JP Morgan Unveils USD-Backed Cryptocurrency for B2B Payments | Hacker News Reader

JP Morgan Unveils USD-Backed Cryptocurrency for B2B Payments

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234 pointstimcc50209 comments

>The coin will be issued on the Quorum blockchain which was developed by JP Morgan over the last year and is a private blockchain inspired by Ethereum. This means only selected miners will be able to process transactions, unlike public cryptocurrencies where anyone can.

[...]

>The purpose of the JPM Coin is to allow businesses to make near-instantaneous transactions of value across the internet without having to move fiat money in the background.

I genuinely don't understand what the blockchain does here that couldn't be implemented by any random database system. I mean the euros that I have in my bank account are also just a number that could be moved "across the internet" instantly if they so desired.

The big innovation with Bitcoin-like blockchains is that transactions can be done trustlessly but the whole "private blockchain with accredited miners" turns it into basically a slow inefficient database with extra steps.

Is it just a buzzword to generate interest or is there an aspect of this I'm missing?

I tend to agree with you. I wonder though, does reframing as a crypto help them get around any rules, regulations or taxes?

i was curious about this as well

No. Why would it?

I know nothing about finance law, but I know that governments typically have a "blind spot" for new technologies.

Sometimes this can be a good thing, and I think it's what kind of led to the internet being such an interesting place with things like BitTorrent, but often businesses will see it as a quick loophole.

I know nothing about the law for e.g. violent crime, but if you find a new murder weapon, the law would certainly not have a "blind spot" for your new technology.

The law isn't a computer program, it is a human process.

Surely if it did, regulators would move quickly to close that gap?

like the gnu/linux/systemd/gnome/blink argument, this is a great example of why calling linkedlogs/dcash/proofofwork/byzantineFT/cryptokeysasidentity "crypto" kind of muddles the conversation.

In JPMorgan's case, using linkedlogs/dcash/cryptokeysasidentity might end up working out really well. They can distribute the tech to other banks, and the killer feature, besides being distributed ends up being cryptokeysasidentity, from a security standpoint. In my book, what they are doing is still "crypto" but it isnt the genius innovation the whole sum of all bitcoin was. (You might argue that its the proof of work that makes something a crypto, and thats fine.) What made bitcoin different was APPLYING a bunch of academic knowledge to a useful to solve problem. https://queue.acm.org/detail.cfm?id=3136559

If you look up the definition of TECHNOLOGY, its "the application of knowledge." Bitcoin is a PERFECT EXAMPLE of a technology, not because its digital, electronic, and computery, but because its taking a ton of knowledge from academia and APPLYING it. This new coin is more a reapplication of technology, than any sort of creation.

I don't think it's the work "crypto" that helps people skirt regulations. It's the anonymous, permisionless consensus coordination that does. JP Morgan's coin won't have that property, they're just signing off on transactions themselves.

I don't know much about this area, but I could imagine that even if the mining is selective, the transfers might not be. It could remove some overhead that large banks have to do in verifying transactions and preventing duplicates, etc.

mining and transfers are the same thing. that's the core concept - the ledger transaction is the currency.

> what the blockchain does here that couldn't be implemented by any random database system

It says "blockchain" on it, so it can be sold to some uniquely gullible investors?

> what the blockchain does here that couldn't be implemented by any random database system

More likely it can be used to circumvent regulations by trading digital goods and investing in futures, instead of liquid assets.

Even if it is eventually regulated, the upside potential (no matter how temporary) is an upside.

Yea, it definitely has limited immediate value compared to a database as long as it is on a closed network. However it does allow them to experiment with the technology in a controlled fashion. They could have done so quietly but, you know, marketing.

I think there is still value in Blockchain networks like Stellar[1] that are not fully decentralized, but are federated and diverse. If this is a first step towards them issuing a stable coin on a network like that then I welcome it.

1. https://www.stellar.org

"Stable coin" is one of those misnomers where it means exactly the opposite of what one would expect from the existing definition of those words.

Something pegged to the US dollar is inherently going to be unstable, because the dollar is unstable. The dollar is not priced in terms of dollars. One dollar today might not be a dollar tomorrow. The instability is mostly due to the conditions of the market, but then those effects are compounded by the whimsical economists printing it for fun.

OTOH, Bitcoin is a closed system. At any point in time, you can measure the amount of Bitcoin you have as a fraction of the total amount of Bitcoin which exists, and you can even directly predict how that will change due to inflation for the next 100+ years.

I personally prefer the term "fiat coin" or just "shitcoin" is sufficient.

I think it may be that the decentralized control structure makes organizations who would normally be in competition with JPMorgan more willing to be on board with using something that they developed. For instance, if you are say, Goldman Sachs, would you want to use a private database at JPMorgan for you and your clients funds? Or would you prefer to use a semi-private blockchain, where although it's not open to the public, each participant in the network has equal stature to one another? I think that is the true innovation here, and I do think that it is important. It solves some of the corporate cooperation issues that prevent certain types of value from being created, because nobody wants to let their competitor control the space.

This already exists. It’s called the DTCC and everybody uses it.

https://en.m.wikipedia.org/wiki/Depository_Trust_%26_Clearin...

And that company is exactly what this tech. replaces. That company does not provide its services for free. This blockchain product does.

How does this product operate for free? Who's paying for the miners?

Sorry, there may be small fees paid to the miners. But those fees will presumably be dramatically less than this current company charges.

You are putting a lot of weight on "presumably." Someone has to pay for all that mining. Or, you know, skip the mining and your costs should be lower.

They do skip the mining. Mining defends against Sybil attacks, which you don't have to worry about if you know who all the participants are.

You don't mine in a permissioned system like quorum. The CPU load is minimal, and when running the quorum clients, you are basically just checking to make sure everyone in the system agrees on the transactions. If someone tries to cheat (or spam or whatever), you kick them out.

But then we're back to square one, aren't you basically describing a distributed (but still perfetly "trustful") database? Isn't that effectively what this DTCC provides?

What in this allows JPMorgan to provide the same service for free? Is it really technical innovation or is it just a different business model? Wouldn't they be able to do the same thing without using anything cryptocurrency/blockchain related?

I feel like I'm missing something obvious but I don't see what it is.

