With Project Bletchley, Microsoft Brings Cloud Computing to the Blockchain
Industry observers acknowledge that today’s Microsoft is vastly different than it was a few short years ago. One of the most obvious differences is in its Azure cloud offering. In the past, Azure seemed to suffer from stop-and-start management attention and, consequently, lagged in functionality, awareness, and customer adoption.
That state of affairs has changed dramatically since Satya Nadella became CEO in early 2014. Today, Azure is widely considered a strong number two in the cloud industry and its functionality is excellent. Nevertheless, Microsoft has struggled to gain ground on AWS, the industry leader. In part, that’s because it’s hard to leapfrog someone running at full steam. It’s also because doing what everyone else does as good as they do or even a bit better isn’t enough to gain the crown of number one. And in this respect, Microsoft faces perhaps the biggest challenge in the industry: AWS is so innovative, it’s hard to find an area in which it isn’t the pioneer. Just look at what it’s done in the past 18 months with Lambda and Echo.
Today, however, Microsoft has found, perhaps, its first uncontested, innovative, important territory that it can lay claim to. Project Bletchley addresses the white-hot blockchain market and delivers functionality that addresses shortcomings in the current offerings on the market (Here is a Microsoft github document that discusses Bletchley in more detail). It positions Azure to become the computing fabric for a potentially enormous revolution in financial transactions and asset ownership. To give you an idea of the scale of the potential impact of blockchain, consider that the 2015 total size of the IT industry worldwide, according to Gartner, was around $3.5 trillion; financial services, on the other hand, McKinsey (with some help from Investopedia) estimates was $13.1 trillion in 2014 — nearly four times as large.
Starting with Blockchain-as-a-Service
Microsoft began its blockchain support last November, when it launched its Blockchain-as-a-Service (which I’ll refer to as BaaS for the rest of this post to save my fingers from a ton of typing), supporting the Ethereum blockchain. Ethereum offers a different blockchain than the one that underpins Bitcoin; it provides a full (i.e., Turing complete) scripting language designed to enable smart contracts that are richer and more flexible than the capability of the Bitcoin blockchain.
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The BaaS offering was a smart move on Microsoft’s part. There’s intense interest in blockchain potential throughout the financial services industry which is centered around consortia that have been formed to facilitate experimentation. Clearly this requires a testbed; just as clearly, consortia are not really set up to build out computing infrastructure. Azure can supply this easily and with great flexibility. The consortia win by getting to avoid a lot of plumbing work and starting experimenting quickly; Microsoft wins because it has a new customer that will consume lots of computing resources. The offering also plays to Microsoft’s strengths in the enterprise market, making it a trusted partner for companies delicately exploring a technology that, while perhaps offering tremendous efficiencies, also holds the potential to be enormously disruptive.
Project Bletchley: Blockchain Innovation
Project Bletchley, however, is an offering of a different order — and must be recognized as a bold and innovative step by Microsoft. It represents MIcrosoft’s attempt to become a core part of the emerging nexus of blockchain and fintech — that is, Microsoft’s objective is clearly to become a fundamental part of every organization’s blockchain adoption. Given the size of the financial services market observed above, if it achieves that, Azure could grow to gigantic proportions.
Microsoft has put three elements into Bletchley to wrap core blockchain functionality and to surround blockchain-based applications (aka smart contracts) with critical capabilities necessary for them to address real-world use cases. Here they are in ascending order of importance:
Azure Marketplace
Azure will provide a place for organizations to place and retrieve smart contracts. This makes sense since most organizations won’t or can’t write their own smart contracts, which can be very challenging to get right (as the recent DAO hack demonstrated). Rather than create their own smart contract, organizations will take one from the marketplace, use it as-is or perhaps modify to suit their specific situation.
The benefit of a smart contracts marketplace is significant. For users, being able to leverage an existing artifact rather than attempt to create one from scratch makes it easier to use smart contracts. From Microsoft’s perspective, anything that reduces adoption friction grows usage and revenue. More importantly, it ties users more tightly to the Azure service; once they’ve begun using the Azure smart contract templates and have them running on BaaS, there’s less reason to explore another provider’s blockchain service, should one come to market. It’s easy to overlook the power of reducing friction, but look at AWS: it has built a $10 billion business by providing easy-to-use computing.
Blockchain Middleware
Much more strategic, and much stickier in terms of customer use, is the Azure Blockchain Middleware. For all the discussion about the revolutionary nature of blockchain and smart contracts, it’s important not to overlook one central truism: this economic activity will occur within an existing ecosystem of industry players, technology solutions, legacy applications, and established practices.
