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Microsoft Goes Deeper into Blockchain Technology with R3CV Deal

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Apr. 12 2016, Updated 11:07 a.m. ET

Microsoft took its BaaS service a notch higher with R3CV partnership

Previously in this series, we discussed Microsoft (MSFT), which true to its partnership strategy in the past has partnered with R3CV to push itself ahead of its peers in the blockchain technology space.

Since late 2014, Microsoft has tested and accepted bitcoin and its foundation technology, blockchain. In late 2015, Microsoft partnered with ConsenSys and offered EBaaS (Ethereum blockchain-as-a-service) on MS Azure. This BaaS offering is designed to allow partners to interact with different technologies in a relatively low-risk environment such as smart contracts, social networking, and tax reporting services.

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ConsenSys is a blockchain startup focused on Ethereum technology, which offers an alternative platform to Bitcoin. Unlike bitcoin, which was primarily designed as an exchange of digital currency, Ethereum provides a broader vision to businesses. Anything that can be digitized—including cryptocurrencies, derivatives trading, securities trading, and settlement—will be a service on Ethereum.

Primary factors driving the adoption of blockchain technology

According to McKinsey and Accenture (ACN) and as the above chart shows, the financial crisis and the increasing preference toward cryptocurrencies are the key factors that could be instrumental in the increased adoption of blockchain technology.

This explains Microsoft’s increased initiatives to cement its place in the blockchain technology space, which is bound to see increased adoption. Partnering with R3CV, as well as offering third-party blockchain offerings on Azure, could lead to Microsoft winning business from the world’s leading banks.

According to Gil Luria, an analyst at Wedbush Securities, “Microsoft continues to take a leadership position in integrating blockchain technology into its product roadmap.” Luria added, “The relationship with R3 provides Microsoft access to R3’s high-quality collection of the largest banks in the world, which is the most likely group to make early investments in implementing blockchain technology.”

Later in this series, we will discuss how blockchain technology has attracted Microsoft’s peers RedHat (RHT) and IBM (IBM).

Investors who wish to gain exposure to Microsoft could consider investing in the Technology Select Sector SPDR ETF (XLK). While XLK invests ~10.6% of its holdings in Microsoft, it also has an exposure of ~38% to application software.

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