J.P. Morgan to Use Ethereum-Based Quorum for Tokenizing Gold Bars in Pilot Experiment

J.P. Morgan’s Quorum blockchain, an enterprise-grade DLT solution built on Ethereum, is being deployed for tokenizing traditional assets to test the robustness of blockchain technology, reported Financial Review on Oct. 29, 2018.

Tokenizing Gold Bars

The New York-based investment bank will leverage blockchain technology for tokenizing gold bars to allow miners to earn premiums on globally-traded markets. If tests are successful, the bank aims to apply similar concepts to different asset types, in a move that signifies the adoption of blockchain in the future of trading and asset management.

Quorum’s custom-built smart contracts allow for high-grade security and performance features for clients, apart from a verifiable, swift method to track one’s investment. Apart from such benefits, a lucrative use for blockchain technology is to digitize various asset types and move them on to distributed ledgers – mitigating the need to transport quantities of a physical asset between bourses and custodians.

Umar Farooq, head of blockchain initiatives at J.P. Morgan, stated the company is a “big believer in Ethereum,” adding the firm is pioneering ownership of the entire trading mechanism, “from the application to the protocol.”

With the development, interested parties can conduct trades directly without the need of a bourse or other intermediaries. The arrangement can help reduce costs and risks associated with third-parties while ultimately result in markets that allow multiple assets traded under a single token.

Farooq believes tokenization of commodities can create new opportunities for global trading markets:

“They can track the gold bar from the mine to endpoint – with the use case being, if you know it’s a socially responsible mine, someone will be willing to pay a higher spread on that gold versus if you don’t know where it comes from. Diamonds is another example.”

J.P. Morgan’s Shifting Blockchain Stance

If it proves to be successful as an entity, Quorum could form an independent business under J.P. Morgan, finding use in secondary markets, capital markets issuance, secondary markets, and custodian services.

While the bank’s chief executive Jamie Dimon famously referred to bitcoin as “a fraud” last year, he expressed regrets over the statements earlier in 2018, adding “blockchain is real.”

Interestingly, J.P. Morgan joined as a member of the Ethereum Enterprise Alliance in 2018, a self-appointed corporate body that works towards the setting of blockchain standards in the Ethereum ecosystem. At the time, Farooq stated the bank stands to benefit from “upgrades made to the public blockchain and to tap its growing developer community.”

Meanwhile, the bank has no plans to make its blockchain available for public viewing, instead of keeping Quorum data accessible to qualified and authorized participants. Farooq cites the nascency of the market creates disbelief of public networks being the right direction for financial institutions, while concluding with “you never know what is going to happen in five years.”