Blockchain and finance in 2019
The cryptoasset industry has endured a rollercoaster ride of late: the highs of 2017 were followed by the lows of 2018. As for blockchain – the distributed ledger technology (DLT) that underpins bitcoin and all cryptos – and its transformational potential, there is still plenty of enthusiasm. Many revered commentators have hailed its potential to be more transformational than the internet. Before long, they say, it will be used to power specific sectors such as finance, healthcare, security, and shipping. But some of the hype is beginning to feel drawn out with expected developments and milestones becoming seemingly delayed.
There are several factors for this slow-down. Crucially, blockchain is a completely different architecture to the incumbent systems, and requires integration, migration of data, and developer learning. Hence, in its current form, it is certainly no Occam’s razor – the problem-solving principle that posits simpler solutions are more likely to be correct than complex ones.
Conversely, there is a distinct possibility that projects and initial coin offerings (ICOs) or the more recent security token offerings (STOs) are picking their moment to cause maximum market disruption in their respective industries. It may well be that startups are priming their guns and surveying the field, per se, to ensure they get it right from start.
Furthermore, alongside hype comes pressure, and projects are undoubtedly feeling the need to succeed once they launch – not least from investors. There is also the question of widespread adoption, which is intimately linked with mass education and increased awareness – the chicken-and-egg scenario experienced by all blockchain projects at present, but perhaps not for much longer.
Indeed, 2019 is speculatively set to be a significant year for blockchain innovations and developments. There is growing media coverage with big industry names developing in-house projects to bridge the gap between idea conception and adoption. Read on for our pick of the blockchain developments to watch in the coming months.
JP Morgan: from bitcoin “fraud” to JPM Coin
Following JP Morgan Chief Executive Jamie Dimon’s 2017 judgement of bitcoin as a “fraud” and threatening to fire employees found trading it, the organisation has come round to the value of DLT in finance and the fact that cryptocurrency is here to stay. In early 2019 the investment bank announced plans to develop JPM Coin: a stablecoin tied to the US Dollar designed to accelerate payment settlement times between institutional clients.
Notably, JPM Coin is fundamentally different from a cryptocurrency (bitcoin, for example) for three reasons. Cryptoassets were initially traded in the absence of regulatory oversight; they eliminate middlemen; and are openly traded. By contrast, JPM Coin shows significant potential to expand blockchain real-world use since it bridges current fiat banking practices with cryptoasset architecture. JPM coin can be regulated under the U.S. Securities and Exchange Commission (SEC), it can bring stability through bonding each JPM Coin to $1, and it affords security to their global clients (JP Morgan spends $800 million per annum on cybersecurity). Additionally, JP Morgan’s clients will already have been checked for anti-money laundering and know your customer (KYC) processes.
These features contribute to eliminating the need for trust between parties – a core tenet of blockchain technology – and it opens the door for further developments including using smart contracts for conveyancing in the property market and reduced risk smart contract payments in supply-chain networks.
This is not JP Morgan’s first foray into the blockchain; back in 2017, they initiated the Interbank Information Network (IIN) to transfer data internationally. With IIN transferring information and JPM Coin transferring value, the two combined could bring widespread adoption that much closer in the banking industry. Additionally, since 2016 JP Morgan’s engineers have been developing a blockchain called Quorum, a private fork of ethereum.
EY and public ledger industry adoption
EY is another major financial institution to realise the potential of DLT in finance early on. The firm was quick off the mark to recognise the value of blockchain in streamlining and accelerating operations while providing enhanced security and eliminating the need for intermediaries. Off the back of this, they have been steadily developing their own blockchain-based business solution.
Back in 2017, they developed EY Ops Chain with the aim of helping businesses commercialise blockchain technology. Then, in 2018, they launched Ops Chain Public Edition (PE) to further aid the adoption of blockchain in industry. Touting their branded Zero-Knowledge Proof technology, Ops Chain PE allows companies to tokenize products and services for sale on its public ledger while giving companies private access to transaction records.
Built on the Ethereum network to the standards of ERC-20 and ERC-721, EY is optimistic that Ops Chain PE will foster adoption across enterprise. It has the security of the public ethereum blockchain network while providing a common marketplace for organisations and their competitors but with complete privacy over transactions and transaction information. EY emphasises the benefit of Ops Chain PE’s public network and its heightened security benefits compared to private blockchains, and its added ease of onboarding clients and partners.
With plans to release their product offering in 2019, and the potential for Ops Chain PE to grow exponentially through widespread uptake and adoption, this is certainly an innovation to watch.
GM Financial: data protection and information sharing
Picking up on the potential to provide advanced security measures, General Motors Financial entered a collaboration with Spring Labs on their Spring Founding Industry Partners (SFIP) programme in February 2019. The startup Spring Labs, established in 2017, is developing a blockchain network to enable banks, lenders, and data companies to share information while maintaining the privacy of source data, particularly the sensitive information surrounding client identity.
The SFIP program focuses on regulatory compliant solutions for identity verification and fraud prevention. Concerning their partnership with GM Financial, they are extending their platform into the automobile finance sector with specific General Motors use cases. The Spring Labs network is scheduled to open in private beta in late 2019 with the main launch planned for 2020.
Contrary to crypto fundamentals: bridging worlds
The thought of industry giants like JP Morgan, EY, and GM jumping on the blockchain bandwagon may not be appealing to some. It may even feel like a betrayal of a kind, running in direct opposition to the fundamental philosophy of blockchain and cryptoassets i.e. freedom from traditional fiat currency practices and associated financial institutions.
However, one thing stands clear and that is the potential that major projects like these have to foster awareness and readily encourage scaleable industry adoption through existing business channels. The argument remains that it may only take the innovative efforts of one institution to open to gates to the industry-transforming, blockchain-based business solutions that have been hoped for since 2009. A decade later, things are looking set to ramp up a gear with major developments fast approaching.
* The information above does not constitute any form of financial or investment advice and should not be relied upon. Investing in Digital Assets carries risk. For more information please see our risk warning.