Review of JP Morgan’s Report on Blockchain, Digital Currency & Cryptos
By Aayush Bhatnagar on The Capital
JP Morgan has released a report on Blockchain perspectives.
This 74-page report provides a strategic view on the applications of Blockchain, impediments for adoption and industry trends.
In the financial services space, a global perspective is also presented.
The report can be downloaded from here
Some of the key takeaways of the report are captured in this post, along with my perspective:
1. Blockchain Take rate has been luke-warm.
Blockchain is slowly moving into mainstream adoption (while not fully there). In the past 4 years, a lot of PoCs have taken place but there has been no serious push on scalability and resiliency. Without scaling and “resiliency”, mainstream adoption will be constrained beyond PoCs.
2. Hero use cases for Blockchain
The report notes that Payments, Banking, and Trade-Finance are the most popular use cases which help in bringing in operational efficiencies. Having said this, we need to ramp up the scalability aspects of Blockchain platforms for processing millions of transactions per hour. This is one challenge that needs to be addressed.
3. Blockchain-enabled KYC
The KYC Registry for customers is a prominent use case, where blockchain can enable a standard mechanism for KYC processes with authenticity and provenance of KYC data. This use case has a strong monetisation opportunity (KYC as a service) and perhaps is a low hanging fruit.
In order to implement this use case, a consortium-based approach can be followed similar to Dubai’s banking consortium – which consists of Emirates NBD, Emirates Islamic, HSBC, RAKBANK, Abu Dhabi Commercial Bank and Commercial Bank of Dubai.
4. Systems Integration pain points
Systems integration has been a big roadblock for mainstream blockchain adoption, especially when multiple platforms are involved which need to talk to Blockchain.
However, the lack of standards is the biggest impediment in Blockchain SI. While we have elaborate standards in Telecom & Banking for example – somehow there are no standards bodies in Blockchain that create an ecosystem for standards development.
5. Cashless Payments
The report is positive on cashless Payments and notes the example of India and China which have shown double-digit growth. Singapore, Korea and Sweden have the most cashless payments per individual.
However, despite cashless payments, there are two reverse trends – cash payments are still increasing globally & the value of cashless payments as a ratio of GDP has declined as compared to 2014. The only country that has a positive trend here is China.
6. The European case study
In Europe, settlements are the main use case being pursued by exchanges – however this is not realtime in nature. They want to reduce the settlement time from T+3 days to same-day settlement. The report notes regulatory hurdles as the cause of delay.
7. Transportation & Blockchain
Blockchain in transportation has plateaued out. Traditional automation solutions are being preferred to blockchain-based solutions as per the report primarily because of the fierce competition in freight-tech solutions.
8. Chinese Case Study
The report discusses China as a case study for a cashless economy managed at scale. B2C and P2P payments in e-commerce are noted as the main drivers of adoption of stablecoins (DigitalMoney) in China.
9. Stablecoin outlook
The report discusses stablecoins and their impact and they also discuss Libra specifically. All three classes are covered – Asset-Backed Stablecoins (eg. Gold or FIAT Backed eg US $), Sponsored stablecoins (backed by a sponsor institution such as a bank or a fund), @and Algorithmic stablecoins (seigniorage-style) where stablecoins are created on-demand (minted) based on smart contracts or even destroyed on-demand.
10. Business Model Risks for banks
The report notes that a large scale payments system with no short-term credit for settlement liquidity due to realtime settlements would be financially unstable. Perhaps this comment is hinting at the wiping out of excess reserves from banking which is used to make money
In addition to these major trends, the report provides valuable insight into Facebook’s Libra cryptocurrency.
Let me know your perspectives on the report by leaving comments.
