Umar Farooq, CEO of JPMorgan’s blockchain division Onyx, stated on Monday that public ledgers like Bitcoin and Ethereum are not suitable for large-scale transactions. He believes that these public chains are not secure enough to handle high-value transactions between banks and financial institutions.
Bitcoin recently completed its 1 billionth transaction since its inception, while Ethereum has processed approximately 2.4 billion transactions. However, Umar Farooq criticized these public ledgers, stating that they are not secure enough for large-scale transactions. He emphasized the need for a system that enables trusted transactions between financial institutions and includes some form of accountability.
It is worth noting that centralized systems have been proven to be unreliable. While there may be risks associated with new DeFi projects, the underlying technologies of Bitcoin and Ethereum are currently the most trusted systems in the market. It is questionable who would be responsible if problems arise. Therefore, Umar Farooq’s comments may be driven by his own interests.
Advocating for a unified ledger, the Bank for International Settlements (BIS) proposed the creation of a “new financial market infrastructure” called the Unified Ledger. This ledger integrates central bank digital currencies (CBDCs), digital assets, and tokenized bank deposits. Umar Farooq believes that this unified ledger, which connects central banks and other major financial institution platforms, is essential for handling transactions worth millions or billions of dollars.
Major Wall Street players are increasingly investing in cryptocurrencies, and governments around the world are competing to issue CBDCs. Financial institutions are also rushing into the tokenization of financial assets, hoping to innovate the financial system. However, without interoperability, the global ecosystem and its liquidity could be fragmented. Therefore, Umar Farooq calls for the unified ledger to become a global layer for the flow of funds, or else it may become isolated.
Geopolitical factors need to be considered. However, it is worth noting that solutions like the unified ledger may not have taken into account the barriers caused by international relations and conflicts. Dante Disparte, Chief Strategy Officer and Global Policy Head of stablecoin issuer Circle, pointed out at the BIS meeting that, for example, after the outbreak of the Russo-Ukrainian war in 2022, the European Union expelled several Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Dante Disparte stated that this kind of geopolitical reality in cross-border payment integration often touches on national security interests, which is quite regrettable.
Currently, the work of building the unified ledger is still ongoing. The Bank for International Settlements recently announced the launch of the “Project Agora” initiative, with central banks from seven countries including the United States, Japan, and South Korea, as well as major commercial banks, collaborating to test the use of tokenized currencies to achieve faster and cheaper cross-border transactions.