The History of Blockchain Technology: Past, Present and Future | Tech Trends | J.P. Morgan

The History of Blockchain Technology: Past, Present and Future | Tech Trends | J.P. Morgan

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[Music] welcome to tech trends tech trends is a podcast series that provides perspective on the latest trends in technology fintech and digital on today's episode we'll revisit the topic of blockchain how the technology has developed over the last few years how it's being used and where it's going i'm aneesh bomani chief product officer for commercial banking and joining me today is tyron lavin head of the blockchain launch program here at jpmorgan chase tyrone welcome to tech trends thanks anish great to be here so tyron we've talked about blockchain on a few episodes uh in the past but for our newer listeners or for people that haven't heard the earlier episodes can you describe what blockchain is and how it's used yeah and you know i love this question because i've been describing blockchain for the past five years or so and every time i go to explain it it actually evolves a little bit and that's because this technology is actually changing you know we've seen so many advancements over the past few years you know the technical way of describing blockchain is it's a shared database you know it's distributed there are multiple participants on a network they're all seeing the same information at the same time and typically they're also able to share processes as well and then you you know get into things like cryptography and how that's providing you know irrefutable proofs of what is actually happening on the platform but all of this is kind of like describing the internet as you know tcp and routers it sort of like misses the point i think the the more interesting way of talking about what blockchain is is really what it enables and here i think about three things so firstly what blockchain really provides is a way of minimizing mistrust and as a result minimizing inefficiencies what i mean by that is if you think about any typical business interaction whether that's between you know you and someone in your personal life or you know companies working together typically that business interaction requires a trusted third party sitting in the middle to guarantee that the business outcome that both of these parties are looking to achieve is actually achieved and you know one party is not left short versus what they actually thought they were going to be doing and this means that you have lots of intermediaries many many intermediaries in many cases but what blockchain actually provides is a way of codifying that trust so two participants two entities who don't necessarily know each other or not actually you know fully aligned can actually enter into that business relationship without having to rely on that trusted third party this is really what we're seeing being the most impactful part of what blockchain is bringing the second thing is and related to that is what blockchain actually enables through things called smart contracts is for assets to actually move over this technology so quite like we can send email to each other and share information blockchain actually allows you to transfer value from one party to another in real time without the need for those intermediaries and also automatically you can program the conditions upon which these assets should actually be transferred and what actually drops out of these two sort of characteristics the trust minimized nature of blockchain and also the ability to transfer assets is this idea that we can now create new economies very very simply if you think back to you know the early 90s when the web first started being popularized people were all of a sudden able to create blog posts or websites very very cheaply and very easily that actually brought the whole cost of you know publishing a newspaper down to almost zero what blockchain actually provides is the ability to now create new assets digital assets and with these digital assets comes marketplaces come exchanges comes the ability to create new communities here is really the power of creating an entire economy through this technology so i think about the ways that it's actually enabling new things to occur and really it's that's the interesting thing to me so it's interesting you talk a lot about new economies you talk a lot about new financial transactions and transferring value it's hard to talk about blockchain without also talking about cryptocurrency and a lot of people sort of conflate the two ideas can you talk a little bit about the difference between the two yeah i mean blockchain very simply is an underlying technology that really enables cryptocurrencies to exist now you can have blockchain solutions that don't require a cryptocurrency and many of our enterprise blockchain solutions are exactly that you know we don't need cryptocurrencies to actually have those networks working but when you think about what a cryptocurrency is which is really an asset that has been issued by software as opposed to a central you know intermediary or a central central bank or a government then you do actually need something that guarantees that all of the assets in this network are being accounted for correctly they're being updated correctly the ownership of those assets is being updated correctly and the tool to actually enable that in these very decentralized economies is a blockchain so that's roughly the way to think about you know blockchain versus crypto one of the other things and then we'll get back to the enterprise topic here in a second i've been asked a lot over the last month or so by a number of people how do you explain the concept of mining what does it mean to mine cryptocurrency yeah it's this weird idea of you're talking about software but then you're talking about this you know physical concept of mining mining is the process of really generating new bitcoin or new ether in the ethereum ecosystem and the reason why this happens is because if you think about a public blockchain environment you're thinking about and you're talking about a fully open access system right one that doesn't require kyc or any sort of identification to join that network what that means is you can have malicious actors you know hackers or otherwise who are also on the network and they're trying to do nefarious things like you know corrupt the underlying ledger and so it's actually very