JPMorgan will use its new blockchain to ‘tokenise’ gold bars, according to the Australian Financial Review.
Commodities on a blockchain
This doesn’t mean that the bars will be physically sucked through a screen and transformed into electronic incarnations of themselves à la “Tron” (1982); rather, that ownership will be represented by electronic tokens rather than paper certificates.
The advantage of this is threefold: ownership/transactions are recorded/executed openly and indelibly; ownership can be more easily divided up, and the resulting shares can be bought and sold without the involvement of a third party.
Umar Farooq, head of blockchain initiatives at the investment bank, explained: “They wrap a gold bar into a tamper-proof case electronically tagged, and they can track the gold bar from the mine to end point – with the use case being, if you know it’s a socially responsible mine, someone will be willing to pay a higher spread on that gold versus if you don’t know where it comes from. Diamonds is another example.”
Finance Magnates has written before about a few companies that are tokenising the diamond trade. These startups also aim to make the supply chain more transparent, and the market more liquid.
The entire stack
JPMorgan’s blockchain network is called ‘Quorum’. It was developed using Ethereum in 2016. It limits access to transaction data to those that are directly relevant. Said Farooq: “We are the only financial player that owns the entire stack, from the application to the protocol. We are big believers in Ethereum.”
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Reportedly, the bank is considering using this network to trade other things too. Farooq said that “the entire value chain is going to head in that direction”.
In June 2018, the central bank of South Africa tested Quorum for itself and found that it could process a day’s worth of transactions in two hours.
In May 2018, a source from the bank told Finance Magnates that it is developing a new blockchain platform, this time for syndicated debt trading. This refers to the sale/purchase of debt resulting from loans that were too big to take from only one source. By representing this debt in the form of tokens, shares of it can be traded as if they were an actual commodity.
The source told us that the network was for internal use only. Later that same month, the bank published its patent for an inter-bank blockchain system, a patent that was filed in October 2017, with vague wording (“In one embodiment, a method for processing network payments using a distributed ledger may include…”). 75 banks signed up to join this new ‘Interbank Information Network’ in September 2018.
JPMorgan Chase of New York is an investment bank with a market value of $358.61 billion. In July 2017 it paid a $307 million fine to US authorities over misleading wealthy customers, in August 2017 it paid a $71 million settlement over interest rate manipulation, and in June of this year, it paid a $65 million fine to US authorities, also for interest rate manipulation.