JPMorgan Chase — whose CEO, Jamie Dimon, once notably expressed skepticism over cryptocurrency — was actually one of the first financial institutions to “learn to love the blockchain.” In 2015, the bank created a division dedicated to exploring emerging technology such as blockchain.
We were two of the first members of the JPMorgan blockchain team. We built some of its earliest blockchain technology and vetted other blockchain providers for the bank’s strategic investment and adoption. In this article, we’ll discuss the technology we developed during our time at the bank and our insights into the current suite of JPMorgan blockchain products, from Quorum to JPM Coin.
We worked on — and learned from — the challenges of adapting existing public blockchains for enterprise use, including what it takes to successfully lead financial institutions toward decentralized technology. We also discovered that the right place to drive blockchain forward was not from inside of a bank, as we couldn’t make the decisions we needed to in order to truly drive innovation. So, we left the JPMorgan team in 2016 to found Kadena, a hybrid blockchain platform company, and apply our knowledge to deliver on the promise of blockchain.
Juno: JPM Coin v.0
JPMorgan never set out to build a blockchain. The company’s brand centers around finance and banking, not software and technology. At the same time, JPMorgan also knew the importance of adopting valuable financial technology and strategically investing in future innovation. We formed JPMorgan’s new products division in 2015 to evaluate and advise the bank on potential technology vendors — from cloud to big-data solutions.
Six months in, blockchain rapidly became our primary focus. Using our experience as programmers and technical experts, we evaluated everything on the market at the time, from Ethereum to Digital Asset to Ripple to Hyperledger. It was clear back then that the blockchain options on the market were technologically inadequate for real-world enterprise use cases.
Following our assessment, we decided to build our own blockchain within JPMorgan. We wanted to show the bank that the technology could work — if only someone could just get it right. Our program, Juno, began as a demo. We based it on a Byzantine fault tolerant, or BFT, variant of the Raft consensus algorithm, known as Tangaroa. Juno was designed to be a viable private blockchain, with sufficient transactions per second and node support for a serious enterprise use case, including a true BFT consensus for security.
The demo turned into an early payments pilot that JPMorgan deployed to offices in London, Tokyo and New York, speeding up transaction settlements similar to what JPM Coin does today. We open-sourced and presented Juno to the Hyperledger Foundation in 2016.
Juno remains an example of an early performant private blockchain. It showed us that blockchain could live up to its promise. Despite all the progress we were making, JPMorgan was not yet ready to put its full weight and brand behind blockchain back then. Its reluctance to announce Juno and the payments pilot at the time signaled to us that a large financial institution would not be the best place to develop blockchain. It was only after we left — and possibly because we left — that JPMorgan realized it needed to take its technology seriously to keep its talent. JPMorgan then turned the emerging technology group into the Blockchain Center of Excellence.
Quorum
While we were building Juno, a second team in our division was working on a project integrating the Ethereum Virtual Machine, or EVM, and sidechains. This project eventually became JPMorgan’s current blockchain platform, Quorum. Built off Ethereum’s code base, Quorum is a permissioned blockchain designed for the needs of financial institutions and enterprises.
The challenges that Quorum faces are a byproduct of its reliance on the EVM and Ethereum’s Solidity smart contract language, whose unsafe design problems were among the reasons we decided not to build Kadena’s current blockchain stack using the EVM. Quorum’s decision to build on Ethereum was an ecosystem play rather than a strategic choice informed by security or scalability. Quorum will be forever limited by Ethereum’s “original sin”: Ethereum’s founders never had the interest or the experience to design a platform ready for real-world business operations.
Unlike IBM’s Hyperledger, Quorum’s blockchain is far simpler, but it still faces the problems of complexity when making an architecture for confidential transactions. Now that several of Quorum’s key developers have left the team to pursue new blockchain projects, it remains to be seen whether any client using Quorum will find robust support moving forward.
Perhaps what places Quorum at the most risk is that the technology lives under the stewardship of a large bank, not a dedicated technology company. To JPMorgan, Quorum will always be a product, not its core business. In the long term, we expect that the bank will take its time and strategically find a mature blockchain platform to adopt for its workflows. However, we commend JPMorgan for its altruistic stewardship of Quorum. The bank has proven blockchain’s potential and built something that has been successfully deployed and used by key partners.
