Blockchain research & industry insights

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Is JPM Coin Really a Cryptocurrency?

The big news this week was the announcement of JP Morgan creating their own cryptocurrency--JPM Coin--to be used in it’s wholesale payments business, where it moves $6 trillion every day. The currency will only be available to JP Morgan’s institutional clients, where each coin is guaranteed to be redeemable for 1 US dollar.

The currency uses JP Morgan’s modified version of Ethereum called Quorum. By using a blockchain and cryptography it ensures that coins cannot be counterfeited, nor “double-spent”. It ensures that if a balance is decremented in one account, there must be some other account(s) that are incremented by an equal amount. In this way reconciliation times and costs are significantly reduced. In addition, like any cryptocurrency, accounts can be created by any participant independently, and money can be sent from party A to party B without B getting any of party A's credentials. Finally, such coins can be used in smart contracts to create complex business logic of how and when funds are moved.

In these respects, yes, JPM Coin is taking advantage of blockchain technology and can be considered a cryptocurrency. But it's only these technical efficiencies that it captures and goes no further. JPM Coin misses all the philosophical and revolutionary properties of a trustless cryptocurrency like bitcoin, or a crypto stablecoin like DAI on Ethereum.

What do we mean by trustless? It's the opposite of JPM Coin, which is a trustful currency. It only works when there is complete and total trust in JP Morgan--that they will reimburse every coin holder $1 per coin. Do we know whether JP Morgan will keep enough reserves to redeem all coins? What percentage of USD will they keep on hand? What happens if there were a run on the bank? JP Morgan is able to issue such a coin without having much oversight, or public audits of JPM Coin, because they are the largest bank in America. That is, they are too big to fail, and if they were to falter, the American taxpayer will step in as the lender of last resort.

In an ironic twist, the more trust we have in an institution, the less oversight and guarantees we demand of them. Compare JPM Coin with, say, the Gemini Dollar, a stable coin created by the Gemini exchange, which has a reserve of USD commensurate with the market cap of GUSD that is held by State Street Bank. Their balances are examined by outside auditors with public reports published monthly. Does JPM Coin have the same? It's unclear.

Bitcoin and other public cryptocurrencies take it further. There is no need to put trust in any institution for them to work. The issuance of the currency is controlled by the code of the system, which is public and resistant to manipulation. Because the supply is tightly controlled and predictable, the coins are able to take on a value of their own, with no need to be backed by any other currency. The network is the mint.

Of course, without backing by a stable asset like the dollar or gold, bitcoin and ethereum fluctuate wildly based on the whims of the market. A solution has been the creation of a new token on Ethereum, called DAI, which is backed by ether in such a way as to keep the value of DAI fixed at $1. In this way it is perfectly stable and yet completely trustless. There is no entity responsible ensuring there is enough ether to back the DAI. By design it’s guaranteed that there always will be.

So while JPM Coin is great validation of blockchain technology, it doesn't capture the philosophical and game theoretic innovations of bitcoin and other cryptocurrencies. It will find use and benefits for JP Morgan and their clients, but not be as powerful as its global, trustless counterpart. 

Stellar Receives Certificate of Sharia Law Compliance

The Shariyah Review Bureau, a leading international Sharia advisory agency licensed by the Central Bank of Bahrain, has granted the Stellar protocol a certificate of compliance with Sharia (Islamic) banking laws.  The Stellar protocol and its native token XLM emerged as a non-profit alternative to Ripple and its associated XRP token in early 2014.

BlackRock and Northern Trust Express Interest in Blockchain

BlackRock, the largest asset manager in the world with $6.3 trillion in AUM, is reportedly evaluating the crypto-space, according to CEO Larry Fink, who told Reuters that the firm has assembled a working group focused on blockchain technology and digital assets such as Bitcoin.

The OECD Takes on Role to Help Develop Blockchain Policy

As the implementation of blockchain technology increases, so does the list of international organizations getting involved in its development. Some organizations on the list include the International Organization of Securities Commission (IOSC), which recently published a wide-ranging research paper that includes findings on blockchain tech; the United Nations Development Program (UNDP), which partnered with Blockchain, the world’s leading software platform for digital assets, the UN Refugee Agency (UNHCR) and the World Economic Forum (WEF) to explore the use of blockchain technology for development; and the World Bank, which launched a blockchain lab as part of a bid to pilot projects that can improve governance and social outcomes in the developing world. Recently, the Organization for Economic Cooperation and Development (OECD) added itself to the list by launching a number of projects that focus the collaborative efforts of its thirty-six member states on blockchain research, development, and implementation.

Goldman Sachs to open a Bitcoin Derivatives Trading Operation

The finance giant Goldman Sachs has announced that the investment bank will begin using its own funds to trade a variety of derivatives contracts tied to the price of Bitcoin with the bank’s large institutional clients. Goldman Sachs has historically maintained a more open mind to cryptocurrency than most of its competitors. Back in January, the investment bank issued a nine-page report to some of its clients entitled “Bitcoin is Money.”

Reaching Consensus: How Decentralized Networks Make Decisions

Consensus algorithms are the means by which individual nodes in a distributed system come to an agreement regarding which data to validate as accurate and which to disregard.  In the case of cryptocurrency, this takes the form of deciding which transactions to honor and which to decline. These algorithms make it very difficult and expensive for someone to attempt to attack the system.

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