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JPMorgan: Blockchain is Key for Digital Money

February 25, 2020
Ross Peili


JPMorgan: Blockchain is Key for Digital Money

NEW YORK – The global surge in decentralized databases that empower digital currencies such as Bitcoin and Ether is changing the concept of payments both for the consumer and monetary power-brokers, one of the world’s largest banking institutions, JPMorgan said in a 74-page report shared with Bloomberg last Friday.

The publication talks about how blockchain technology is being used in the financial sector involving Paxos, equity trades, JPM’s own blockchain-based settlement network as well as China’s forthcoming DC/EP digital currency. 

“The groundwork is now in place for more mainstream adoption of blockchain technology at the same time that the foundation is being established for the development of digital currency and fast payments”

In addition, JPMorgan indirectly praised Bitcoin, saying that crypto assets have a place in investors’ portfolios only as a hedge against a loss of confidence in both the domestic currency and the payments system, which aligns with the broader theory about Bitcoin being more of a safe haven/store of value asset instead of a practical currency. 

On the other hand, Facebook’s native fintech venture Libra didn’t get as much love as public blockchain-powered cryptocurrencies and JPM believes that the answer to Libra’s failure lies behind regulators who’d never allow such a threatening model to surface above all traditional regimes.

“The failed release of Facebook’s Libra serves as a reminder that rapid adoption faces practical challenges to attain scale,” the bank said. Libra will need several market mechanisms in place to succeed, such as “short-term liquidity facilities, a source of positive-yielding collateral” and “less distributed, semi-private networks,” JPMorgan said.

Read More: Australia Releases National Blockchain Strategy

Why Blockchain Really Matters Despite JPMorgan

JPM’s release keeps on explaining why blockchain is important not just for the future economy but also for most industrial sectors positioned to transform during the ongoing industrial revolution (I.4.0).

From supply chain and logistics to banking and voting, it seems that blockchain technology has the power to shapeshift every single industry into its modest form. But, this is not the real reason why JPMorgan among other accredited financiers believes that blockchain is the essential element of digital money. 

The key reasoning behind this is the byzantine general’s problem that was solved in the initial Bitcoin whitepaper for the first time in history back in 2009.

In plain terms, the byzantine general’s problem is a mathematical problem about trust, more specifically the immutability part, upon which distributed ledger networks such as Bitcoin are built. 

To demonstrate how important this part was, it is now, and it will be in the future, you should take a look at the history of digital money.

I know most of you think that Bitcoin is the first cryptocurrency, and you’re partially right, cause its the first functioning project, yet it is far from being the first attempt for digital money, and once again, the key characteristic missing from its predecessors is the part of an immutable trust, a concept only introduced with the first blockchain, which was the Bitcoin blockchain. 

Read More: CBDCs Main Topic For Six Central Banks Meeting In Washington This April

Digital Money pre-blockchain

The concept of digital money goes back as far as the 80s in case you ever wondered when it all started, and I don’t mean a concept as in a sci-fi movie, but an actual proof of concept proposition, called DigiCash. 

In a nutshell, DigiCash used sophisticated software, considering the era it was introduced at, to withdraw banknotes, encrypt them, and send them over to a third party on behalf of a client.

Despite its uniqueness, DigiCash had only managed to be utilized among the American Mercantile bank and the German Deutsche Bank before it filed for bankruptcy in 1998 and eventually ended up owned by InfoSpace in 2002, after a series of mergers and acquisitions.

But DigiCash is not the only contestant. As a matter of fact, before Bitcoin, we had 5 attempts for digital currencies and all of them failed. Sometimes for technical issues, but most of the time due to lack of immutable trust protocols of the likes of a blockchain. 

From b-money and HashCash, to e-Gold and BitGold, Bitcoin visionaries were around for some decades now, with some of them like b-Money’s inventor Wei Dai even mentioned by Satoshi Nakamoto in the original Bitcoin whitepaper.

Concluding I’d like to highlight once again, that JPMorgan and any other financial institution praising blockchain technology nowadays is not just because of Bitcoin and/or other digital monetary instruments but mostly because blockchain technology brings a network of trust to the table previously failed to be achieved by many attempts.