JP Morgan Chase Makes Surprising Announcement, May Add Bitcoin Futures
According to reports in the Wall Street Journal, JP Morgan Chase is considering providing access to the Chicago Mercantile Exchange’s (CME) Bitcoin futures trading through its futures platform. The CME’s announcement last week regarding the addition of Bitcoin futures sent prices of the cryptocurrency to new all time highs over $8,300. According to the report:
“J.P. Morgan is considering whether to provide its clients access to CME’s new Bitcoin product through its futures-brokerage unit.”
The irony of the announcement, of course, is that Jamie Dimon has been the most outspoken critic of Bitcoin on Wall Street, calling it a ‘fraud’ and saying that anyone who invests in Bitcoin is ‘stupid’. If people who invest in Bitcoin are stupid, as Chase CEO Jamie Dimon said, apparently he considers his own staff stupid. Dimon also said he would fire anyone caught investing in it – a promise which he has yet to fulfill.
The strongly negative leanings of some Wall Street pundits have been matched by the positive outlooks from others. However, whether Jamie gets in or not, Bitcoin futures will likely become a reality in early December, powerfully increasing adoption.
State Bank of India Plans to Pilot Test Blockchain-based Smart Contracts
The State Bank of India (SBI) plans to beta test a Blockchain-based smart contracts system that was developed by the BankChain consortium in December 2017. The consortium, which was launched in February, is composed of 27 banks that aim to develop Blockchain solutions for the banking industry in the country.
According to SBI’s head of innovation, Sudin Baraokar, the smart contracts will be tested for “simple things” like nondisclosure agreements. He added that majority of their internal processes can be accomplished using the technology.
“A lot of internal processes can be contracted. We do a lot of IT procurement, a lot of it can be implemented using Blockchain.”
SBI’s planned innovation center and BankChain initiatives
According to Baraokar, the state bank also plans to establish an innovation hub in Mumbai. The center will be used to conduct research and development (R&D) on new technologies such as artificial intelligence, machine learning, and Blockchain technology. The facility is also designed to host hackathons and incubate startups. The proposed center is currently in the design phase and it is scheduled to be launched in mid-2018.
Meanwhile, the BankChain consortium has launched the know your customer (KYC) platform dubbed ClearChain in May 2017. The platform is intended to enable banks to share data of their customers among their members. Among the information that can be shared are data on wire transfers and investigatory reports, including Suspicious Activity Reports (SAR).
The BankChain consortium was established in February 2017. SBI was the first member of the group. So far, the organization already has 22 Indian banks including DCB Bank, Axis Bank, and ICICI Bank, as well as five Middle East-based banks as members.
Italian Bank Intesa Sanpaolo Is Exploring Ethereum Derivatives
A subsidiary of global banking giant Intesa Sanpaolo is taking steps to reimagine what the $1.2 quadrillion derivatives market might one day look like on a public blockchain.
In a new white paper released today, Banca IMI details how an ethereum smart contract built by Intesa Innovation, Banca IMI and blockchain startup Oraclize makes it impossible for any counterparty to default by anticipating eventualities that might otherwise result from a legal dispute.
Written by the bank’s head of interest rate and credit models, Massimo Morini, the paper represents a continuation of work he’s been conducting at Banca IMI for two years. However, it also hints at what sets the bank apart in its approach to the blockchain sector.
While its peers have been largely working to resolve regulatory concerns and protect user confidentiality, Banca IMI has been focusing on the business of derivatives.
But in an exclusive interview with CoinDesk Morini also shed light on two other projects currently underway that he hopes could help inspire entirely new derivatives models using bitcoin and ethereum.
“We tried to design a business model exploiting the technology such that from a financial point of view it works on the public blockchain, because the guarantees are so much stronger than those we have with standard technology.”
In the paper, Morini opens with a detailed mathematical description of how collateralized derivatives meant to help offset risks can backfire.
While derivatives built on underlying assets such as cash, gold and bonds are constructed to minimize loss in more high-risk endeavors, what the report calls “a generic paper contract” might not specify data sources or algorithms implemented by the counterparties.
As a result of these uncertainties and others, discrepancies between the parties can result in default, delays and costly legal litigation. According to Morini, though, a smart contract executed on the ethereum blockchain could make this a problem of the past.
In the proof-of-concept (POC) detailed in the paper, a smart contract was built using an ethereum testnet that communicated contract details to an external computation engine located in the cloud.
Instead of risking delays and relying on courts to resolve possible disputes, Morini said the team’s derivatives workflow builds the terms of resolution into the smart contract itself.
By anticipating problems and encoding solutions, he said his smart contract-based derivative could reduce delays from days to minutes and dramatically cut the cost of resolution.
“In the end, it’s enough that the smart contract keeps a little amount of funds to be used in case one stops paying, to guarantee that even if one stops paying, in a few hours, you are out of the contract and you have lost no money,” he said, adding:
“This is really a different business model from what we are used to seeing in standard financial markets, but financially, it works.”
Transitioning to the chain
But the potential solution developed by Morini’s team can only go so far without some help from financial institutions.