JPMorgan’s stablecoin today
We see the Juno payments pilot as the earliest version of JPM Coin, the stablecoin that the bank announced earlier this year. JPM Coin seeks to solve two problems in financial markets: the expensive and inefficient settlement process, and the volatility of cryptocurrency. The way JPM Coin achieves its goals is simultaneously impressive and unremarkable.
To address cryptocurrency volatility, stablecoins can be “pegged” to the value of an asset for redemption at a fixed price. For example, JPM Coin is a stablecoin pegged to the United States dollar and is redeemable for one dollar from a JPMorgan bank account. However, stablecoins also have drawbacks: A stablecoin can only be pegged if there are sufficient assets and reserves behind it. Just as George Soros once famously broke the bank of England, it is possible to break the peg of a stablecoin with enough financial firepower. Also, controversy arises when a stablecoin like Tether may not have the financial reserves that it claims to hold.
Adequate financial reserves are not an issue for JPMorgan. And unlike Facebook’s Libra stablecoin, which would be pegged to a floating basket of currencies, JPM Coin is tied to a single sovereign currency. While Facebook’s Libra has incurred serious and merited concern over its extraterritoriality, JPM Coin is far more innocuous. Eventually, JPM Coin could function as a token that you can cash out for money that is already in your JPMorgan account. Today, however, JPM Coin is used to track cash for compliance efficiencies, without doing much else at the moment.
JPM Coin becomes far more impactful when it connects to a public blockchain network through a hybrid platform, one that is capable of interoperating between JPMorgan’s private ledgers and a secure, scalable public blockchain. With a hybrid network, the bank could benefit from the liquidity and market access of a public blockchain while ensuring privacy and security with a permissioned chain.
The existence of JPM Coin bears important implications for the world of blockchain and finance. In five years, we expect every company will want to build its own version of JPM Coin. JPMorgan has demonstrated that it is ahead of the curve on blockchain implementation.
Main takeaways from JPMorgan’s blockchain group
One of the biggest things we gained from our careers in financial technology and regulatory agencies was an understanding of how financial systems actually work, along with what is needed to drive adoption of blockchain forward. The hubris of Facebook’s Libra and Silicon Valley’s attempts to “disrupt finance” stem from a lack of institutional knowledge of how financial systems function in the real world, with real rules and consequences. In order to successfully “disrupt” something, you have to have a deep understanding of that which is getting disrupted. In order to understand what businesses require to adopt blockchain, we had to first build a blockchain for one of the largest financial institutions in the world.
Despite the technological and business challenges facing Quorum and JPM Coin, it is important to give credit to JPMorgan for being a pioneer in the world of enterprise blockchain. The bank’s cautious steps into blockchain were understandably motivated by wanting to protect its strong brand in finance. Still, it has remained a savvy contributor to blockation innovation.
Many large institutions — far more than have been publicly announced — have attempted to get Ethereum to work for a line of business. Nearly everyone has failed — and yet, JPMorgan succeeded. It has moved heaven and earth to get the EVM to work for any line of business with Quorum.
Stuart Popejoy is the co-founder and president of Kadena, with 15 years’ experience in building trading systems and exchange backbones for the financial industry. Prior to starting the company with Will Martino, Stuart worked at JPMorgan in the Blockchain Center of Excellence, where he led and developed the bank’s first blockchain, Juno. Stuart also wrote the algorithmic trading scripts for JPMorgan, which informed his creation of Kadena’s simple smart contract language with formal verification, Pact. His past work also includes experience at Pragma Securities, Pink OTC Markets, JupiterMedia and Apple in various programming and analyst positions. Stuart received his B.A. in comparative literature from the University of California, Berkeley, and is also an avid musician and composer. Stuart has been featured in Forbes, Fortune and Quartz as well as additional publications.
Will Martino is the co-founder and CEO of Kadena. He co-founded the company in 2016 with Stuart Popejoy to provide the fastest, safest and most scalable smart contracts for entrepreneurs and enterprises. Will’s background has earned him a reputation for delivering unique insights into the world of permissioned and hybrid blockchain. Prior to founding Kadena, Will worked in JPMorgan’s Blockchain Center of Excellence along with Stuart, where they spearheaded the company’s first blockchain, Juno. Before JPMorgan, Will worked as the tech lead for the cryptocurrency committee at the U.S. Securities and Exchange Commission, a software engineer for AxialMarket and in client services at Ion Trading. Will received a B.A. in economics and mathematics from Yale University. He has authored multiple first-name academic publications in the fields of fractal geometry and materials science.
The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of CryptoX.
