Name: Brainstorm Finance 2019: How JPMorgan and IBM Are Using Blockchain and Digital Currency
Uploaded: 2019-06-20
Duration: 18 min 17 s
Description: A discussion with Christine Moy of JPMorgan and Marie Wieck of IBM.

Facebook obviously sought up a lot of the attention this week with the announcement of their crypto currency Libra. But a few months ago, JP Morgan had all the headlines when it came out it was JPM Coin. Tell us, what is the origin of that initiative. Sure. How did they come about? Okay. Just as Will has said, since it's a broad audience, has anyone heard of JP Morgan Coin here. Okay, cool. Everyone. Okay, great, everyone's, well, a lot of people have heard of it. Okay, does anyone actualy know what it is. Okay, great- Fewer hands. Two people. [ LAUGH ] Okay, let's just level set with what it is. So, basically the way that you can think about JP Morgan Coin despite the name is that it's just representation of fiat that's in your JP Morgan bank account. Represented on a permissioned Enterprise blockchain. Okay, so it's that simple like definitely not as exciting as like a cryptocurrency not as exciting as what you thought it was. There's no ICO etc. and the origin story for how we decided to build JPMorgan coin actually stems from one of the other blockchain applications we've been developing For those of you who don't know, we've been pursuing an agenda around digital securities, I guess what you guys would be calling security tokens or has been discussed as security tokens here. And in fact, last year we tested a 150 million dollar floating rate bond issuance. With an issue or National Bank of Canada and tested it in partnership with asset managers like Goldman Sachs Asset Management, Pfizer Treasury, Western Asset and another. And basically what we did was we modeled out an entire bond instrument end- to- end using smart contracts on block chain, right? And so this is the issuance process indication. The settlement, the interest payments and the pay down. And what we ran into is that in the settlement process you have this exchange of debt obligation for payment. How are we gonna do the payment? Were we gonna send like an instruction to send a wire and then confirm the wire and then send a message back into the block chain to say yes we received payment? And keep in mind the goals of enterprise blockchain. The goals of enterprise blockchain are creating its operational efficiencies, reducing reconciliations, and actually like in our investigations in the past four years or so, four or five years and in figuring out the pain points of of a bank A lot of the pain points were in the process of, I received a wire, what is this for? Why do I have this, is this the right amount? So it made sense, at that point, to say, how do we actually represent this payment on the blockchain, so that we can enable this use case, and make it more frictionless And then we realized that actually most other use cases that are in enterprise blockchain also have a payments leg. So then decided that we actually wanted to build something, not only for JP Morgan applications, but for other enterprise blockchain applications that required a payments leg. And the reason why we think this si important is because we actually have very strong conviction in the technology. Our CEOs actually said, God bless the blockchain, and the blockchain is real, despite what- Is that bless [ UNKNOWN ] comments about Bitcoin? Yeah, but on the technology he's very keen on. And there were Big believers from the top down but if you really believe in this technology then you really and you wanna enable its progress then you really need a foundational payments to make sure all these other applications work. It's kind of how you needed to have fully functional PayPal product to enable eBay or you needed something like square to really enable point of sale like commerce. mobile commerce so you need something like stripe to enable like web web credit credit card transaction, right. So we just think of JPMorgan coin project as basically that foundational payments rail for enabling enterprise blockchain applications. When JPMorgan coin came out and was announced. Jimmy made a comment. I think it was to CNBC and he said that maybe one day consumers would even have access to this. How far off might that day be? One step at a time, right, so right now, we're focused on getting into our wholesale clients. And, you know, I think what's important for this group to realize is that. It's really hard to do this, Right like. Thee technology is besides the point, there are a lot of technologies here and you understand, and some of you have to stable coins as well. But for the hardest part for us as a very highly regulated institution who is regulated globally, Is to do this the right way to do this the safe way to do this the legally legal and compliant way. And so we actually spend most of our time now thinking about how to do this in partnership with our clients. And so you know, one step at a time wholesale first. So let's hear about some of the work that's going on at IBM as well because you have a number of projects happening including partnering with a cryptocurrency company, Stellar. They've got their own, Crypto lumens that they use for remittances in Southeast Asia. So tell us about all the sorts of things that you've got going on there. Well, we really have been engaged at IBM and blockchain for almost five years now because we see it as a fundamental way to build trust and transparency and all types of industries. Finance being one of them. And in particular, related to finance, cryptocurrency isn't what our value proposition or what we think the real belief is. It's in creating a digital economy where you can link goods and information and transform these processes. But to have that exchange of value for all these different networks, You need a public network, you need a connection point for that exchange. So we've been operating when it comes to digital money, in three different areas. There are transactions occurring bank to bank, particularly central