This past week J.P Morgan’s Global Research franchise refreshed their quarterly Perspectives series, following up on their Decrypting Cryptocurrencies series published last February with a 55-plus page pragmatic overview of the developments in blockchain and crypto in 2018, examining both commercial viability and barriers to implementation. Contrary to the headlines thatother publications have pushed, the report offers an in-depth collection of varying views from analysts across sector and regional expertise, some more bullish/bearish in scope than others. To save you the time, we’ve summarized the highlights of the report below, which provides a holistic view of the narratives being fed to traditional legacy institutional investors and clients.
Monitoring adoption across sectors
Blockchain in ‘Big Tech’ is evolving – According to Software Tech analyst Sterling Auty, enterprise blockchain and Blockchain-as-a-Service (BaaS) are largely being built in-house, with AWS and Microsoft Azure offering public cloud environments to help enterprises explore blockchain and dapp development. The team is monitoring developments with a potential Facebook payment solution.
Financials –European and US Bank analysts still hold the view that the lowest hanging fruit for blockchain remains within harvesting cost efficiencies across global bank processes, seeing the biggest opportunity within Trade Finance — a business line that still relies on manual and paper-based processes. Bank analysts believe progress on proofs of concept and early stage experiments actually translating to live implementations that move the needle for banks and solve scalability issues are “at least 3 -5 years away.” Challenges remain the same in other sectors, namely cross-network/platform integration, governance of systems, and regulatory buy-in.
KYC potential:While KYC functions remain another low-hanging friction blockchain is looking to solve, with several pilots completed like R3’s Corda platform, few PoC’s have progressed further at this time (noting that Komgo is looking to release a product sometime in 2019). Furthermore, the European bank analysts currently haven’t bought into the results provided from these early pilots, with “efficiency gains limited for various technical reasons, such as the presence of few minimum common fields when considering cross-jurisdictional requirements.” The team sees the potential to improve the KYC process within banking institutions, however, sees “more progress and investment needed to find the right solution.”
Opportunities in syndicated lending:Like all use cases, application is still nascent, but the opportunity to improve the process exists due to syndicated loan settlement cycles often lasting +20 days. First test case of the application was the world’s first syndicated loan (€150 million) which leveraged Hyperledger and Ethereum, delivered by BBVA, BNP Paribas, and MUFG. The bank analysts view individual institutions, specifically Spanish banks like BBVA and Banco Santander, making “larger strides” in the space than consortium developed platforms.
Transport – The bank’s Airfreight and Transport Analyst sees supply chain applications still in its infancy as realized efficiency gains require significant cross-institutional buy-in. Compatibility across information management systems is also a major roadblock to digitizing the entire supply chain stack. The Transport team sees the potential applications lacking commercial viability given current solutions inability to scale and overall lack of digitization currently within supply chains. The analysts see parallels between specialized blockchains to prior years of customized IT solutions which have created fragmented networks susceptible to incompatibility.