Unlocking Blockchain's Potential: Why Cloud Hosting is a Key Strategy for Financial Servicesby@hyvemanagedhosting
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Unlocking Blockchain's Potential: Why Cloud Hosting is a Key Strategy for Financial Services

by Hyve Managed HostingOctober 10th, 2023
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Early adopters in the financial sector are harnessing the power of blockchain technology. However, to fully unlock its potential, embracing cloud infrastructure is vital. This combination offers efficiency, security, scalability, and cost-effectiveness, particularly for permissioned blockchains. Learn why hosting blockchain in the cloud is the strategic choice for forward-thinking enterprises in the financial industry.
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Remember the early days of cloud adoption? Well, early adopters of cloud technology reaped the rewards of today’s cloud offerings of enhanced scalability, flexibility, heightened security, and reduced maintenance obligations. That placed them ahead of their competitors who, in many instances, still struggle with fragmented IT ecosystems rooted in outdated infrastructure.

The recent emergence of enterprise blockchain marks the brink of another such technological shift, and enterprises across industries have already recognized its potential. Fintech and financial services have taken hold of blockchain hosting with trailblazers like Morgan Stanley, Goldman Sachs, and JP Morgan investing substantially in tailor-made solutions.

However, it's crucial to differentiate between enterprise blockchain and the media-hyped world of cryptocurrency. Enterprise blockchain focuses on the foundational technology, a database mechanism that establishes a secure, decentralized method for storing tamper-proof and immutable information.

Common scenarios where this technology is applied encompass securitization, payments and settlements, tokenization, and syndicated loans. That said, enterprise blockchain can be expensive with its bespoke hardware needs to reduce latency and the professional expertise needed to manage the cloud effectively.

Adopting the Right Strategy

There's no denying that blockchain holds the potential to revolutionize financial services, but the approach must be precise. Hosting and managing blockchain-based applications on-site is far from the optimal way to harness its prowess and capabilities since it poses significant challenges in terms of efficiency, reliability, and security.

Instead, fintech firms exploring blockchain should direct their attention toward the private cloud. Private cloud hosting seamlessly aligns with this innovative technology and stands as one of the most effective ways to fully capitalize on blockchain's potential due to how easily companies can customize their needs in the private cloud versus other cloud solutions.

A Perfect Pairing

A basic understanding of blockchain functionality underscores why cloud hosting is the superior choice for this new tool. Fundamentally, blockchains are decentralized, distributed ledgers. This means that decision-making authority isn't vested in a central entity; rather, it's dispersed across a network of users known as nodes who contribute to the blockchain's development. By majority consensus, these users determine which new blocks can be appended to the chain and which cannot. More nodes translate to a safer blockchain, as a larger number of users cross-check each other's work to prevent erroneous code from infiltrating the chain.

Furthermore, an increased number of nodes offers protection against network failures. Even if a node or group of nodes is compromised, many others sustain the network. In essence, broader accessibility fortifies blockchains. With participation from users across various regions, the network naturally attains enhanced security and resilience. Cloud hosting seamlessly facilitates this broad access, a critical factor ensuring the security and redundancy imperative for financial services and fintech enterprises.

Improving efficiency also remains a key focus within the financial services sector. Blockchain applications are intricate and can require substantial amounts of energy to operate, which inevitably escalates costs. Procuring and managing on-site servers to support a blockchain network is not only time-consuming and inefficient but also exorbitant.

Collaborating with a dependable cloud provider, with a globally dispersed cloud infrastructure, constitutes the most streamlined and cost-effective means of managing blockchain applications, and a robust network is pivotal in safeguarding the security and redundancy aspects. An expansive network also mitigates lag and downtime while preserving continuity – all of which hold paramount importance in this sector. Additionally, a distributed cloud network provides scalability that on-site hosting can't match, furnishing the necessary flexibility for expansion and growth.

Tailoring Hosting Solutions

Your choice of cloud solution hinges on the specific requirements of your application. A private cloud is more cost-effective for applications demanding extensive processing capabilities on a consistent basis (without sudden spikes). Conversely, when considering heavy usage for brief periods (bursts), a public cloud could be the superior choice. Choose a cloud hosting provider proficient in both options and possessing ample experience and expertise to guide you toward the optimal path for your needs.

Cloud hosting specialists can provide a level of consultancy, management, and customer care unattainable with on-site alternatives. Accomplished providers assist in troubleshooting challenges related to your blockchain technology stack, while delivering ongoing maintenance and support essential for driving productivity.

Blockchain technology harbors immense potential for financial services, with numerous early adopters already reaping its rewards. Nevertheless, blockchain remains a burgeoning technology, and a correct approach is essential. Embracing cloud infrastructure stands as the most efficient, secure, reliable, and cost-effective strategy for operating blockchain applications in this sector and beyond. Private cloud solutions yield advantages over on-site hosting and perfectly complement blockchain's decentralized approach.

For forward-thinking enterprises contemplating blockchain, the decision to host their infrastructure in the cloud is imperative for unleashing the potential of this robust innovation.

Resource requirements

For fintech and financial institutions that utilize blockchain technology, resource requirements can be more predictable compared to some public blockchain networks like Bitcoin or Ethereum. This is because these institutions often use private or permissioned blockchains, which provide more control over the network and its resources.

Here's why:

Permissioned Networks

Fintech and financial institutions often use permissioned blockchains, where access and participation are restricted to a specific group of known participants. This allows them to have more control over the network's resources and governance.

Predefined Participants

In a permissioned blockchain, the participants are known and vetted. This means that the network administrators have a good understanding of the number of nodes and the computational resources they bring to the network.

Predictable Transaction Volume

In many financial applications, the transaction volume can be forecasted based on historical data and business models. This enables institutions to plan for the necessary resources to process these transactions.

Customized Consensus Mechanisms

Fintech and financial institutions can choose or design consensus mechanisms that suit their specific requirements. For instance, they may use Practical Byzantine Fault Tolerance (PBFT) or other consensus mechanisms that are more deterministic and resource-efficient compared to Proof of Work.

Private Smart Contracts

Smart contracts on permissioned blockchains are typically not exposed to arbitrary execution by external parties. This allows for more control over the computational resources required for executing smart contracts.

Regulatory Compliance

Financial institutions often have strict regulatory requirements. They can design their blockchain solutions in a way that ensures compliance, which can include managing resource requirements in a predictable manner.

While resource requirements can be more predictable in permissioned blockchains used by financial institutions, it's important to note that the specific details will still depend on the design choices made by the institution. Factors like transaction volume, the complexity of smart contracts, consensus mechanisms, and network participants will all play a role in determining resource needs. Additionally, even within a permissioned blockchain, there can still be bursts of activity based on specific events or operational needs.

Blockchain technology presents new opportunities for financial services, with early adopters reaping rewards. However, the correct approach to harnessing its power is pivotal. Embracing cloud infrastructure emerges as the most efficient, secure, reliable, and cost-effective strategy, particularly when integrated with permissioned blockchains. This strategy can allow enterprises to optimize blockchain's transformative potential. For forward-thinking enterprises contemplating blockchain adoption, the imperative decision is clear: host their infrastructure in the cloud to unleash the full potential of this robust innovation.