Today Reuters reported that blockchain firm ConsenSys is in discussions with JP Morgan about a merger for the bank’s enterprise blockchain Quorum. The report says a deal is six months away. The question is whether or not this is a good move for both parties. And for the future of Quorum. Because ConsenSys has built Quorum’s biggest competitor.
JP Morgan developed the open source solution, a permissioned enterprise version of Ethereum, in-house. After Quorum’s founder Amber Baldet left the bank in April 2018, rumors started to surface about JP Morgan spinning out the blockchain protocol.
The bank uses the platform for a number of internal solutions, including the Interbank Information Network (IIN) for exchanging payment-related messages with more than 300 banks involved. Additionally, its digital currency JPM Coin also uses the platform. And it conducted a variety of trials, including for loan issuance.
ConsenSys is the leading firm focused on the Ethereum blockchain. Several of the highest profile Quorum deployments have involved ConsenSys, such as the komgo trade finance network backed by some of the world’s major banks and energy traders, and the LVMH blockchain solution to address the counterfeit luxury goods challenge.
Its founder Joe Lubin is also a founder of Ethereum and his Ethereum stake has funded the startup to date. Although it recently restructured, laying off 14% of its staff, that was likely to better position the firm for a future fund raising.
ConsenSys built Besu, Quorum’s biggest competitor
But for the last couple of years, ConsenSys through a subsidiary PegaSys has been working on its own enterprise Ethereum solution, which it recently open sourced as Hyperledger Besu.
PegaSys also provides tools that support both Quorum and Besu. And, unlike Quorum, Besu aims to provide a bridge between the private permissioned and public blockchain worlds. ConsenSys as a whole, has been more aligned with public Ethereum.
Two recent announcements about ConsenSys wins were split between the two protocols. Liquidshare backed by Societe Generale, BNP Paribas, Euronext, Euroclear and others will be using Besu. And the agribusiness consortium Covantis founded by Cargill, ADM, Glencore and others will use Quorum.
So the question is why ConsenSys would commit resources to help maintain two enterprise Ethereum solutions, other than in the short term? It makes sense for ConsenSys because it can potentially gradually migrate Quorum users to Besu over an extended period. That’s an observation, not from ConsenSys, which declined to comment.
Merger rumors alone could encourage users to adopt Besu rather than Quorum.
From JP Morgan’s perspective, it would struggle to compete with a combination of ConsenSys’ deep Ethereum expertise plus Hyperledger’s skills at building open source communities. And it’s a bank. Open source software is not its sweet spot. If it can’t win, why compete?