banks with the goal of digital FIAT currency which we think is the ultimate endpoint. And our work with CLS on payment netting for those top rails of all the currencies is a good example. We also see people going direct B2B. So we're working with visa on their B2B Connect and how they're using that for direct exchange between businesses For effects so you take out some of that friction in those transactions. And the most underserved, I think we all agree, are the consumer to consumer. Remittances, sending money back home to the Philippines or wherever you wanna do that. And in order to get that kind of value proposition We've invested in world wire, which is live with a test net connecting almost 50 different currencies so that you can, whether it's for a stable coin, or whether it's just as a bridge token between two currencies, get that friction out of the system and enable a real time clearing and settlement. You've had conversations with central banks as well? We do. What is their view on this? The idea of tokenizing [ UNKNOWN ] currencies? Well everyone is really look for digital [ UNKNOWN ] So how do you really have an asset backed exchange? So to me, it's not the speculative nature of a crypto- currency. is how do you actually have value back to eliminate the volatility to get greater transparency? And I think the big question now is more on the regulatory point of can the central banks and the financial financial regulatory bodies that govern those central banks. Keep up with the rate and pace of the technology. We know the technology can do that. We've proven it in every one of those layers. Can we get the regulatory compliance and the trust and transparency around KYC to be part of that, and that, in fact, is what I think is slowing us down right now. Yeah and I think it's important to note that commercial banks and central banks are working together. You would have seen in the past couple weeks there was the utility settlement coin fundraising that was announced 50 million sterling across 14 banks, NASDAQ, and Clearmatics, which is an Ethereum variant, a blockchain company. And that's focused on the tokenization of central bank risk level money. And then for us at JP Morgan, we've partnered very closely with the monetary authority of Singapore, who have a very progressive Multi- phase project around trying to bring blockchain and distributed ledgers to reality. And so we actually started them three years ago, and the first stage was actually tokenizing the Singapore dollar. We actually did this on quorum, we prototyped that and actually has like a similar model to How you would think about collateral- backed stablecoins, then we took it a step further with a multiple group of other partners to actually do stablecoin transfers with privacy, so actually writing zero- knowledge proof circuits, and actually- What is a zero- knowledge proof circuit? Okay, so zero knowledge proofs .>> At a high level. At a high level, just an academic technique for being able to prove some information without actually sharing the information. And the application as it relates to blockchain and value transfer is being able to send a payment Ensure that we actually had, whoever sending the payment has the balance to send without actually revealing the balance. So in public blockchains like public block chains are all transparent Ledger's. And that's how you can, you know, trust the technology and trust like the transfer institutional enterprise, the banking system obviously we need privacy, privacy is of the utmost importance The JPMorgan blockchain team has invested enormous amount of time and effort in developing blockchain technology that has privacy. So first we forked aetherium and added a private contract store. And Gabrielle day who was on the stage here who like obviously, as, driven that agenda, so you're here. And then from there we also partner the Zcash company. There was discussion yesterday about Barry talking about privacy coins. So we actually partnered with the Zcash company to pioneer private token transfer and actually also open source that work in the core on GitHub. And then most recently, we opened source Was either implementation, which is another variant of zero knowledge proofs, and private privacy for token transfer, and you can check that out as well. So privacy of the utmost importance for us. But anyway, back to the urban project .>> Well, hold on. Let me let me cut you off right there. Because you mentioned that your blockchain is based on a theorem, which is a public open blockchain, you made a permission for a variety of this Murray, you actually started dabbling with a theorem to begin with and then decided to go on a different route and created something called hyper ledger fabric. Why did you make that decision? Many of the same reasons we think enterprises wanna know who they're dealing with. And therefore, both privacy, security and the fact that you need to own your own data and have the right to determine who gets access to it is critical. That in a public aetherium context does not exist. And at the time we started, we tried to look at various other options and then we are really none out there. So together with a number of different players joined with the Linux Foundation to create hyperledger now 300 different participants. Just released our newest version, next gen platform for hyperledger fabric that allows you to build, govern and operate. We have 1300 people on it right now using it for various industries. Whether it's for finance but also for healthcare announced a project last week. With the FDA for how to handle drugs utilization and security, and that with Walmart Merck KPMG today we announced a new project working with our one of our Columbia accelerator startups IP we to create an intellectual property. marketplace how do you actually track across 200 different. Patent offices around the world for the innovation you create. How do you monetize it? How do you share it? How do you know you're not impinging on it either? They all require access to trusted information, and then