JPMorgan Chase is working on a potential spin-off of its main blockchain technology project after the biggest US bank by assets decided it was more likely to achieve widespread adoption as an independent operation.
The US bank developed Quorum as its own customised version of blockchain technology over two years ago, in an effort to make many of its operations — such as clearing and settlement of derivatives and cross-border payments — more efficient.
The expected spin-off of Quorum underlines how banks have grappled with how to harness blockchain technology, which uses a distributed ledger system to share information across a network of computers protected by cryptography.
The change in approach by JPMorgan is particularly sensitive because chief executive Jamie Dimon has been one of the most outspoken critics of bitcoin, the cryptocurrency that is based on blockchain technology.
JPMorgan’s goal for Quorum was “to become the standard of Wall Street”, said Caitin Long, the Morgan Stanley veteran now prominent in the blockchain community. But the lack of traction outside the bank may have forced its hand, she said, adding: “Blockchains only work if there are network effects; it doesn’t make sense if banks are using it only internally.”
People familiar with the situation said some rival banks may have been reluctant to use Quorum because it was so closely associated with JPMorgan, leading the US bank to conclude that its chances of becoming the industry standard were greater as a standalone entity.
JPMorgan said in an emailed statement: “We continue to believe distributed ledger technology will play a transformative role in business which is why we are actively building multiple blockchain solutions.”
“We’re not going to comment on speculation, but Quorum has become an extremely successful enterprise platform even beyond financial services and we’re excited about its potential,” it added.
JPMorgan is expected to keep a minority stake in Quorum after the spin-out, which is likely to happen this year. Amber Baldet, the blockchain programme lead at JPMorgan, could leave the bank if it goes ahead with a spin-off, potentially for a project of her own.
Last year, Mr Dimon dismissed bitcoin, the world’s largest cryptocurrency, as “a fraud” that was “worse than tulip bulbs” and warned that he would “fire in two seconds” anyone caught trading it. But this year, he said he regretted the comments because blockchain was “real”.
Many banks have been investing heavily in experimenting with blockchain. Several have taken stakes in R3, a consortium of banks that has developed its own Corda blockchain system. JPMorgan pulled out of R3 last year.
Quorum, which is based on the Ethereum smart contract system, is being trialled by JPMorgan, Royal Bank of Canada and Australia’s ANZ to create a new blockchain-based messaging system that speeds up cross-border payments.
Elsewhere, ING, ABN Amro, Société Générale and Louis Dreyfus Company are testing it to digitise the documents needed for agricultural commodities trading. The central banks of France, Brazil, Singapore and South Africa are also testing Quorum for their payment systems.