Building Block-Chain: JP Morgan creates a blockchain company

November 13, 2020

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2 min read

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What's going on here?

JP Morgan announced plans to create a new business to house its’ blockchain and digital currency units called Onyx. 

What does this mean?

Blockchain is a technology which makes digital assets transparent and unchangeable. It does so by decentralising the information. A good analogy is that of a shared document, that gives everyone access to the document and any modification is recorded in real-time with transparent changes. It was originally created as a ledger system for Bitcoin, but these ledgers can be used in any industry. This is because it is a shared record which can keep valuable data without someone tampering with it through a chain of blocks. It, therefore, has the potential to reduce business risks as well as stamp out fraud.  However, despite billions of investments, there have been few commercially viable results for the technology. 

So, the news from JP Morgan that the technology is close to making money has been welcomed by many investors. The announcement comes as JP Morgan’s digital currency JPM coin is being used commercially for the first time this week by one of their technology clients. The firm, therefore, has decided to launch a new business to house its’ blockchain and cryptocurrency units which will be called Onyx. This business will be staffed with just over 100 employees and will look to profit by making cross-border payments cheaper.

What's the big picture effect?

Blockchain offers banks the opportunity to save millions. For example, JP Morgan moves $6trn a day across 100 countries. Sometimes payments are rejected which can be costly. The use of blockchain would allow banks to confirm payments have the proper account information and meet regulatory requirements as the data can be shared securely beforehand. This ensures payments have the correct account information and meet the regulatory regimes. According to the CEO of Onyx, they could “charge a few cents to confirm the data for each transaction, save money on remediating mistakes and create a model to earn money by participating in the network.

However, the success of Onyx is dependent on many other factors. Cryptocurrency’s tenuous reputation for being used on the Dark Web for money laundering has impeded the adoption of blockchain technology by mainstream businesses and corporations. This apprehension has abated slightly in recent years, but could slow down the widespread use that JP Morgan hopes Onyx will achieve; potentially affecting the business’ profitability in the meantime.

Equally, however, JP Morgan has set a precedent for wider institutional use of blockchain. This could accelerate the technology’s use in the next few years which will present a myriad of opportunities for law firms who already have experience working with this emerging technology. Law firms will need to be prepared to advise clients on the legal, regulatory and commercial challenges that the use of blockchain may throw up. For example, there may be jurisdictional issues as the blockchain will need to be compliant with numerous legal and regulatory regimes. So, LittleLawyers now might be a good time to brush up on your knowledge of blockchain for the future.

Report written by Michael Johnson

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