ZCash and The Glass Bank

Interesting to see the cryptocurrency ZCash in the news today, since it’s one of the ones I focussed on in my new book (in case I haven’t mentioned it, it’s called Before Babylon, Beyond Bitcoin and you can buy it from all good booksellers). As I said about Zcash in the chapter “Counting on Cryptography” written toward the end of 2016, “people, companies and governments will not use the underlying anonymous currency but instead use the privacy-enhancing kinds of money built on top of it”.

This is indeed what J.P. Morgan just announced at Consensus 2017 (see “JP Morgan Chase to Integrate Cash Technology to its Enterprise Blockchain Platform“). Or, as American Banker put it in their story “So, just to be clear: JPMorgan isn’t using Zcash”. As was set out by the parties themselves, what they intend to do is to use the Zcash technology of zero-knowledge proofs on their own Quorum blockchain to deliver privacy into financial markets where the participants want the advantages of shared ledgers but do not want to disclose the contents of transactions to all participants. I think this is quite a big deal, but that’s because the institutional use of these new technologies to create markets that work in more efficient ways accords with my own mental roadmap for shared ledgers. 

In a paper I co-wrote a couple of years ago with Richard Brown, the CTO of R3, and Consult Hyperion colleague Salome Parulava [published as Birch, D., R. Brown and S. Parulava (2016). “Towards ambient accountability in financial services: shared ledgers, translucent transactions and the legacy of the great financial crisis.” Payment Strategy and Systems 10(2): 118-131.], we adopted the term “translucent” to mean transactions that are transparent for the purposes of consensus (in other words, we can all agree that the transaction took place and the order of transactions) but opaque to those not party to the trade or the appropriate regulators under the relevant circumstances. I gave a talk introducing these concepts at NextBank Barcelona back in 2015.

It seems to me that the JP Morgan / ZCash announcement takes us another step forward in this direction and moves use towards the era of “The Glass Bank” (something I used in client workshops for many years and that I first blogged about back in 2011), an era in which translucency develops as a response to the Great Financial Crisis (GFC) and as a fundamental improvement in the way that financial markets operate, and which I have already decided will be the title of my next book!