How are Banks Embracing Blockchain? A Close Look at JPMorgan’s IIN
For the Chinese version of this article, click here.
The Solution for a Longlasting Problem
JPMorgan Chase is the largest bank in the U.S. and the sixth in the world by total assets ( S&P Global Market Intelligence, 2019). It holds $24 trillion of assets in custody and $433 billion in deposits (JPMorgan, 2019). In 2017, Chase launched its own blockchain initiative — Interbank Information Network (IIN) — to attend to a growing demand for innovative technologies in the financial sector.
IIN is a blockchain-based peer-to-peer network for banks around the world. It aims to resolve the long-time challenge of interbank information sharing. According to Chase, this new platform can significantly reduce the time and efforts correspondent banks now spend on compliance and other data-related inquiries (JPMorgan, 2018). The primary goal for IIN is to significantly reduce friction within cross-border payment processes, minimizing the number of steps and the amount of time required to process transactions (JPMorgan, 2019b).
The primary goal for IIN is to significantly reduce friction within cross-border payment processes, minimizing the number of steps and the amount of time required to process transactions
The IIN initiative was first launched by Chase in 2017 as a pilot (JPMorgan, 2019b). Since then, 365 banks worldwide— like the Royal Bank of Canada, and the ANZ Bank — have signed a letter signaling their intent to join IIN’s efforts (J.P.Morgan, 2019b).
The Blockchain Technology Behind IIN: Quorum
The blockchain technology Chase adopts for its IIN project is called Quorum. In a nutshell, Quorum is a private variant of the famous public blockchain Ethereum. Building on the Ethereum network, Quorum presents the following upgrades (Akeo, 2018):
Permissionedness
Quorum is not a not public blockchain; it’s private. This means that, unlike Ethereum where an anonymous person with a laptop can run a node and be a participant in the network, one must be approved before joining the Quorum network. In other words, you must be permissioned to participate. This feature ensures that only parties known to Chase are in the network.
Privacy Protection
A blockchain is essentially a ledger. Most blockchains are transparent, which means that all transactions and smart contracts on those blockchains/ledgers can be accessed by anyone at any time. Transparency, however, is not always desired, especially in the financial world where data protection is necessary. Quorum has a special privacy protection feature: transactions and smart contracts can be set as private, granting external participants no access to the data — except for regulators.
Voting-based Consensus Mechanism
Instead of simply adopting Ethereum’s proof of work (POW) consensus mechanism, Quorum settles agreements in its multi-agent network through a multiple-voting-based mechanism called the Raft and Istanbul Byzantine Fault Tolerance consensus mechanism.
Scalability and Performance
Ethereum is notorious for its low scalability and slower performance. According to an Ethereum 2.0 development team called Prysmatic Labs, the current Ethereum blockchain can only process a maximum of 27 transactions per second (Prysmatic Lab, 2019). This is clearly not ideal. Quorum, as an enterprise blockchain solution, has significantly enhanced the scalability and performance of the original Ethereum blockchain on which it is built.
Like Ethereum, Quorum is an open-source project. For more technical details, check the Github link below:
Chinese Banks’ Positive Responses
How does this reflect on Chinese banks amongst trade war promises? Well, the response of Chinese Banks to Chase’s development of the IIN has been mostly positive. So far, nine Chinese banks have joined the IIN network (J.P.Morgan, 2019b), including:
1. Bank of Dalian
2. Bank of Nanjing
3. China CITIC Bank International Limited
4. China Guangfa Bank
5. China Zheshang Bank
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References
- Akeo. (Oct. 5, 2018). What is Quorum Blockchain? Is it right for your business? Retrieved from https://www.youtube.com/watch?v=X9I9RMhW5H4&list=PLQ0YWYgcTcFvrgQLdndvwUYso2Jus2zkj&index=6
- J.P.Morgan. (2018). J.P. MORGAN INTERBANK INFORMATION NETWORKSM EXPANDS TO MORE THAN 75 BANKS. Retrieved from https://www.jpmorgan.com/country/US/en/detail/1320570135560
- J.P.Morgan. (2019a). About Us. Retrieved from https://www.jpmorgan.com/country/US/EN/about
- J.P.Morgan. (2019b). Largest Number of Banks to Join Live Application of Blockchain Technology. Retrieved from https://www.jpmorgan.com/global/treasury-services/IIN
- Prysmatic Lab. (Nov., 2019). Ethereum 2.0. Santa Barbara Blockchain Summit. Workshop presented at UCSB, California, U.S.
- S&P Global Market Intelligence. (2019). The world’s 100 largest banks. Retrieved from https://www.spglobal.com/marketintelligence/en/news-insights/trending/t-38wta5twjgrrqccf4_ca2
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