Blockchain Middleware’s aim is to make it easier to embed smart contracts inside that ecosystem.
Microsoft aims to ease integration of blockchain smart contracts with Azure Active Directory and Key Management services, along with off-chain data communication with audit applications, machine learning, etc. Moreover, the Middleware offering will include an encryption service so that fields and transactions can be encrypted to prevent viewing by undesired parties (e.g., competitors to one of the parties creating a smart contract).
These services make it easier for users to surround standalone smart contracts with extended functionality, and, of course, this ease further wraps users in Azure’s embrace. These additional middleware services create powerful lock-in; organizations considering moving off of Azure’s BaaS would need to figure out how to recreate (and operate) the additional middleware services with which they integrate their smart contract applications. One can make two observations: (1) Blockchain Middleware presents an opportunity for Microsoft to make it as unthinkable of moving a smart contract to another environment as AWS’s middleware services (e.g., Simple Queue Service) make it unthinkable to migrate applications out of that environment; and (2) while people decry lock-in, users embrace lock-in when it provides significant benefit vis a vis the other options.
Barely mentioned in a sort of sotto voce fashion is the fact that Blockchain Middleware will support blockchain software other than Ethereum, including Hyperledger. In other words, Microsoft plans to work with all variants of blockchain that gain market traction.
Cryptlets
The most intriguing — and powerful — part of Bletchley, to my mind, is Cryptlets. What is a cryptlet? Microsoft describes them as
Cryptlets are off-chain code components that are written in any language, execute within a secure, trusted container and communicated with using secure channels. Cryptlets can be used in SmartContracts and UTXO systems when additional functionality or information is needed and provided via a “CryptoDelegate” or adapter.
Microsoft provides this image to illustrate Cryptlet functionality:
One of the key challenges of smart contracts is that they are supposed to help you with real-world agreements. For example, someone wants to sell a future contract against the price of wheat six months from now. To price that future during the ensuing time period, the spot price of wheat is a critical input (i.e., as the price of wheat varies, so too does the price of the future).
How can the current price be input into the futures smart contract, and how can all parties trust that the price is honest? After all, each party to the contract has an incentive to adjust the price. It’s critical that this kind of real-world event information be accurate. This challenge, called the oracle problem, is enormous, as without trustworthy information, the entire futures exercise is pointless.
Cryptlets are designed to provide a secure, trustworthy way to serve as an oracle to a smart contract. Of course, wheat futures are only one example. Another might be a rental payment for a temporary lodging (e.g., an Airbnb apartment). How can the smart contract know the lodging has been vacated so that final payment can be charged to the renter? A cryptlet. Microsoft envisions a whole range of what it calls utility cryptlets — timestamps, authentication, etc.
Another use for cryplets is as a smart contract surrogate — i.e., code that captures an agreement. Some blockchains do not provide as rich a scripting language as Ethereum, making the ability to create smart contracts offchain very useful (and indicating why Microsoft’s middleware ambition extends beyond Ethereum). In this variant, a cryptlet would contain the smart contract and execute it on behalf of the transaction contained within the blockchain.
While Microsoft indicates the cryptlets will be released as open source so that they can be run anywhere, this is, again, an enticement to stay within the Azure ecosystem. Why go to the work of porting the cryptlet source code and running the service oneself, when Azure will take care of all the work for you — allowing you to focus on the business opportunity that the cryptlet implements.
Cryptlets offer incredibly powerful functionality and reduce the risk associated with smart contracts significantly. Microsoft certainly agrees, referring to this new capability as Blockchain 3.0 (and here you were thinking that we were still struggling toward Blockchain 2.0!).
Conclusion
With Bletchley, Microsoft marks out its ambition to set the pace in an emerging area of cloud computing — one in which it can break free of the pack and create an entire new category of functionality.
It was surprising to me that most of the technical press addressed this announcement in a rather perfunctory manner — parroting Microsoft’s talking points without, seemingly, understanding their implications. I attribute this to the fact that, for most people, blockchain is something they’ve heard of but can’t quite figure out — something exotic and not very important.
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One could have made the same observation about the Amazon Echo mid-last year — how important could the ability to order Amazon products by voice be? In short order Amazon opened up the Echo to developers and they started creating “skills” to connect it to all kinds of things — home lighting, front door locks, and even opening a garage and backing a car out of it. Echo is rapidly becoming the de facto home automation center of gravity. Amazon talks about Echo as its next billion dollar business. With Project Bletchley, Microsoft suggests its ambition to become the blockchain center of gravity — but with more zeroes.