Last year, the 18-year veteran of the bank wrote another paper about how the potential benefits of moving transactions to a distributed ledger would be mitigated if banks don’t meet the change halfway.
As such, the paper isn’t the only effort currently underway that’s specifically designed to help bring financial institutions on board for further development.
One project employs a network of state channels designed to let counterparties send messages related to a derivative to each other off of the blockchain. The project, which is only in its earliest stages, is designed to ease concerns about privacy by only interacting with the public blockchain when a derivative terminates.
A third project is also being built with Intesa Sanpaolo, Banca IMI and Oraclize. Aiming to give users the highest levels of privacy, the project is being designed to build private blockchains into a central counterparty clear house (CCP) for trading derivatives.
“In the long term, this may also mean the transformation of their business model, where you actually keep some elements of the current business model,” he said. “But also you improve in other elements and you create some more decentralization even in a fundamentally centralized business model.”
But while Morini appears convinced of the superiority of public blockchains to service the derivatives market, he concedes one fundamental obstacle which has yet to be fully overcome: privacy.
To meet that demand, derivatives startups like LedgerX are already conducting increasingly complicated contracts using bitcoin, and the DTCC is using a private blockchain developed by Axoni to move its own derivatives to a blockchain.
Yet, even as one U.K financial regulator has warned against investing in derivatives that rely on cryptocurrencies, Morini remains convinced his work is headed towards a derivatives market that leverages the best of the old and the new.
“The fundamental idea is to perform a change — a reform if you want — of the business model of financial derivatives to exploit in the best way the technology of the blockchain to get derivatives which are more transparent, which are more secure.”
Ethereum coins via Shutterstock
Written By CoinDesk
Kraken CEO Apologizes for Site Issues as Bitcoin Exchanges Struggle to Meet Demand
As cryptomania has swept the world in 2017, the influx of new users has caused bottlenecks at major exchanges. From server outages to lack of customer support, recurrent issues have tormented users, many of whom have taken to social media to vent their frustrations. In a Reddit post on November 20, Kraken CEO Jesse Powell apologized for the site’s issues, which he attributed to “record demand”.
Unleash the Kraken
While no bitcoin exchange is immune from criticism, traders have reserved particular ire for Kraken in recent months. The US-based exchange, which boasts the world’s largest BTC/EUR trading, averages total volume of $250 million a day, placing it in the top ten global exchanges. Like many of the other exchanges on that list, Kraken has struggled to keep pace with rising demand for cryptocurrencies.
For all the talk of decentralized exchanges, atomic swaps, and P2P trading, centralized exchanges still form the bulk of the on- and off-ramps to bitcoin. As a consequence, users are largely at their mercy. When chokepoints occur, frustration spills over, forcing overworked customer support teams to fend off barbed complaints on Twitter, Telegram and elsewhere.
Exchanges are at Peak Capacity
Users of South Korea’s Bithumb exchange recently threatened a lawsuit after a server
crash cost them millions of dollars. In the US, meanwhile, Coinbase have been adding 100,000 users a day, and other exchanges have also reported explosive growth. In response to yet another Reddit thread complaining about the state of affairs at Kraken, CEO Jesse Powell waded into the debate. After conceding that the platform has “seen better days”, he promised a major upgrade in early December.
The reason why Kraken has been so sluggish? Powell cites “Jevons paradox” – the notion that when technological advancement increases demand for a resource, its rate of consumption rises rapidly due to growing demand. Bitcoin is a victim of its own success in other words. He went on to say:
We certainly haven’t abandoned the exchange and we do care about making improvements. We had a nice roadmap for building our fancy new ship, which was blown up by the recent explosion of growth. Rather than be able to dedicate our efforts to the new platform, we’ve had to split efforts with water bailing and fire extinguishing.
One thing that Kraken’s CEO is evidently proud of is the site’s security; he boasted of its impeccable track record which is “unfortunately, more than can be said for others”. His comments arrived on the same day that Tether announced a £30 million hack, over and above the $72 million that its partner exchange Bitfinex lost last year. Kraken is one of the exchanges that has been affected by the Tether incident, announcing earlier that it is freezing USDT while a hard fork is implemented to remove the stolen funds from circulation.
Be the Change You Want to See in the World
Powell concludes by suggesting that if individuals would like to help alleviate the problems Kraken is experiencing, they’re more than welcome to apply for one of the job vacancies currently listed on the site. There are around two dozen positions going at the San Francisco exchange, including numerous compliance and customer support roles. Impatient customers, eager to jump on the bitcoin bandwagon, are often forced to wait in line at exchanges while overworked staff process a backlog of KYC requests.
Despite the increasing liquidity and size of the bitcoin market, it’s still vulnerable to exchange-related issues. The Tether hack, which is just a drop in the bucket when compared to bitcoin’s $137 billion market cap, caused the cryptocurrency to plummet below $8,000 before later recovering. Until exchanges can develop the infrastructure and human resources to match demand, delays, outages, and spotty customer support are likely to remain the norm.