very important to ensure that whoever is adding information to the blockchain is doing so in a way that is not going to cause the underlying blockchain to no longer make sense and the way to do that is to make it very hard to actually add data to a blockchain if anyone could update the ownership of everyone's balances very easily then basically it doesn't necessarily mean anything so the underlying sort of design of these systems is to make it very very hard to add more information into these blockchains and the way to do that the way to make this hard is by asking people who are trying to add information to solve a puzzle or some sort of mathematical problem that really can only be solved by cycling through a whole lot of random guesses many many times over literally millions and millions of times over and randomly somewhere along the line someone will actually find that missing number and when they find it they will be able to add a set of transactions which are typically correlated into a block to the network and for their efforts you know actually spending all of this computational power to find this missing number they are rewarded with the cryptocurrency of the network bitcoin or ether or whatever the other platform is and that process of being rewarded is called mining got it so really it's a way to ensure that not everybody has a printing press in their basement so to speak where they can generate new currency so you have to have a significant amount of computing power and technical sophistication to be able to you know create new bitcoin that's correct what i would add to that is there is an idea of moving away from mining because of the potential climate impact um so there are new ways of actually ensuring there is you know a sanctity of the ledger this is often referred to as proof of stake and there are some other mechanisms as well okay fascinating so enough about cryptocurrency let's move back now into the enterprise uh uh blockchain so it feels to me like uh you can't go a day without hearing about some new use case for blockchain in corporate environments right can you talk about how the technology has evolved over the last few years and what are some examples of this evolved blockchain ecosystem yeah i mean so i would say that on the technological side there's been a number of advances firstly the number of underlying blockchain platforms has increased right a few years ago bitcoin and ethereum were the primary ones there were a few others as well but i think really in the last year or two we've seen a number of other what are often referred to as layer one solutions you know the base layer blockchain come to market and what this has done is actually created more competition and also more choice right for people who are building blockchain applications for users who are looking to interact with these different products there is now more choice so i think that's been interesting and that's been a positive thing because these newer platforms are bringing higher throughput greater scale you know lower fees etc etc the other thing that's happened is there have been some complementary advances in different technologies and by that i mean for some of these original blockchain platforms that are still on the path to reaching that scale or higher throughput that they originally set out to do we are now seeing what are referred to as layer 2 solutions being built on top of them so these are sometimes side chains sometimes alternative blockchains that are running on top of these underlying blockchain platforms and they in and of themselves are actually providing the higher throughput the cheaper fees the greater scale one of the key technologies that has enabled this is something called zero knowledge proofs so zero knowledge groups are actually enabling transactions to be bundled together and aggregated but added to the underlying blockchain in a way that you can still have guarantees that this is the actual transaction or the set of transactions that actually took place and we spoke a little bit about the fact that there is also a move away from more energy intensive and maybe climate unfriendly protocols like proof of work so i think we're seeing more awareness of esg right now but i think beyond the technological advances there have also been other important things that have taken place so for example there have been a lot of regulatory advancements that have enabled new applications to be created in some jurisdictions in the us and in some countries in europe you can actually now record the ownership of a security on a blockchain and what that has led to is more experimentation around issuing securities on public blockchains we're also seeing an advancement in the market infrastructure this is both on the crypto side and also on the enterprise side so on the crypto side for example we've seen maybe more of a traditional financial services feel in that you can get regular way algorithms that allow you to execute trades algorithmically and so that you're not moving the market we're seeing new products come to market recently we had bitcoin futures etfs being launched in the us we've had actual bitcoin etfs in canada and other countries and we're also seeing a lot of funding coming in right actually i think there's about 380 increase in funding over the last year in blockchain solutions alone and also 80 out of the top 100 public companies are actually using blockchain today and about a third of those are using blockchain in production so we're seeing a real advance not only in terms of the types of products that are being offered but also the ways that people are deploying their capital and starting to advance the infrastructure itself so tyron obviously a lot of technological advancements over the last number of years and you talk about things like zero knowledge proofs and obviously a heavy dependency on cryptography as the basis of the blockchain on a recent episode with marco vistoya we talked a lot about quantum computing and sort of the implications of that you know given how much you know quantum changes the face of cryptography there have to be some pretty significant implications of what quantum computing means for the blockchain aren't there yeah i mean when i spoke to marco last i kind of felt like maybe i don't have a job after about 10 years because what happens there is it could potentially change the security of the cryptography that blockchain relies on right pretty much everything