Laurel Ruma: From MIT Technology Review, I’m Laurel Ruma, and this is Business Lab, the show that helps business leaders make sense of new technologies coming out of the lab and into the marketplace.
Our topic today is blockchain. Technology has changed how money moves around the world, but the opportunity and value from distributed ledger technology is still in its early days. However, deploying on a large scale openly and securely should move it along quickly.
Two words for you: building innovation.
My guest is Suresh Shetty, who is the chief technology officer at Onyx by J.P.Morgan at JPMorgan Chase.
This podcast is produced in association with JPMorgan Chase.
Suresh Shetty: Thank you so much, Laurel. Looking forward to the conversation.
Laurel: So to set the context of this conversation, JPMorgan Chase began investing in blockchain in 2015, which as we all know, in technology years is forever ago. Could you describe the current capabilities of blockchain and how it’s evolved over time at JPMorgan Chase?
Suresh: Absolutely. So when we began this journey, as you mentioned, in 2015, 2016, as any strategy and exploration of new technologies, we had to choose a path. And one of the interesting things is that when you’re looking at strategic views of five, 10 years into the future, inevitably, there needs to be some course correction. So what we did in JPMorgan Chase was we looked at a number of different lines of inquiry, and in each of these lines of inquiries, our focus was trying to be as inclusive as possible. So what we mean by that is that we actually weighted ubiquity in terms of who can use the technology, who was trying to use the technology over technology superiority. Because eventually, our feeling was that the network effect, the community effect of ubiquity, actually overcomes any technology challenges that a person or a firm might have.
Now, I think that a very relevant example is the Betamax-VHS example. It’s a bit dated but I think it really is important in this type of use case. So as many of you know, Betamax was a superior technology at the time and VHS was much more ubiquitous in the marketplace. And over time, what happened was that people gravitated, firms gravitated towards that ubiquity over the superiority of the technology that was in Betamax. And similarly, that was our feeling too in terms of blockchain in general and specifically the path that we took, which was in and around the Ethereum ecosystem. We felt that the Ethereum ecosystem had the largest developer community, and we thought over time, that was where we needed to focus in on.
So I think that that was our journey to date in terms of looking, and we continue to make those decisions in terms of collaboration, inclusiveness, as opposed to just purely looking at technology itself.
Laurel:And let’s really focus on those efforts. In 2020, the firm debuted Onyx by J.P.Morgan, which is a blockchain-based platform for wholesale payment transactions. Could you explain what wholesale payment transactions are and why they’re the basis of Onyx’s mission?
Suresh: Absolutely. Now, it was interesting. My background is that I came from the markets world and markets is really involved in front office trading, investment banking and so forth, and eventually, went over to the payments world. And if you juxtapose the two, it’s actually very interesting because initially, people feel that the market space is much more complicated, much more exciting than payments, and they feel that payments is a relatively straightforward exercise. You’re moving money from point A to point B.
What actually happens is actually, payments is much more complicated, especially from a transactional perspective. So what I mean by that is that if you look at markets, what happens is if you do a transaction, it flows through. If there’s an error, what you do is that you correct the initial transaction, cancel it, and put in a new transaction. So all you do is that there’s a series of cancel corrects, all of which are linked together by the previous transaction, so there’s a daisy chain of transactions which are relatively straightforward and easy to migrate upon.
But if you look at the payments world, what happens is that you have a transaction, it flows through. If there’s an error, you hold the transaction, you correct it, and then keep going. Now, if you think about it from a technology perspective, this is a lot more complicated because what you have to do is you have to keep in mind the state engine of the transactional flow, and you have to store it somewhere, and then you have to constantly make sure that as it flows to the next unit of work, it actually is not only referenced but it actually has the data and transactionality from the previous unit of work. So a lot more complicated.
Now, from a business perspective, what cross-border payments or wholesale payments involved is that, as I mentioned, you’re moving money from point A to point B. In an ideal fashion, and I’ll give you an example. Since I’m in India, in an ideal example, we would move money from JPMorgan Chase to State Bank of India, and the transaction is complete, and everybody is happy. And in between that transaction, we do things like a credit check to make sure that the money that is being sent, there’s money in the account of the sender. We need to make sure that the receiver of the account has a valid bank account, so you need to do that validation, so there’s a credit check. Then on top of that, you do a sanctions check. A sanctions check means that we are evaluating whether the money is being moved to a bad actor, and if it is, we stop the transaction and we inform the relevant parties. So it looks relatively straightforward in an idealized version.