Decoding Blockchain: Opportunities for Businesses | TechTrends | J.P. Morgan


Well, Christine, thanks for
joining me today. Great. Thanks for having me. So, for some of our viewers who might not be as familiar
with it, right. Can you tell us a little about what the blockchain is and how
it works? Blockchain is a digital ledger that multiple participants can
share and interact with, both reading and writing
together and having real time updates. All the interactions are
cryptographically secured and there’s a built-in audit
trail. You can think of it as a
Google spreadsheet where multiple participants can
have real-time updates on their interactions and have a
golden source together, but without the central
intermediary. Okay, great. And we hear about public and
private block chains. Can you talk about the
difference? Sure. Public blockchains are
block chains that you can just use a
computer, download some open-source code and join the network and
interact in it. So, there’s an element of
student anonymity in that. As in, you don’t have to
register or identify yourself, and then you can already start
engaging in transactions or interactions with other
entities on the network. For permission blockchains, it’s
a different construct where everyone has to properly
identify themselves, there’s enterprise-grade
cyber-security controls around how we think about interacting in this system
together. And so, permission blockchains
is where J.P. Morgan and other
enterprises have been focusing most of their attention
on. So, public blockchains suited
for things like anonymity, a lot of people think about
that with cryptocurrency and other
things like that. -That’s right.
-Private blockchains, much more enterprise-grade
permissions, you have to establish identity and other
things like that. There’s a sense of trust, right? Right. And the goals are
different. Public blockchain is mostly
focused on peer-to-peer interactions in
an alternative financial system. Whereas the uses of blockchain
technology in enterprise for permission
blockchain is about sharing processing infrastructure for
cost-savings, for streamlining operations, for
enabling better coordination and synchronizations across multiple businesses and
enterprises. In fact, Ernst and Young
recently published something, where they asserted that
enterprise blockchain will do for networks of enterprises and
businesses what earpiece systems did for the single company, which I think is really
interesting. Just think of it as next-generation enterprise
technology. OK. So blockchain’s still pretty
new, though, right? So talk about what’s been going
on in the last year. It seems to be exploding, right? A lot of different projects,
etc. What’s going on in the space? Yeah, sure. So I mean, in the past few
years, there’s been a lot of hype around blockchain and it
was almost like every other day that someone was announcing a
project, a research thing that they were doing or a proof of
concept they were working on with multiple of their
counterparts. Basically, a Cambrian explosion
of experimentation of like, “What can we do with a
blockchain?” But, you know, I think that in
the past year or so, all of that had slowed down a
little bit. And for my part, what I’m seeing
is that whilst the announcements have been slowing down, the
underlying momentum around making this technology
real has been increasing. There has been increasing
investment in the space, both financial and technological
by large corporates, with the likes of Starbucks and
USAA and BP across multiple industries and
for across multiple use cases. And you’re seeing a lot of
applications really become real. Actually, for my part, I’ve
been excited because lately, I’ve been hearing about people
using blockchain, but there’s no news
announcements related to it. And so, that just indicates to
me that people aren’t doing blockchain anymore
to get news to say that they’re— For the sake of doing
blockchain. —Yes, say they’re doing
innovation. But actually, to say that they’re actually using it for
solving a problem. I know that this year, we
announced JPM Coin, a first foray into payments with
blockchain. Tell us a little bit about what
JPM Coin is and how it works. Sure. First of all, J.P. Morgan
Coin is not a cryptocurrency. I know that there’s a lot of
news in the space and a lot of myth associated
with it. The easy way to think about J.P.
Morgan Coin is that it is payments on a blockchain
infrastructure. And actually the origin story of
J.P. Morgan Coin is that we just had to build it
to enable payments for some of the other applications that
we’re building. So as an example, last year, we were testing tokenized debt
issuance, and how we could create an
end-to-end financial instrument on blockchain that had automated
settlement, automated interest payments,
etc. And what we found was that at
that point, if you’re talking about trying to trigger an
interest payment with existing financial payments rails, it
will look something like: send a message to go– send an
instruction, send to a wire to receive the
wire, send a message back into the
blockchain. So it was very hokey and it was
almost like why bother using a blockchain? There’s no efficiency there. Right, because what’s the point? Exactly, so from there what we
wanted to do was actually think about how we
could create a digital representation of
money that was sitting in a J.P. Morgan bank account on
blockchain so that you could get the benefits of
blockchain based activities. So basically programmable value
transfer, frictionless 24/7 365 interactions with your network
participants, but bridge it to the existing
payments rails so that we’re not using
cryptocurrencies. We’re using US dollars or Euros
or whatever currency that anyone’s actually using. So that’s been really exciting. We’re thinking about it as enabling not only blockchain
applications that we will build, but also the applications that
our customers will build. So to the extent that they have
something in the supply chain finance or
any other interaction that requires a payments rail. Not everyone’s a bank, so not
everyone’s in the best position to do this. We want to basically create this
foundational payments rail that plugs into other
applications and allows people to solve the problems that they
want to solve without having to build all that
infrastructure. Got it, got it. So very focused on corporates,
right? Focused on either corporate to
corporate payments or even intra-company transfers
and things like that. That’s right, that’s right. We’re exploring use cases around
intra-company efficiencies and also cross border corporate
to corporate payments, and then obviously to enable all
the other blockchain applications around
settlements and interest payments for financial
instruments as an example. And this model of putting fiat
in your J.P. Morgan– –having fiat in your J.P.