in blockchain relies on cryptography so whether you are you know signing a message using digital signatures or creating some sort of hash all of these things ultimately could potentially be broken if we reach quantum supremacy so i think this is a really important thing for the blockchain community to be aware of uh there are also you know projects underway to create quantum resistant cryptography and ultimately blockchain is probably the the last of our concerns if we do actually reach quantum supremacy but it certainly is a concern for us right add one we can work through right like you said there's a lot of efforts underway to evolve cryptography both on the protective side and not just the breaking thing side as well right so not something that people need to worry about at this point but an interesting conversation nonetheless yeah so obviously a lot of uh evolution over the last number of years can you talk about some of the use cases that we're thinking about for blockchain here in the firm yeah and you know as you've spoken about previously we actually began our blockchain program at jpmorgan in 2015 with the creation of the quorum protocol which is the fork of the public ethereum blockchain and there we added you know privacy stronger performance stronger permissioning really to make a platform that is suitable for financial services and over the years we executed on a number of new products and solutions we created what at the time was called the interbank information network we also created a debt issuance application on blockchain we created solutions around renewable energy also pairing iot devices essentially over the five or six years since we began we started to get really really confident and comfortable with how to deploy this technology and what that actually led to is at the back end of last year us formalizing all of these efforts into a new business unit called onyx by jp morgan this is really us planting a flag in the ground to say we fundamentally believe that this technology is here to stay and also can be transformational not only for our businesses but also for industries at large and so onyx is really censored around creating new products new solutions new platforms and infrastructures that leverage blockchain technology we have four key focus areas firstly we are focused on how to improve information exchange this is through the our link platform which was called the ins bank information network and rarely through link we have a global data marketplace that allows for information to be exchanged in a privacy preserving way then we have our value transfer focus so this is everything around jpmorgan coin where we're actually providing new ways for our clients to transact and send value send payments internationally 24 7 365 through our jpmorgan coin solutions we also have focus on digital assets so here we launched a platform called onyx digital assets that really enables any type of regular way security real world assets even digitally native assets to be represented on a blockchain and we can pair that with our jk morgan coin solution to provide simultaneous exchange of cash for assets and then finally we have our blockchain launch team which is really focused on helping not only our internal businesses but also our clients develop new solutions based on blockchain so we will work with these businesses and our clients to actually go from an idea through to developing prototypes and ultimately launching those into production and all of this is centered around actually creating these new ways of doing business so obviously a lot going on um it's great to see that uh evolve over the last number of years what lessons have you learned over these past couple years as we've built out those use cases and work more with blockchain yeah you know the lessons are actually applicable to a number of different technologies but i think they've been quite acute in blockchain so firstly what we've seen is that in order to actually succeed in building a solution you really need to be laser focused really really tightly scope the idea that you want to take to market and throw out everything that doesn't need to be there on day one this has helped us greatly in terms of actually not only defining the technological solution but also the legal boundaries in which that solution needs to operate so being laser focused has been really important then we thought about how to lower the barriers of entry to actually using blockchain this is a new technology still and you know not every legacy system can be upgraded at once and so the way that we've actually rolled out our platforms is to provide a solution that can be used independent of those legacy systems at least initially and then over time start to actually integrate them into your legacy platforms but we found that starting with integration is actually the barrier is too high to actually get there and then finally something a little bit you know contradictory for blockchain which is a very collaborative technology is to start small keep the participant set small keep it focused on motivated actors who really want to push the envelope and really want to move forward with speed and once you have a solution that a small number of participants can actually you know bring to market what we've seen is that actually starts to create somewhat of a snowball effect and others will join yeah that sounds like just a variation on state laser focused right you want people focused on what's the end goal you're going to for that as well right correct exactly in the early days of the interbank information network now link there was a focus to say you know blockchain wasn't well suited necessarily for the conducting of the transaction because it might be because of real-time requirements or the things like that so instead we focused on all of the information surrounding the transaction so things like reconciliation or other things like that but it sounds like that thinking's evolved a little bit and we are using blockchain more for actual transactions is that fair that's fair i think what we've realized is that in order to roll those solutions out all of the legal and regulatory work is just as important so when we rolled out jpmorgan coin as an example and ultimately what we have created is essentially a blockchain based bank account now you can use jpmorgan coin to make payments and when you're actually paying over the blockchain network that is the literal dollars