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JP Morgan Explains Why It Prefers Unified Ledger Over Public Blockchain for Tokenization – Ledger Insights
Last year the Bank for International Settlements (BIS) introduced the concept of a Unified registry which would support central bank money, tokenized deposits and digital assets on the same network. Using a common tokenization infrastructure eliminates the need for transaction messaging and associated inefficiencies and supports programmability. Umar Farooq of JP Morgan and Dante Disparte of Circle shared their views on the Unified Ledger concept during the event BIS Innovation Summit.
JP Morgan’s take on public blockchain
Speaking about a unified registry, Farooq said: “I think you almost need something like this. I mean, it’s actually almost a necessity because if you look at… the public ledgers of the blockchain, they’re not fit for purpose for large transactions today.”
He explained that if there was a $100 million transaction, there would be no recourse to validators or anyone else if something went wrong. “Who should I report?” he asked. “You need to get somewhere where people can make trustworthy transactions between financial institutions with some sort of accountability in the system.”
Hence the concept of the unified registry or similar ideas such as the regulated accountability network (RLN), mBridge and that of Singapore Global level 1.
Another problem with public blockchains is the existence of tokens, which means that each blockchain wants to attract users to increase the price of its token. “While tokenomics is an interesting concept, I think its core also makes convergence very difficult,” Farooq added. “The Internet was developed as a public good,” he said, pointing to real-time gross settlement (RTGS), Swift and CLS systems.
“We need to get to a point in evolution where technology starts to be seen as a public good rather than a means to get rich.”
Ironically, some incumbents have said that JP Morgan wants everyone to use its blockchain, Onyxalthough the same has been said for other enterprise blockchains.
Farooq also emphasizes that shared networks should involve central banks and private institutions, such as banks and non-banks.
The circle indicates marginal improvements, geopolitics
Circle’s Dante Disparte raised the issue that many initiatives target banks and leave non-banks out. While Circle argued for a seat at the table, Farooq noted that the closer you get to the central bank, the more regulation is needed because systemic risk increases.
Disparte had two points to make about the unified registries: why aren’t there already more improvements, and what about geopolitics?
He noted that institutions often seek marginal improvements. However, BIS head Augustin Carstens underlined this point in his keynote – Two types of innovations are needed: small steps and giant steps, such as the unified registry.
“The only reason you don’t move money faster is probably because of a lack of will or because it’s a path to monetize quickly,” Disparte said. “Speed in banking is a premium service.” He noted the continued lack of night and weekend executions in traditional finance.
Then there is the geopolitical question. “You don’t arm a currency, you arm the tracks on which currencies travel,” said Disparte. “The integration of cross-border payments of this type is often too closely aligned with national security interests. And that’s the unfortunate piece of the puzzle.”
The result is arrival fragmentation of global payments. Geopolitics is very relevant to one of the BIS solutions, mBridge, for cross-border payments, which involves China. It is worth keeping in mind that geopolitics is driving fragmentation. Technology is simply an enabler.