A blockchain is a distributed non trustful database with a method for resolving disputes built in. Roughly speaking in something like quorum, everyone checks everyone else's work, and the majority consensus is ground truth. DTCC requires a trusted third party to administer the database. Quorum doesn't. Quorum could presumably also replace intra-bank transactions as well (instead of maintaining some other kind of database).

I guess the missing piece that seems to break people's brains; the ledger in the distributed database represents a dollar amount (in the case of quorum's dollar thing) and it has money-like rules, unlike, say, postgres which ultimately relies on some other piece of software to make ledger like transactions.

Unless I am mistaken, DTCC doesn’t provide any trust for internal account balances at JPMC. It only provides trust for the details of transfers. These tokens provide trust before and after transfers. The tokens themselves actually provide no trust during transfers and the transfers are only allowed by trusted parties as a result.

Also, DTCC only handles securities not currency so this doesn’t exist at all.

What actually you should be arguing is that the JP coin and the DTCC need to be combined as they each only provide trust in a certain part of the ecosystem.

what you're missing, that's obvious, is that blockchain is a solution looking for a problem where none exists. The word was imbued with virtue, and at this point blockchain has come to mean 'virtuous database'

Technology can be more than new things; it can also be made of combining old things in new ways, or finding new uses for old things, or even simply new ways of thinking. If we removed "cryptocurrency" and "blockchain" from the above, they'd still have a new settlements process. They're using a distributed ledger to make the process safely automateable and reduce audit costs.

If someone tries to cheat, you suspend their participation if you are empowered to do so, and / or report them to the appropriate regulatory bodies / law enforcement.

Blockchain doesn’t allow anyone to circumvent anything.

Unless it’s a perfectly spherical blockchain operating in a vacuum.

>If someone tries to cheat (or spam or whatever), you kick them out.

Or, if someone doesn't pay for access, you kick them out? Or if someone is your competitor, you kick them out?

It is a technology for trading with other banks.

If you want a chain that doesn't allow transaction censorship, you need something else, like a proof of stake or proof of work blockchain.

Permissioned blockchain generally doesn't have wasteful mining because all the participants are known. So the nodes just end up signing transactions. Double spend attempts can then be prosecuted.

> And that company is exactly what this tech. replaces. That company does not provide its services for free. This blockchain product does.

There’s no such thing as “free”. You’re either paying directly or indirectly. The DTCC is owned by its member organizations so it does not have a direct profit incentive anyway.

I highly suggest reading more on the topic and the problems it’s meant to solve before pitching “But blockchain!” as a solution.

It doesn't need to have a profit motive to cost more. It's costs are what cost more.

But there is no reason for it to cost more than a private blockchain solution.

Sure there is, simply by virtue of being the only solution available. All of a sudden, a simple database becomes a sprawling corporation with a multimillionaire board of directors, waging political war among themselves for resources, power and an ever larger number of underlings.

The private sector is not magically superior to a state bureaucracy, without any competition or political pressure to reform it can act even worse.

> a sprawling corporation with a multimillionaire board of directors, waging political war among themselves for resources, power and an ever larger number of underlings.

A blockchain does not get rid of those things.

I'm talking about competition, whatever the technical implementation. That's precisely the point, cost is determined by market structure and incentives, an inferior solution can be much cheaper due to lower margins.

I'm not sure I understand your point. Blockchains do not get rid of competition.

They don't but most competition does lower prices which is his point.

Erm, yes it does. DTCC has a board of directors. It is a company. This blockchain eliminates that. Literally.

> DTCC has a board of directors

A large business "has" a lot of things. Why bring up board of directors specifically? I'm sorry but this sounds more like fumbling to grasp a point rather than an actual example of something useful.

I didn't bring it up, the comment you responded to did. You said that it didn't get rid of it, but it does. It gets rid of the entire DTCC company, and all of the salaries that go along with that. All of those costs go to zero.

Can you explain? To me, it seems like control is what matters. And the DTCC controls access to its databases, whereas JPM controls access to its blockchain. Whether the parent organization is adding a +1 to a database or a +1 to cryptographic ledger seems inconsequential.

>JPM controls access to its blockchain

Only for the initial group of banks invited to participate. After that it would be up to the consensus algorithm to decide if a prospective member can join.

Who's pitching "but blockchain"?

While you show clear ridicule for some sort of "blockchain fad", I don't see anyone pitching a solution here.

I see JPM literally implementing one, and I would assume there is a cost reduction they've calculated.

Typically the cost reduction expected is due to eliminating rent seekers.

Which rarely happens, as new rentseekers replace old rent seekers.

It's not going to be free once they finish paying the army of developers each bank will have to keep on staff to manage it.

You mean like the army of developers required to run an ethereum node?

Or the fact that their coin / Quorum IS Ethereum, so most of the work will be done for free by core devs

You seem to be missing the point. Operating this blockchain is nearly free. Building it out is a capital cost. Once its built, its ongoing expenses should be low.

You two were actually saying the same thing.

There's nothing to built... 1. `git clone ethereum jpmorgancoin` 2. profit

Maybe JP Morgan thinks it's possible to improve on the DTCC. Your link describes some controversy over their handling of naked shorts, for example. Or maybe the new system would be cheaper, or JP Morgan wants to implement new features themselves, without having to convince everybody to trust JP Morgan to track their money.

Quoting Wikipedia: "Several companies have sued the DTCC, without success, over delivery failures in their stocks, alleging culpability for naked short selling. [...] Critics blame DTCC, noting that it is the organization in charge of the system where it happens, alleging that DTCC turns a blind eye to the problem, and complaining that the Securities and Exchange Commission (SEC) has not taken sufficient action against naked shorting"

Doesn't sound that trustless to me. With a decentralized setup as in Quorum at least everybody can calculate how much they have to trust the miners.

If your company has miners of their own, you are part of the whole system and not just using a third party service.

Most quorum implementations I have seen don't use mining for consensus. Out of the box you can choose between these consensus algorithms: https://github.com/jpmorganchase/quorum/wiki/Quorum-Consensu...

Thanks for the link. I knew there were other consensus algorithms possible but I didn't know of any specific example.

The main point still stands though, the different consensus algorithm allow you more insight than a simple centralized DB that is just a black box.

I agree very much. I have worked on quorum based blockchain systems for bank consortiums in the past.

The thing is that it can take days for a transaction between two different regional banks to clear. Whereas with the solution they're proposing, I'm guessing it'd take much less time than that.