that are moving over blockchain but now in sort of tokenized form so we've definitely worked out how to move from just information to value and that has actually unlocked a whole host of new use cases for us as well right that's exciting very exciting stuff so we talked a lot about financial transactions and other sort of use cases in the financial industry what about more broadly in other industries how are other industries thinking about blockchain and what use cases have you seen yeah i think you know one of the areas that blockchain is most applicable to is global trade supply chains right if you think about that part of the global economy you have very disparate actors geographically dispersed and diverse you have very manual paper-based processes coming back to my one of my original points you know not a lot of uh very trusted relationships necessarily and so here blockchain actually can provide a real tool to solve a lot of the challenges that exist in global trade it can provide automation it can provide a shared infrastructure this is obviously very challenging in something like supply chain but we have actually seen real progress from a number of different consortia who have actually put out solutions to tackle everything from improving the way that soybeans are shipped globally to ensuring that gold is responsibly sourced you know tracking it from the mine all the way to the refinery ultimately all the way to the jeweler so that the end consumer can say okay i can see where this gold has come from i know all the checkpoints that it went through along the way and i have more confidence that i'm actually buying the goods that i want to buy yeah i know there's been a lot of um use cases around provenance so like where did something come from uh we've heard examples around things like food safety you know a bad batch of spoiled vegetables or whatever it is how do you track back to the source of where it is and you can sort of do things like that it feels like the yeah the use cases in that space are really endless yeah we're seeing it in pharmaceuticals as well right trying to prevent counterfeit drugs coming into the supply chain so again being able to track right from the source you know whether the actual medicines are being manufactured and how they're being moved through the various parties in that supply chain ultimately to drug stores that's been a very very important area where actually there's been a lot of you know it's a very dangerous thing to have accounts for drugs coming to that into that system so again you know i think that the use cases are seemingly endless but the the really important thing is that over the past few years we've seen them come to reality so well finally tyron we're gonna ask you to predict the future a little bit so uh where do you see blockchain being applied in the next say three to five years we have you back on tech trends uh in three years you know what are we gonna be talking about what excites you most about the future well i think you know one of the things that excites me is just the rate of change this space moved so fast it is incredible how much has happened just in the last year how quickly things have moved you know i think there are three areas where we're going to see a lot of activity over the next couple years one is in d5 or decentralized finance this is the idea of using open source blockchain based products on open source rails to create new financial services products but not necessarily with financial services intermediaries in between so now people can borrow funds lend funds set up you know different types of investment portfolios create derivatives contracts all using open source blockchain protocols clearly there's lots of open questions around the regulatory environment that those protocols need to operate within but what we've seen is the model has been proved that this technology can actually provide new ways for regular people to get access to financial services products so clearly as a bank this is something that we are focusing on quite heavily as well secondly is this whole boom recently around nfts or non-fungible tokens this is the idea of representing unique assets you know like art or some sort some sort of collectible on a blockchain uh using what are referred to as non-fungible tokens and more than just showing the provenance that you know this particular item has come from the you know the artist that you think it has what nfts have actually created is an entirely new way for brands to engage with consumers this is giving brands an option to say hey we can create a new experience for you we can create new ways for you to interact with us we can reward you in new ways and we're seeing communities actually develop around these nft projects and i think we're just seeing the the beginnings of what is going to be a very very big industry around entities the third one is one that i'm personally very focused on and that is digital identity and this is actually really the missing piece for open blockchains we think that with digital identity and specifically something called self-sovereign identity where you as a you know regular way person in the world can actually have more control over your own data your own information and also provide that information in a trusted way such that whoever you send you know your name and address to can verify that in real time provably irrefutably without the reliance on you know some other party to say yes this is actually a correct information and i think this idea of providing stronger guarantees around identity and removing these big honey pots of data is something that's going to be very big going forward so i'm personally excited about each of these these three things but i think digital identity is going to be the one that a lot of people are going to see as being the real key to unlocking a lot of this activity yeah and that's i mean identity is foundational just about everything we do right i don't think a lot of people realize how important it really is to so many different innovations across the industry exactly great well tyron thanks very much for joining us and sharing your fascinating insights on this important topic thanks anish loved being here thank you and to all of our listeners remember if you enjoyed this episode you can rate us on spotify apple podcast or wherever you listen tune in next time [Music] you

2022-04-21 03:39

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