Morgan bank account mobilizing creating a digital
representation of that. Not only is that applicable for
cash and payments. It’s also applicable for other
financial instruments. So actually J.P. Morgan filed a
patent a couple of years ago called the Virtual Depository
Receipts patent, and that contemplates tokenizing
financial instruments or securities that might sit in your custody account, as an
example. So really, on-ramping things
that live outside of blockchain onto blockchain so that we can
take advantage of the benefits of this
technology. So a lot of use cases, a lot of energy in the financial
industry. When you look outside the
financial industry, companies like USAA and
Starbucks and BP and other folks like that as
well, what’s going on more
generally in the industry? Sure. More generally in the
industry, I think we’re moving beyond just
the basic components of financial instruments on
blockchain and payments on blockchains as I mentioned,
and kind of moving into a next generation of use
cases that hopefully are uniquely
enabled by blockchain. As an example, J.P. Morgan has
been spending an enormous amount of time
thinking about how we can use blockchain to build
digital identities that are self-sovereign and
self-managed. What that means is that people
and entities will have more control over
their data, will have more transparency
around who has access to what attributes of their
data, and maybe in a future world actually have
an active participation in commercializating their data. This is in contrast to existing
models, where there’s a creation of a honey pot of data where,
mostly, you’re the product and another company has access and also that it’s subject or
vulnerable to hacks. And so, we’re thinking about
blockchain to establish that new construct, but it
requires behavior change, it requires a lot of change, but it’s something that’s quite
interesting. Accenture, as an example, has been really leading in this
space with this ID2020 solution that they’ve been developing
that’s built off of blockchain. And most recently they announced
that they’re working with the Canadian government and
the Netherlands government to actually use this for
cross-border travel, like they’re known travelers,
digital identity use case. So it’s been quite exciting. Others like Microsoft and PayPal
have also been in this space, in addition
to Mastercard.  So that’s interesting because
obviously a lot of new privacy regulations, whether it
be GDPR in Europe or more recently CCPA in
California, things like that. And this sounds like that would
be a huge help in sort of helping people meet
those requirements, right? Yeah and I think the most
important thing to note is that when anyone says we’re doing digital identity with
blockchain, that no private identity data at all
is going to be on blockchain. That is a really important thing
to know. Basically what we can use the
blockchain for is base a registry for
indicating whether or not an actual data attribute is
updated, or has been revoked. But certainly, we’re not
actually publishing real private data onto the
blockchain. Also a lot of discussion around
blockchain and the Internet of Things,
right? Another one everybody wants to
talk about these days, right? So what’s going on there? Yeah. So we’ve also been
spending some time thinking about this and
researching. I think the idea here is that
either more or more objects that are creating more and more
digital data in line with the identity work
that we’re doing, harnessing that data, actually
thinking about how to utilize it in a proper
way. It has been important to us. And so for our part, we’ve been
thinking about what are the use cases that can
be uniquely enabled when you connect objects that actually create this data with
blockchain? As an example, what are some use
cases that you could enable if you could connect a metered
solar panel to blockchain, right? They are many applications
around actually registering renewable energy generation, and
then if you take that further downstream, if you’re an
investor that’s interested in sustainable
investments, how you might even be able to quantify
your return on investment in terms of actual green energy
generation. That’s one example. Also spending some time thinking
about what it might look like to connect moving objects like
vehicles on blockchain. Like what would it look like if
we have digital passports for vehicles or even parts of
vehicles in the supply chain? And so there are many companies
like Daimler and BMW and others that are doing
research in this space. Okay so lots of interest in a
lot of industries, right? How should companies think about
getting started with blockchain? Sure. The first thing companies
should do is just make sure that they have
gotten smart on the technology. Have a baseline understanding of
what it is, what it can do, and definitely what it can’t do. I wouldn’t expect that anyone
should be able to understand the very deepest technical
detail or understand everything that’s been
happening. As we mentioned, the space has
been moving quite quickly. But just getting a base level
understanding would be important. The second thing to do is to
research what else is happening in your sector, in your
industry. What are your industry peers or
leaders doing? And as we’ve mentioned, people
haven’t been shy about their blockchain projects. Certainly there’s a lot out
there that we can read that also points in the
direction of, what are the applicable use
cases to you and your company in your particular industry? And then from there, what’s
really important is for you to narrow on what are
the actual pain points you’re experiencing that you
want to focus on and prioritize. And take a step back from there
and understand whether or not blockchain can be
part of the tech stack that helps solve
that. So problem and pain point first, then figure out if blockchain is
applicable. This has been really important
for us as we shape our use cases. As an example, Interbank
Information Network. We scope that use case to be
very narrowly focused on solving the actual problem of
sanctioned screening exceptions across the corresponding bank
value chain. And what we found is that by
solving an actual problem that people have, that actually
sweeps adoption of the network which is obviously critical because no one should be
blockchaining by themselves. Otherwise just use a centralized
database. And so, we’re actually seeing the fruits of that labor come
through. We have over 250 corresponding
banks signed up to join the network already
after one year from launch. And so, it’s really important to
understand the pain point, understand that doing a
blockchain project takes financial investment and
time investment, just as building any other
technology. So you really have to have a
clear eye on what is the return on investment when you’re undertaking a project
like this. So just to recap, A. make sure
you understand the technology, maybe not super deep, but broad
enough to know where it’s applicable. Number two, make sure that you’re solving the right
problem. Right? And number three, that
that problem is not just unique to you but there’s a
broad level of interest in a community so you can build
that net worth effect, right? That’s right. Great. Christine, thanks for
joining us today. Thanks for having me.

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