Many people are trying to solve this problem (see: Corda, XRP)

This is exactly correct. Private blockchains create efficiency between large institutions like JP Morgan and other banks who are constantly moving large volumes of money around by eliminating the traditional processes in place required to move that money. A private blockchain is essentially a shared database (distributed ledger) used by an arbitrary number of private institutions, each of whom has an interest in participating to reap efficiency gains by using a shared database that they can trust, more than they would trust a traditional database owned by a single party. It's not game changing innovation in the same way that crypto futurists think of Bitcoin as a new type of decentralized money, it's incremental efficiency for existing processes. It's more accurate to think about this as blockchain technology for JP Morgan than as cryptocurrency in the sense that Bitcoin is an application of blockchain technology. JPM coin is not like Bitcoin, or ripple for that matter.

The important thing to understand here is that JP Morgan thinks about blockchain technology completely differently than libertarian futurists. Blockchain is not a movement for them - it's a technology that reduces friction for things they are already doing.

> it's a technology that reduces friction for things they are already doing.

And there lies the rub, because as far as I can tell, this particular (and no particular) blockchain implementation does not in fact reduce any friction for things they are already doing.

This is the aveneue of questioning I'd really like to see more detailed discussion on. [Disclosure: I'm agnostic on the potential of blockchain]

Does TPS increase non-trivially in a private chain vs a public chain? If not, will a private chain's TPS at least substantially outpace the TPS of, say, Ethereum within 3-5 years? That is, will JPM's private chain reach 100, or 1k, 10k, 100k, etc TPS?

Assuming TPS reaches a sufficiently high-level (whatever that could be), would a private chain require fewer sysadmin/engineering/etc. folk, compared to what the DTCC model requires?

Does a semi-private chain (where JPM allows other partners or competitors to plug-in) have a faster on-ramp? That is, would it be faster to plug players in than a traditional solution?

Is there a cost reduction somewhere within the audit process? Other processes?

I have these types of questions, but it is difficult to find much substantive discussion on them. Typically, answers are Yes or No, but with little to no detailed explanation as to why.

I know people who have worked in this space (fintech permissioned blockchain). Although this was my initial reaction, they tell a different story. One angle to that is along the lines of "you wouldn't believe how bad the thing they use now is".

There is no innovation here because JPMorgan controls access to the network thus they centrally control the network. No problems are solved here that couldn't be solved without a blockchain.

We need a new word for a thing that's like blockchain, but not happening in public, and therefore not actually decentralized.

I submit "charm bracelet".

Maybe "base that stores data"?

DatabaseChain could be fun as well

D-Chain

Public and decentralized are not necessarily the same thing. Even if just two other banks join in, under an equal footing of ownership of the proof of work, its no longer centralized. I think assuming "all blockchain tech must be used only for situations with anonymous participants" is unimaginative gatekeeping. There is plenty of room to reimagine business process workflows between consenting participants, that doesnt at all hinder the public coin marketplace, or infringe or harm principled stands trying to change the world. These arent coins a single human bank customer would ever hold or use, these are for institutional settlement.

A good example could be a construction project where the general and all the subs collaborate on a database, but no one company owns it.

The smart part of JP Morgan's plan here is scalability. It might be centralized now, but it can be trivially extended into becoming decentralized at the flick of a switch, without a redesign.

Microsoft already has pushed for a non-public-anonymous-participant private blockchain that has throughput of around 1600 transactions per second. https://medium.com/coinmonks/coco-framework-a-game-changer-i...

> and therefore not actually decentralized

> The Quorum blockchain has been tested with other major companies including Goldman Sachs and the National Bank of Canada

It is sort of decentralized. but the access is not open to everyone. Most banks aren't comfortable with putting all their eggs in the basket that could end up under someone else's control. Decentralized doesn't really make the bank feel at ease when they back up their coin by trillions of their own money. They'll want some guaranteed form of control.

The purpose is actually to bypass SWIFT and their network with a network that is completely under the bank's control.

That's nice to state, but it simply isn't true. JPMorgan controls access to the network, but once you're in the network, you're now on equal footing with them. If you want to, you and the other participants can fork away from JPMorgan and do your own thing. JPMorgan controls the network only in the sense that they initially extend invitations.

Can't they revoke the invitation whenever they feel like?

I suppose they could revoke access to their own node, the same way any Bitcoin miner can. But I don't think they can revoke access to the other nodes.

So JP Morgan would see some state for the accounts and the clients would see something else if they disagreed with JPM?

Doesn't seem like a viable consensus algorithm.

So you can prove to me that my account balance at JPMC is actually $100 when I do a wire or do you take JPMC’s word for it when you see the wire details?

Whether or not the validation will be public could mean you still have to trust JPMC but now you essentially get an API to validate my account balance which you didn’t have before

> you essentially get an API to validate my account balance which you didn’t have before

A blockchain is not needed for this

HTTP wasn’t needed for you to send that comment to hacker news, they could have used other technologies instead. What’s your point?

My point is that the advantages you described (an API) don't justify the complexity of blockchain technology since APIs can be implemented without them.

That’s a purely technical perspective on the situation. One could make the same argument about gRPC versus SOAP versus XML.

What would have been a more constructive response was:

This looks like JPMC is trying to profit off hype by building a new accounting and settlement system on blockchain. Since they control all aspects of their network and ultimately are the only one redeeming tokens for dollars, they could have used something simpler. However, I bet they did it this way because they think forking ethereum is cheaper than building a new system from scratch and also they might get a bump in stock price from the hype. If they built and announced the same system using bespoke tech (that likely solves the problem more effectively), no one would have probably cared.

I think maybe it wasn’t clear that I was responding to your comment about no innovation was made versus that blockchain was required. The innovation is that JPMC actually has an internal accounting and settlement system they can trust, not what database it uses or what language it was written in. Previously they relied on ACH and Wires which they didn’t control.

This explanation would have credibility if the announcement included BofA and Wells. Without multiple major players entering with them, it is only a wish.

I felt it was incredibly self-serving to make the token JPMC only. An arcade is only as good as the games inside. If your token only works at JPMC, that’s a pretty weak banking arcade.

That's not quite right though (and I fault their PR people for not explaining this). The token can be exchanged between any party on the blockchain (which afaik is not JPMC-only). You only need to transact through JPMC to exchange the token for USD.

