J.P. Morgan: Private, Digital Identities Key to Scaling Financial Blockchains

What can blockchain technology do for financial services in a friendly regulatory environment?

With a new president coming in 2025, the ecosystem is about to find out. Donald Trump has promised to the industry that he — the U.S. Securities and Exchange Commission (SEC) under his administration — would be more crypto-friendly.

Against a backdrop where traditional financial players are warming their cold shoulders to the blockchain space, when banks are discussing real-world use cases for crypto, they tend to default to stablecoins for payments.

For example, on Thursday (Nov. 7), UBS announced it had created and piloted UBS Digital Cash, a blockchain-based payment solution, while a day earlier on Wednesday (Nov. 6), J.P. Morgan announced a significant enhancement to its own blockchain platform, recently rebranded from Onyx to Kinexys.

But that’s not all J.P. Morgan announced. The banking giant also released a whitepaper entitled Project EPIC: Fueling Tokenized Finance with On-Chain Enterprise Privacy, Identity, and Composability (EPIC).

The paper, as the title implies, explores the use of blockchain technology to enhance privacy, identity and composability within financial ecosystems.

“Our aim is two-fold: to articulate the challenges and opportunities in this space and to catalyze industry-wide dialogue and action,” the bank said.

As the regulatory landscape evolves, that appears to be an increasingly common view held by traditional financial institutions (FIs).

Read more: A Pro-Crypto President: What Trump 2.0 Holds for Blockchain’s Future

One of blockchain technology’s core features is transparency — a double-edged sword in finance. The open nature of blockchains offers a high degree of trust and visibility, enabling anyone to verify transactions. However, the lack of privacy presents a significant obstacle for many potential users, particularly institutional participants wary of publicly sharing sensitive financial information.

In a world where sensitive financial data and transactions may be increasingly exposed to public scrutiny on-chain, there’s a pressing need to address privacy and identity challenges within crypto.

Per the J.P. Morgan paper, “the lack of mature, on-chain cryptographic privacy solutions, coupled with the absence of consensus on implementing privacy-preserving digital identity, continues to create operational friction in tokenized asset interactions. While these challenges are not entirely gating — as demonstrated by the $2-3B raised through on-chain funds and approximately $200B in stablecoins, protocol treasuries and public chain lending protocols — solving for them could broaden adoption.”

In an interview with PYMNTS posted Friday (Nov. 8), Raj Dhamodharan, executive vice president of blockchain and digital assets at Mastercard, explained that the real potential of blockchain can only be realized when users can interact with the network in a trusted, verifiable manner.

“But while the underlying infrastructure enables you to transfer value, it doesn’t really lend itself to doing so in a very easy way,” he added, noting that the “experiences are hard.”

As PYMNTS Intelligence’s latest report revealed, regulated industries, including healthcare and financial services, must adhere to numerous requirements, such as know your customer (KYC), anti-money laundering (AML) and data privacy regulations. Blockchain could help these industries in that regard.

Read more: Visa, PayPal and Others Could Bring Utility and Legitimacy to Stablecoins

“Privacy-preserving, reusable digital identity solutions are fundamental to unlocking tokenization’s full potential, enabling streamlined onboarding, real-time verification, and programmable compliance,” the J.P.Morgan report noted.

However, this journey requires a collaborative effort from developers, regulators and industry stakeholders to ensure that these solutions are both technically feasible and regulatory compliant.

In the near term, the momentum of stablecoins, protocol treasuries and on-chain lending demonstrates the system’s viability.

PYMNTS recently sat down with Ran Goldi, senior vice president, payments and network at Fireblocks, and Nikola Plecas, head of commercialization, Visa Crypto, to dissect the benefits and myths surrounding blockchain-based payments, how to think about real-world applications and how to unlock new revenue streams using blockchain. Stablecoins, the panelists said, offer advantages over existing payment systems, including native programmability, strong auditability, fast settlement, self-custody options and seamless interoperability.

However, as tokenization becomes more integral to the financial sector, privacy and identity will transition from “nice-to-haves” to essential requirements. Meeting these needs will be key to fostering a secure, scalable and inclusive ecosystem where tokenized assets can truly thrive.

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