exchange of value. And the combination of the two on digital money with permission data sharing is really what we think is causing a tipping point in the industry this year. And I think what Marie and I definitely agree on is that it's gonna be a multiple blockchain protocol world. And I think that we're already starting to see that there are certain use cases that may be better suited for Fabric or versus Quorum versus Stellar versus any other blockchain protocol, right? And The way that I think about it is like in today's world, you have Apple computers and you have like PCs. But the main point is that you can still send an email from like someone who has a PC to someone who has an apple, right. And that's what useful, right. And to the point of it being a multi blockchain world, actually one of the last stages of work that we did with the Monetary Authority of Singapore Was do a cross blockchain cross border cross currency exchange transfer asset transfer using hash time locked, smart contracts. And so I think it's interesting like you know, like where those that are working in the blockchain space both in enterprise and in public. Really trying to push the limits to like actually evolve the technology towards interoperability or some sort of like connection points between different block chains. So let's see, like a mesh network, I guess. And I would agree with that completely. I mean, we were also involved in that cross border exchange on the urban We just joined the enterprise etherium token initiative to focus on exactly these digitized assets and how do we have consistency across platform. And a hyper ledger burrow is looking in how you can take an existing etherium's smart contract and run in on a fabric network. So, you know, one network will not rule them all, and you want fit for purpose, but I think the principles of being open, having control of your data, making sure it is permissioned and that people have the right to use the data that is shared in the way that they think is important will accelerate the whole exchange of value. Excellent, let's give the audience a chance to ask a question or two. Is there anybody out there who has a burning question they would like to ask of our panelists? [ BLANK_AUDIO ] Anyone at all? All right, well, I'll toss you this question then, give your sales pitch to the people here, why should somebody use Hyperledger fabric versus Quorum? I'm gonna ask you the same question after this but from the Korean perspective, You're trying to pit us against enterprise blockchain friends, and we just said that they're going to be multiple washings connected with each other. I mean, we we think the most important point is participation. The real fundamental opportunity for blockchain in my mind is we are now creating the ability to transform processes. Everything that we've done in the internet has facilitated exchange of communication. But everything in business today is essentially a linear process. And you go from point to point to point whether I am doing a handoff from me to JP Morgan to you on a banking transaction. You now have the opportunity to have all the participants on one network and the ability to fold linear transactions on their side and make them a secular economy is I think is what really is fundamentally exciting about this. And my expectation is every single business process will be transformed by BlockChain. And that is not something we've seen since essentially the changes that you saw from the Internet or mobile. Now, when it comes to hyper ledger fabric, we built in many things that we think are important. For privacy, for consensus mechanisms, for security, for tokenization of assets. And those are all fundamental for speed and scale of doing this on a global basis .>> So what's so great about quorum ?>> I would say that it's, it's the developer community. Right. So Cora, as I mentioned before, is a fork of public a theorem And as we know that there's an extremely robust community of developers that are working on Ethereum today. They're working on Ethereum Core, they're working on the tooling. I think that most of the activity that we've seen in the past couple of years in the public block chain space has. Been on public Ethereum. So even some of like the services around like private key management and other trading related services already built on Ethereum. So I think that for businesses that are interested in having permission to enterprise Blockchain to solve their own problems, but want the optionality of connecting to the broader world of Blockchain that's evolving. And leveraging the robust community of developers and academics that are all have been studying this technology for some time. That's what I see as you the kind of the core of which point. Excellent. I mean, I think the most important point is what value will every participant get out of permissioned blockchains? And candidly, I will love the day when nobody talks about blockchain. And they just talk about the value creation that you know the 500 different projects that we've been working on around the world are really what you talked about .>> I agree .>> The benefits the value proposition and the participation that it is now bringing to the unbanked or the underbanked That to me is the real value and stop the hype of blockchain. Yeah, I mean actually when I talked to clients and even like internal stakeholders, like I try not to use the word blockchain. I'm like we're building this technology. We don't actually say it's blockchain. I mean everyone just knows because I'm the blockchain person. But like That's all we've got time for. But yeah, okay, so we will keep watching in the background. It's the technology, let's focus on the things that people are actually doing. [ CROSSTALK ] It's the problem that we're trying to solve. Yeah, exactly. Thank you both for joining me. Thank you. Thank you. [ APPLAUSE ] [ BLANK_AUDIO ]

Brainstorm Finance 2019: How JPMorgan and IBM Are Using Blockchain and Digital Currency 

Finance

A discussion with Christine Moy of JPMorgan and Marie Wieck of IBM. 