“Unlike bitcoin, only big institutional clients of J.P. Morgan that have undergone regulatory checks, like corporations, banks and broker-dealers can use the tokens.”

JPMC still controls who is allowed to exchange tokens. Which means that you still have to transact through JPMC to exchange tokens as JPMC controls the blockchain.

If somehow they don’t retain majority control of the blockchain, then you technically don’t have to transact through JPMC but I don’t see that happening.

That still doesn't need any technology derived from Bitcoin though. git branches and a git merge driver could do it.

Liquid from Blockstream is actually doing what you're describing, but as fairly and openly is possible. The company itself doesn't have any operating nodes (JPMorgan has), Liquid is open source (https://github.com/Blockstream/liquid) and public, just the operating nodes are selected in a controlled, centralized, but geographically distributed way.

Another difference is that Liquid allows 2-way pegging to BTC, but allows other (for example fiat based) tokens to issued as well (but not part of Blockstream's business model), and the transaction types and values are encrypted.

I assume they've set up an ethereum network with Proof of Authority instead of Proof of Work or Stake which means this isn't really decentralized since the transactions are being solely mined by a controlled group of trusted nodes. The five-engineer team I work on did the same over the course of the past six months and for us it's just a stop-gap until we can move to Proof of Stake, get some third party nodes on the network and finally consider ourselves decentralized as a blockchain.

It doesn't solve any of those issues. If one bank controls the infrastructure to mine and update, they can hard fork at any time. Why would another bank trust that system? The whole point of "distributed consensus" is to distribute the friggin consensus!

One thing it could do would be to let each participent in a transaction verify the transaction itself... which I suppose is a nice feature, maybe everything goes into "escrow" and then is released when everyone ( the participtors in the transaction who can mine? ) can agree on the result.

> random database system

Who would own this database?

JPMorgan

Which is the problem that JPM Coin is aiming to solve. For them to use a DB solution requires both parties to the transaction to be customers of JP Morgan. A block chain issued coin doesn't require that and, therefore, has some theoretical advantage. Of course it remains to be seen how true that turns out to be.

There is a DB based solution for financial transfers today in SWIFT. It has numerous flaws that a block chain based solution legitimately solves.

I am not saying SWIFT is perfect, but please enumerate these flaws and the ways in which blockchain legitimately solves these flaws without introducing an equal number of equally problematic flaws.

SWIFT transactions can be slow depending on the banks involved.

If a bank's SWIFT credentials are compromised the attackers can transfer all the funds a bank controls. With a blockchain coin it would require the private key of the customer to send the coins.

> With a blockchain coin it would require the private key of the customer to send the coins.

There are no "customers", this is a private blockchain where only banks participate.

Obviously the customers are the businesses with money deposited at the bank.

> If a bank's SWIFT credentials are compromised the attackers can transfer all the funds a bank controls. With a blockchain coin it would require the private key of the customer to send the coins.

Replace "SWIFT credentials" with "private key" and you have exactly the same scenario.

How is compromising SWIFT credentials different than compromising a private key?

> It has numerous flaws that a block chain based solution legitimately solves.

This is false. It solves nothing. If you disagree please detail a specific example instead of vaguely claiming it solves lots of problems.

> For them to use a DB solution requires both parties to the transaction to be customers of JP Morgan

JP controls the network, so they must already have a prearranged agreement with JP in order for any of this to be possible anyway, at that point, the blockchain doesn't give you anything that couldn't be done faster and cheaper with public/private keys and digital signatures.

Sure, I'll give a problem.

A private database is not public to the customers. Customers have to trust that the database isn't being changed behind the scenes.

A Blockchain makes it transparent to all parties in the network, so you don't have to trust that nothing wierd is going on where you wont be able to see it.

> A private database is not public to the customers. Customers

The article describes a private blockchain which is not public to customers, so your example does not work here. I'm willing to consider any other specific examples you can think of.

The customers here in question are other large institutions (for now).

It is public to the other participants in the network.

"Customers" in this instance is in reference to the banks and businesses that would be apart of this Blockchain.

The "private" Blockchain is not private to the participants. IE, other banks.

This is bank to bank technology that is meant to replace the current settlement layer that banks currently use, but is quite slow.

IE, wire transfers between banks, that can be made much faster, and require less trust the current methods that banks transfer money between each other.

Right now settlement times between banks are high, or require that they trust some centralized, non transparent database.

This, on the other hand, reduces the trust necessary between banks.

Plus if it is backed by the dollar, it is subject to the same central bank manipulation than the actual dollar.

Not really a con based on the use case, right?

Then why create a currency if it isn't as a currency at all?

the moment you start using a private blockchain you miss the point of cryptocurrency. all of these enterprise coins make me laugh

There are a lot of points of cryptocurrency. It's true a private chain has no protection against central control... however it does have protection against double-spends, mutable history, confirmation guarantees, etc.

right but all of those are more performantly implemented with a cluster of mysql replicas .. the protection against double spends is only as strong as the cluster of machines doing the hashing

Given a standard for moving assets across chains, this starts to become really interesting.

"What can be achieved by HTTP that can't be achieved by any random binary protocol?"

Plasma could facilitate this for Ethereum-compatible chains, including Quorum.

You are correct that these sort of "private" and "federated" blockchains completely miss the point of Bitcoin (some intentionally, some not). The features they provide were possible before Bitcoin was invented, but no one really cared about finding uses for them until the blockchain hype train rolled through town.

That doesn't mean they're completely useless though. If Bitcoin eventually inspires some real innovation in fintech, then great.

But the inspirations have almost entirely not come from the stuff that makes Bitcoin and "blockchains" unique. If they realized that people want an easy way to have their assets managed and traded digitally they can do it much better without blockchain baggage.

well how many servers that you interface with financially allow you to audit all of their transactions in a mathematically verifiable way?

What they're gaining is interoperability with public blockchains. JP Morgan's permissioned blockchain—Quorum—is essentially a fork of Ethereum. They can issue assets on their private chain (which, yes, by itself is no better than a traditional database). However, they can then transfer these assets to and from public blockchains.

By doing this, they are gaining access to the greater crypto ecosystem while still maintaining centralized control when they need it.

