup and Bank of America, will work together on projects that use blockchain, such as new platforms for stock trading or securities. In the words of Peggy Johnson, executive vice president of business development at Microsoft, the R3 group will "experiment and learn faster, accelerating distributed-ledger technology deployment" using the cloud service Azure.

CIOs may take that to mean they should start looking at blockchain as part of their efforts to adopt digital business models. And in fact, Microsoft is marketing its as-a-service service as suitable for companies of any size. But the Microsoft partnership is perhaps better seen as a testing ground for a technology that's still largely untested.

Not mainstream -- yet

"There's a lot of hype surrounding blockchain," Forrester Research analyst Martha Bennett dashed off in an email on a day of air travel. "The quicker it can be established what works, what doesn't work and what needs to be done to make it work, the better. To me, that's the key of this partnership."

To put it in the popular tech parlance of today, it's a way to fail fast. And it's better to let big banks with big research-and-development budgets do that kind of experimenting. For CIOs excited about the possibilities of blockchain, Bennett told me on a laptop connection at Logan International Airport in Boston, hold off. If you can solve a problem you have with established technology, do that instead. Blockchain is not ready for prime time.

Not that it doesn't hold promise. Blockchain is a kind of database that's shared among a network of computers. It's being pursued as a way for companies in finance and other industries, and even individuals, to make safer, more secure transactions without a need for middlemen, such as payment processors or brokers.

Bennett understands what the excitement is about, and she stressed she's not opposed to blockchain. But she said it's too soon for most organizations to just buy the technology and put it into production. They may do that and have to start over, or they may see early some success and then try to scale that up to meet day-to-day business demand and find it doesn't work. And there's a litany of regulatory and compliance issues to work out.

"It's not like, I need CRM; I go to Salesforce. I need HR; I go to SuccessFactors," she said. "We are nowhere near that with anything to do with blockchain."

New kids on the blockchain

But partnerships like the Microsoft-R3 one is a good place to start, she said. And with IBM also setting out to make blockchain more palatable for business, Microsoft clearly thinks it's time to get going, too. The grand goal of the collaboration, Johnson said, is to bring about "tremendous opportunities to rethink business processes and transform entire industries."

One person excited about the Microsoft announcement is Perianne Boring, founder of Chamber of Digital Commerce, an advocacy group for blockchain technology. The partnership, she wrote in an email, is a great way "to help leverage the further buildout of this impactful and truly market-changing technology."

How impactful and market-changing? In a blog post, Microsoft's Marley Gray said banks see blockchain as "the underpinning for transformative new services." Indeed, just this week, The Wall Street Journal reported that JPMorgan Chase and Citigroup have tested the technology as a way to process credit-default swaps.

There could be uses outside of finance, too. Gray wrote that distributed-ledger technology can be used in the government sector to give more transparency to processes such as personal identification and voting records. In healthcare, blockchains could "eliminate all the cumbersome, costly third-party verifiers, such as health information exchanges, by directly linking patient records to clinical and financial stakeholders."

Forrester's Bennett said there are certainly some interesting developments. Some companies, she said, are looking to tie blockchain technology with car or bicycle rentals, using "smart contracts," applications that automatically verify and enforce the negotiation of a contract.

"But then, how do you interface that with the real world?" she said. "If I rented a bicycle and I return it, how do you make sure that I returned the bicycle in good working order? And what happens if I damage the goods that I've rented? So there are still quite a lot of things that simply have not been thought through just because somebody had a bright idea of how you could use blockchain."

That's not to say the kinks can't be worked through, Bennett said, not just in the Microsoft-big-bank partnership, but in others as well, like the Linux Foundation's Hyperledger Project.

"That's why I'm so glad to see that these things are going on," she said.

CIO news roundup for the week of April 4

Microsoft was talking up blockchain in New Orleans. Here's other tech news that made headlines this week.

  • IT spending worldwide will dip in 2016, predicted Gartner in a new report, which found a 0.5% decline from 2015 to $3.49 trillion. The forecast is a revision from earlier this year, when the analyst outfit saw an increase in spending of 0.6%. Analyst John-David Lovelock wrote that currency fluctuations are responsible for the change, as is a dose of mild caution amid "undercurrents of economic uncertainty." Organizations are continuing to invest in IT, but to stay competitive in an era when consumers are doing their business online, they're investing in digital initiatives. So they're spending less on physical equipment and more on cloud-based services, which typically cost less.
  • The FBI and the Secret Service are investigating an attack on computer systems at the Trump Hotel Collection, a luxury hotel chain tied to Republican presidential candidate Donald Trump. The chain wouldn't disclose the nature of the attack, but security reporter Brian Krebs cited anonymous banking industry sources who've said credit card systems were compromised at some of the dozen-plus Trump hotels worldwide. This may be the second time hackers accessed credit card data at the hotel chain. It admitted in September that hackers invaded systems at Trump properties in the U.S. and Canada, potentially stealing guests' credit card data. The hacking collective Anonymous went after Trump's own websites on April 1, forcing several offline temporarily.
  • Afghanistan's Taliban rebel group put an app for Android phones in Google's Play Store on April 1, then quickly took it down to solve "technical issues," according to spokesman Zabihullah Mujahid. Then an English version of the app, called "Voice of Jihad," which had Taliban news, videos and updates, was found on Amazon. Amazon removed the app Thursday. "All apps in the Amazon Appstore must adhere to our content guidelines and the app in question is no longer available from our store," Amazon said in a statement. The app that was on Google, called Alemarah, "is part of our advanced technological efforts to make more global audience," Mujahid told Bloomberg.
  • Virtual reality has no place on the T, warned the Massachusetts Bay Transportation Authority, after a video of man wearing a virtual-reality headset appeared to be playing a game while riding a trolley on the Green Line -- part of Boston's light-rail system -- was widely circulated on Facebook and Reddit. MBTA officials said passengers on the transportation network, known as the T, should be mindful of goings-on around them at all times. Sgt. Luke Taxter, of the Boston Police Department, commented on the video on Twitter: "The EXACT OPPOSITE of being aware of your surroundings."

Check out our previous Searchlight roundups on biometric surveillance in the war on terrorism and Congress' consideration of blockchain security.

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