Here's a little example of how this might work in practice:

1. You hold $100k in your JPM money market account

2. You convert $25k of that to JPM's stablecoin on their Quorum chain

3. You withdraw this $25k JPM-coin to the public Ethereum blockchain

4. You use it in Ethereum's burgeoning "Decentralized Finance" or "Open Finance" protocols.. some examples: https://www.dharmalever.com, https://compound.finance, https://www.augur.net/

5. You finish what you're doing, and transfer it back to your JPM account

Where is the benefit? If I wanted $25k in eth, why wouldn't I just buy $25k in eth instead of adding in the extra step of a JPM stablecoin?

It's absolutely just a buzzword. A blockchain is just a data structure which is useful in Nakamoto Consensus, which is only for censorship resistance.

Everything a cryptocurrency can do be done much more efficiently, faster, cheaper, safer, better UX, etc, except for censorship resistance. If you don't want your coin/token to be censorship resistant then you can have a system that's a million times better by just building a web app that uses regular cryptography.

Not really.

If you build a web with a private, centrally controlled database, then you might be messing with the database behind the scenes.

A Blockchain makes that database transparent, and makes any secret funny business immediately apparent.

That black or white worldview absolutely ignores a middle ground use case for a bunch of collaborative entities that _sort of_ trust each other, are ok being non-anonymous, and want to work together on a shared ledger. Ten firms working towards a common goal can do so without an insane amount of redundant double entry accounting at each firm, they can do the work once and share the results, they can audit and verify the log. And they arent all just accessing one databased stored at one firm.

Im not sure people really understand the implications of a team of companies that collaborate often banding together, and eliminating the need for 3rd party audits and 3rd party fund settlement.

> Im not sure people really understand the implications of a team of companies that collaborate often banding together, and eliminating the need for 3rd party audits and 3rd party fund settlement.

I think it is more that people don't understand what existing technologies there are already, but they've heard of this "blockchain" thing, and the black and white view is one where you either need a blockchain or you don't need anything.

There are some other interesting technologies and research areas. One example is SMPC. In 2008 (pre-dating Bitcoin), a secure auction with sealed bids was conducted in Denmark for the purchase of beets from independent farmers[1]. This kind of research get drowned out by the blockchain hype because nobody is interested in something which doesn't print their own money.

There are also more well understood distributed databases and consensus algorithms which work when you have semi-cooperative parties. I think a lot of these "blockchains" really just want a merkle-tree, and they could probably get by with a database like noms[2]

When you have a bunch of cooperating parties, they either need to assume that the parties are cooperative, or you need an arbitration process. The arbitration process is what the blockchain is about (with the record keeping in the blockchain being a kind of toxic waste which is kept around to support that). What do you do when the parties are being uncooperative? If there are only a few parties, then PoW is not a viable solution because one party could outpace others if they have more computing power. If you pick something like Proof-of-stake, then several parties could collude to swindle others. If you have a centralized system, you've not gained anything. Ultimately, the companies involved are always going to take any quarrels to a legal court and have a human decide the outcome - meaning their blockchain is going to have to be "fixed" by manual intervention anyway.

[1]:https://eprint.iacr.org/2008/068

[2]: https://github.com/attic-labs/noms

You can interact with people you don't trust using standard cryptography. The blockchain just facilitates censorship resistance.

The blockchain signs each dollar. You could have done this instead by making each dollar a PGP signature and allowing trusted parties to decrypt the signature and claim the dollar.

Honestly though, if the chain isn’t public, JPMC can update the code behind-the-scenes so there’s not as much trust as there would be on a public network.

> I genuinely don't understand what the blockchain does here that couldn't be implemented by any random database system.

A blockchain is...well... a database system itself!

There are many different types of database systems, eg. Relational, Graph, Object orientated, document (eg elastic search) and so on.

Generally you want to pick one that fits your problem area well, so picking a random database system would not be a good idea.

One of the most important data structures they need is a tree for the Merkle proofs to confirm that the data hasn't been tampered and contract execution happened correctly. Tree structures are notoriously difficult to implement in a relational db for example.

(BTW, I'm also skeptical of the hype around 'blockchain' just as before when the 'noSQL' hype came around. You will surely have some devs pick the blockchain as their database system for the wrong reasons, just like back in the day when you had devs pick noSQL because it was cool.)

Why is a Merkle proof difficult to implement in a relational DB?

The only required data fields in each row are the parent row ID and a hash, no?

It's the other way around, actually. Having small set of authorities that reach consensus via raft/pbft in case of quorum means that ethereum blockchain can be much faster. You still have full transparency of what's happening, you have access to the chain, you can read it, validate it, etc. They just run minting of blocks for you. It's true that if they don't like you, they can refuse to include transactions from you for example - that's the main cons from public consensus like PoW. But they are not worried about it, of course and other participants are usually not worried as well because they know that whoever controls minting nodes have strong incentives to run it fair (otherwise participants would not give a shit to join it). This is different from public chains where those rules don't exist. In big corps integration and security is a massive problem. Blockchain reduces those two problems by orders of magnitude. If you wanted to "implement it by any random database system" - you'd end up with something like ethereum. You can't just spawn your public postgres and publish public api to create new users, can you? Quorum has also some other extensions to ethereum related to privacy (private contracts, anonymity etc) that are attractive to corporations. It's nice to see them open sourcing quorum and publishing something real-world based on it.

I also fail to see the point of this... maybe to prove once and for all that blockchain doesnt make any sense as an institutional/private service?

My thoughts exactly. Isn't this:

> make near-instantaneous transactions of value across the internet

the definition of what wire transfer does? And why not doing it in "fiat money" (it's an additional level of hilarity for a major bank to use this term, for those who understands) has any value?

The value of blockchain transfers is lack of intermediaries and gatekeepers - which advantage the private chain owned by JP Morgan takes away. This is like advertising "we sell gold coins, only instead of hassle of owning heavy metal pieces, we provide you with little pieces of green paper that could be exchanges for gold coins at any gold dealer" - totally missing the point of the whole exercise.

It's pretty well known that these BigCorp crypto/blockchain plays are just smoke and mirrors. There is no actual differential value gained here (unless as @dwiel says,they get some sort of loophole crypto tax break). It's a bit saddening to see that the tech has been picked up by the exact institution(s) that the tech was meant to combat. But if anything that just proves that there's meaning behind the concept (regardless of a f'ing coin price).

I look forward to the day where the JPM's and the like are put out of business for this sort of thing due superior, user-friendly technology.

How / when will public blockchains achieve better UX / friendliness than say Venmo, Robbinhood, or debit cards?

I wouldn't say its so much the UX. The UX even on some crypto projects is just fine (see some EOS projects, apps, and dApps). The problem I see is that what incentive do end users have to use crypto/privacy/blockchain/whatever apps vs the centralized alternatives? Currently? None, because no one gives a damn about their privacy/data. I don't think it will be my generation (millennial) that picks this tech up, I think it will be later generations that have seen our missteps when it comes to digital privacy.

Would focussing efforts on sound data privacy legislation and education go further to protect the people?

Or perhaps outlawing targeted advertising?

Doesn't EOS suffer from the same subpar UX around secret keys?

As compared to losing a debit/credit card

Keep in mind that the EOS ecosystem extends far beyond downloading a CLI client/etc. EOS Lynx[1] is a wonderful example of a decentralized wallet that has abstracted layers away to the point where it looks/feels/acts like a "regular people" iOS app

[1] https://eoslynx.com/

Shameless Plug: I am trying to working on something around those lines, its called Bitcharge[0]. Its essentially paypal.me for crypto with multiple cryptocurrencies. I would love to hear your thoughts about the general UX for the project.

[0]https://bitcharge.co

> I look forward to the day where the JPM's and the like are put out of business for this sort of thing due superior, user-friendly technology

That seems like a good thing for cryptocurrency fans to start working on. Part of that would be looking at the big problems which have prevented it so far, which aren’t really technical as much as philosophical: practical reasons to switch (which is to say being competitive on pricing), barriers to adoption (i.e. until most people you know use a system its benefits are mostly hypothetical), and not having a fraud story other than “we’ll say you should have had better opsec”.

I’m going to try to distill this down to it’s easiest form.

- JPMC will now create a digital signature (token) for every dollar that enters its network.

- Those digital signatures can be exchanged by any trusted authority

- JPMC will exchange a single dollar to those trusted authorities for a single digital signature

Using the blockchain allows JPMC to trust each dollar that goes through both their network and partner networks as they cryptographically trust that forgery is almost impossible. They also can trust that when a “wire” comes in that the funds are actually available.

This is purely an accounting system backed by cryptography that allows much more trust.

This could be very useful, but it doesn't require blockchains in any way.

"Blockchains" are an implementation detail that covers a large category of related things.

For a centralized service, Blockchains are still useful for things like transparency.

Correct. Especially since it’s centralized, they could have used any secure form of asymmetric encryption to offer the same guarantees

edit: didn’t like my analogy

I’d prefer you posted something constructive rather than just saying “doesn’t need blockchain”. Of course it doesn’t. Storing data doesn’t require a relational database, or a key value store either. All have pros and cons.

Saying “doesn’t require blockchain” is obvious and adds no value. It’s like coming into a workshop explain what a saw is and saying “other cutting tools also exist”.

You seem to be making the leap that because I’m explaining what something is without saying whether or not I think it’s the right move that I think it is.

I don’t know whether or not it was cheaper and more effective for JPMC to fork ethereum or to build their own accounting system from scratch and I doubt you have the correct information to make that assumption either. Maybe JPMC doesn’t have a team capable of writing accounting software (seems unlikely). What’s more likely is they are looking for headlines because they know blockchain is hyped technology. It would have probably not made the news if they announced they were adding another settlement system beyond Zelle, ACH, and wire. So, they probably chose this because they think it will reduce costs and move their stock price while building a bespoke software accounting system would have been more costly and wouldn’t have provided as much hype.

Businesses don’t make decisions about technology completely based on its technical merits.

Many times they choose technology because someone recommended to them, or it’s cheap, or they can’t build it themselves, or that’s not their primary business, etc.

> I don’t know whether or not it was cheaper and more effective for JPMC to fork ethereum or to build their own accounting system from scratch and I doubt you have the correct information to make that assumption either.

We can make a good guess -- they're already a bank, so they're already running the same accounting system this project requires.

This system is both accounting and transfers. All their other transfer systems (ACH, wire, Zelle) are run by third parties. As mentioned, we don’t know what the cost of building their own transfer system would be.

In the long term, using someone else’s code for your bespoke project typically means you run up against “square peg round hole” issues so it’s likely they are just deferring engineering costs.

> All their other transfer systems (ACH, wire, Zelle) are run by third parties.

Those are systems for transferring money from JP Morgan to another bank. This system doesn't do that; it can only transfer money from JP Morgan to JP Morgan. That is much easier for JP Morgan to do, and they already have their own system for it.

That is wrong. Please re-read the article.

OK, I read the article. It says

> the coin is only available to JP Morgan’s institutional clients

without really expanding on anything.

But, JP Morgan has an official announcement out about this, which is much more informative than this article is. It says:

> How does it work?

> In step 1, a J.P. Morgan client commits deposits to a designated account and receives an equivalent number of JPM Coins. In step 2, these JPM Coins are used for transactions over a blockchain network with other J.P. Morgan clients (e.g., money movement, payments in securities transactions). Finally in step 3, holders of JPM Coins redeem them for USD at J.P. Morgan.

and it says:

> Only institutional customers passing J.P. Morgan KYC can transact with these coins

So, in order to make any transaction using JPM Coins, you need to be a JP Morgan customer who's passed their KYC checks. Parties who are not clients of JP Morgan cannot purchase, receive, or redeem coins. What part of what I said was wrong? What language from the article were you thinking of?

> Those are systems for transferring money from JP Morgan to another bank. This system doesn't do that; it can only transfer money from JP Morgan to JP Morgan.

In theory, anyone who passes KYC can transfer money in token format to anyone else on the network.

There is a major issue with the network which is that it seems as if only JPMC can actually redeem the tokens for dollars.

> JPM Coins are used for transactions over a blockchain network with other J.P. Morgan clients

Moving your JP-Morgan-client-only coins from your JPMcoin account held with JP Morgan to someone else's JPMcoin account held with JP Morgan is not conceptually different from moving USD from your JP Morgan dollar-denominated account to someone else's JP Morgan dollar-denominated account. In both cases, participating in the system in any way at all requires you to hold an account with JP Morgan, and the transfer that takes place "moves" currency from JP Morgan to JP Morgan.

And, no surprise, JP Morgan already has all of the infrastructure in place to do transfers from one JP Morgan account to another JP Morgan account.

> There is a major issue with the network which is that it seems as if only [J. P. Morgan] can actually redeem the tokens for dollars.

That's not an issue. In theory, you hope for the cryptocurrency to be valid currency in its own right; you don't want people to think they need to redeem it.

The issue is that you can't receive these coins unless you hold an account with JP Morgan. (You can't spend them either, but that's moot unless there's a way to get them in the first place.)

I think we are talking about the same issue in different ways.

What’s clear is that this is either about internal efficiency at JPMC or marketing hype. This has no benefits for retail banking customers, unless JPMC provides new benefits (cheaper transfers). It certainly is not transformative to retail clients.

I wanted to reply to my above comment to clarify because people are somehow thinking that just because I wanted to take the time to explain what this is that I support it.

I probably don’t. This is an internal accounting system used by JPMC and potentially other banks. I don’t give a crap about what they use for accounting unless it works well and provides consumer benefits. I don’t care if it’s MySQL and PGP or a person with punch cards.

Whether or not I support this depends on if JPMC:

1. Gets adoption so this works with a bunch of banks and people and businesses can send me or I can send them money

2. Results in a reduction in settlement times versus ACH and wire

3. Comes at a lower cost to the consumer than wire or ACH

4. Comes with the same guarantees

I’m pretty skeptical as services like Zelle and Venmo provide way less guarantees than wire and ACH

This is pointless. The gatekeeper to the private network is a centralized authority.

Yup. Most importantly, only JPM controls it's issuance, which means it's no different than a fiat currency or a gift card. One of the things Bitcoin proponents enjoy is the idea that it's a supply that cannot be printed frivolously.

I was thinking this too; a large part of the original bitcoin paper is complaining about how centralized authorities like banks are problematic. I don't really see how adding another central authority makes any sense.

According to the article at least the purpose is to increase the speed of transactions that the bank settles internally.

I can't speak to how feasible this is because I'm not familiar with the tech, but I don't think anyone needs to adopt the politics of the original paper if they have found some other use.

Exactly true.

The point of a blockchain is trust. If it is controlled by a single party, its sole value collapses.

Except marketing value.

Thus the motto of Blockchainism: "In Trust We Trust"

After the initial selection by JP Morgan new members would (presumably) be added by a consensus of the existing members. That would remove JPM as the sole gatekeeper.

Well you can presume whatever you like, the bottom line is that it's a JPM controlled network subject to the whims of JPM (including token insurance).

I predict this will be abandoned (or the blockchain figleaf dropped in favor of an explicitly centralized and far simpler/cheaper store) in 2, maybe 3 years.

Or about as long as it takes for the fundamentally unsolvable problems of decentralized governance to become pathological to group integrity. If you are a junior stakeholder in this nominally decentralized system you eventually have to accept that you have no influence over the direction of the protocol's development, or get together with a group of similarly disadvantaged peers and fork your own implementation where your relative influence is more comparable.

Until that consortium, too, falls apart due to leverage-seeking behavior by individuals within it, or ossifies into a de facto centralized network, but one saddled with a bunch of expensive and now superfluous blockchain game-theory casino infrastructure.

Those are strong words, "fundamentally unsolvable problems of decentralized governance".

I'm not dis/agreeing with your scenario: I also think it's quite likely that this JPMorgan crypto would ossify into a de facto centralized network.

But the phrase "fundamentally unsolvable" feels like it needs some harder proof or logical explanation. There are many instances of (and variations on) "decentralized governance", like open-source projects, technical or social organizations, etc. Would you say all those attempts are doomed to failure? (Or maybe that they could continue to operate despite being potentially unstable/flawed based on fundamentally unsolvable problems. Or perhaps that they all tend to become centralized.)

Thinking of attempts at decentralized governance in a larger sense (including but beyond specific applications in the crypto sphere), it does seem that most of them are failing due to some inherent structural issues. I wonder whether it can be demonstrated that all such decentralized governance systems are fundamentally flawed (similar to Gödel's incompleteness theorem..?).

Ignoring the lack of positives, can JP Morgan reverse erroneous transactions on this? This is an important part of the financial system. Are they just going to hard fork all the time? Send the money back?

If I am reading this right (and I am a newb at e currencies), JP coin is basically a payment processor, where balance is kept on blockchain.

The coin value itself is linked with almost no flux to USD.

But then, I do not see how it is different than

https://www.bitrail.io/ (and its new freedom coin: https://freedomcoin.cc/#more )

tether with 2bln market cap https://coinmarketcap.com/currencies/tether/

what makes JP's offer more useful to B2B transactions than the above two examples ?

At a guess:

JPMorgan is more reputable than either of those outfits

JPMorgan has existing relationships with businesses

JPMorgan understands business needs and can tailor their currency to them

JPMorgan is a bank.

Or, in other words, current coin offerings build workaround of such entities into their value proposition. But there's also a class of potential consumers for whom that might be an anti-value. JPMorgan seems like they're willing to test that potential market.

Wasn't Jamie Dimon (JP Morgan CEO) a vocal skeptic of bitcoin and crytocurrencies a year ago?

https://www.bloomberg.com/news/articles/2017-09-12/jpmorgan-...

Yes. Multiple times. I always found it pretty funny as I'd known they were developing their own right alongside it.

Granted, I think his criticisms are more specific than being about the technology in general.

I think he was more critical of it being penned as some replacement for existing currencies and monetary systems, and the whole use as an investment.

But don't quote me there.

It's like watching a 3-card Monty hustler yelling across the street at the 3 cup and ball guy for being a scam.

Wasn't their CEO the one most proponent critic of cryptocurrencies.

Still not bullish on Bitcoin but he likes blockchain - is the official by-line

Basically, he likes blockchain as long as he controls the chain. The problem with Bitcoin was that it was decentralized.

He is a bullshitter. His quotes are priceless:

https://ei.marketwatch.com/Multimedia/2018/10/31/Photos/MG/M...

Can someone provide a before and after example on how this technology saves money, reduces transaction failure risk or time taken for transaction to occur (either or all of these)?

Before:

- you want to transfer $100,000 to another bank

- you do a wire or ACH

- that’s risky so someone has to verify that you actually have $100,000

After:

- each of your dollars are digitally signed using cryptography

- to transfer them, you share the hashes

- the recipient validates the digital signatures to verify those $100,000 in tokens are legit

It’s all about a system of accounting to reduce risk. With less risk, transfers are faster. Think of it like an api to verify account balances that can only be hacked if the SSL cert for the API is hacked by figuring out the private key

Thanks, this is super clear. But what prevents a double spend in this situation? I assume at some point the new owner commits the hashes to a blockchain under their own key.

JPMC will have to track the redemptions on a blockchain ir database to prevent double spend. As mentioned above, this is an internal efficiency system for JPMC, it doesn’t provide any consumer benefits unless they pass on the reduced costs

If you lose your private key, you lose your JPM dollars. How many people want to have $100K in notes? Because that's similar and a lot harder to lose than something stored on a computer.

Or, if you send the £100K to a valid address that nonetheless is the wrong one. Money in a black hole.

If you screwed up the note to send $100K via ACH, something could still be done about it.

Nope. JPMC doesn’t give you actual token access. This system doesn’t work like public crypto. It’s all behind the scenes.

As such, it’s mostly marketing hype and adds value only for JPMC, not the consumer

None of the problems you cite are inherent to blockchains. They can have mechanisms to reissue coins for lost keys or undo erroneous payments.

No ads, JavaScript, etc: https://beta.trimread.com/articles/45

Another point I want to make that I think a lot of people on HN miss is that you cannot do this with a database alone.

This is the equivalent of a token table where the token is a cryptographic hash. However, it’s the cryptography that you are trusting, not the database.

The simple analogy is that you are using PGP to sign a message where the contents are a dollar. Only the person who can decrypt that message gets the dollar so you only give the hash to the person you want to have the dollar.

If there are actually dollars involved, this is a real thing.

That's not true, you are definitely trusting the database: In order to spend money, you need the cryptography to work but you ALSO need the canonical chain/database to record your transaction... you can't just send your signed message to another person to perform a transaction, the central entity mining the chain needs to still cooperate.

maybe there was ambiguity in my post but I’m saying that this adds an additional layer of trust outside the database which is the signed token

In this case you’re trusting JPMC, the database, their engineers, the cryptography, etc.

For this use case, there is a major issue. Since you have no access to the token yourself, it’s just marketing hype

I'm sure the governance and reasoning seem just fine right now but are we to trust being locked in to JP Morgan forever? It's certainly the same way I feel about Google AMP polluting the web.

Seems very buzzword friendly but I really cannot see why transfers (B2B) aren't perfectly trivial and should be instant, free and totally secure and at the tick rate of the market if in a different FX. What is stopping the banks doing this now with just normal encryption?

Money transfers happen like Person -> Bank -> Clearinghouse -> Bank -> Person

They aren't free and instant because people and systems are involved in making them happen. Funds have to be verified, systems to make sure the money is there, fraud monitoring, regulations, mistake handling, etc etc. A lot of stuff goes on in the middle during the transaction and mechanisms need to be in place to prevent crime and fix mistakes.

Blockchains make this process a little better because instead of code setting rules and interacting with APIs, the mathematical characteristics of the blockchain end up doing a lot of the "work" involved and are simply more convenient for everyone.

I'm guessing that eventually central banks (like the Federal Reserve) will issue their own cryptocurrencies for banks to facilitate transfers.

It's not sexy or rebelling against the man, distributed crypto ledgers just have better properties than crusty databases and APIs.

Does this in any way address the issue of coin theft / key loss?

For instance, can I keep these coins on deposit with JPM, grant them access to my keys, conduct all the transactions through JPM's more traditional security infrastructure, and be assured JPM will make me whole if something bad happens I did not authorize, with a transparent and fair arbitration methodology.

Or does this invalidate the whole purpose of crypto-coin?

Since JP Morgan is the one backing the coins with USD, and controlling who mines, they can do whatever they want to fix errors or crime. If something goes wrong they can just mark the "bad" coins as tainted and refuse to exchange them for USD and give you new coins to fix the problem.

Paper money was created because it was more convenient than lugging around precious metals, this is just the same. It has no value on the market by itself, it's just a way for a bank to account for stored value.

This is Hawala but controlled by one entity. Where is the value and why does it need to be done in tokens controlled by JPM?

The thing that bothers me about this is that banks have a monopoly on this type of business. Outside of being a bank you need to register as a money service business which is extremely cumbersome.

So basically a B2B Venmo on a blockchain?

Nice, they are in control , so they can generate money out of air.

I'm not sure why they would use the USD as the backing for such a thing over say Gold/Silver, etc. Say 1oz gold at X level purity for every coin. Bringing back the Fort Knox currency backing would imho be much stronger than any fiat currency.

Because this is a bank, not the Ron Paul campaign.

Right because gold is much more stable than the US Dollar /s

It isn't?

A lot of people are missing the point and arguing past each other here.

Bitcoin and the like couple two distinct things:

1. A distributed ledger of transactions with no single point of failure that can cryptographically prove possession of the currency itself.

2. An anarchic monetary system that serves the needs of illicit commerce and inspires the imaginations of libertarians and erstwhile goldbugs.

JPM has decoupled these two aspects. And I think it’s an interesting move. Most people either love or hate cryptocurrency because of the second aspect, but the first may very well still be a good technical solution to the problem of electronically shifting money around—even if you’re just shifting around USD.

pointy haired boss who read a couple forbes articles about blockchain succeeds in missing the entire point

Tether 2.0? :3

At least JPMorgan is regulated like a bank because it is one.

The uptake will be great however, what doesnt sit well is the 2008 12Billion bailout. As the same actors will be the nodes that are privileged to write to and maintain the ledger, it has yet to be seen how immutable these transactions will be.

Is that stable coin?

E Corp!

Repeat after me: A blockchain without decentralization is just a database.

That's the point!

JP Morgan is using the blockchain instead of mysql and a pile of code. To them and their customers it has nicer properties. It doesn't at all change the details that a bank is facilitating money flow, just how it is done, and at that a little more efficiently.

But it doesn't do it more efficiently (or, really, change how it's done). The coin is only available to JP Morgan customers, those who already have bank accounts with JP Morgan. It can only be transferred to other JP Morgan customers. It does the same thing they already do, but less efficiently.

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