On the 14th of February 2019, U.S. multinational investment bank JPMorgan Chase surprised the blockchain community when it announced that it was launching a digital coin dubbed the “JPMorgan Coin” (JPM Coin). This move came as a surprise to many because JP Morgan has been known to be particularly unfriendly towards cryptocurrencies.
Aside from calling Bitcoin a “fraud” back in 2017, JPMorgan’s CEO, Jamie Dimon generated a lot of buzz when he stated at the Aspen Institute’s 25th Annual Summer Celebration Gala that he had “no interest” in cryptocurrencies and further suggested that “governments may move to shut down the currencies [cryptocurrency], because of an inability to control them.”
With the launch of the JPMorgan coin, this sentiment appears to have been reformed into a more positive disposition. What exactly has changed for the financial institution giant?
With over 100 international banks testing the viability of digital currencies like Ripple, it is now becoming evident that cryptocurrencies are transcending the realm of skepticism and could become mainstream financial instruments within a few years. The JPMorgan Global Research team appears to be thinking along these lines and has even released a report discussing the possibility of central banks creating their own cryptocurrencies and how this move will impact current monetary regimes.
What is JPMorgan Coin?
As the fintech industry keeps churning out innovative platforms which leverage blockchain and smart contracts to enhance a variety of transactions, JPMorgan has followed suit and developed its native digital currency which will allow the corporate giant to transfer money faster and more efficiently. This is the first bank-backed cryptocurrency and will have its value fixed to the US dollar in a similar manner to a branch of cryptocurrencies known as stablecoins.
Stablecoins are a subcategory of cryptocurrencies whose value is pegged to a stable asset like the U.S. dollar. These coins are quite important in the crypto sphere because traders often rely on them to hedge against the volatility of the crypto markets.
Is JPM Coin really a Stablecoin?
Despite the similarities with traditional stablecoins, JPMorgan has refrained from using the word “stablecoin” to describe its digital currency. This is because unlike regular stablecoins or cryptos which operate on a public network, the JPM coin is expected to function privately and be used strictly for money transfers between lenders and clients.
Moreover, with regular cryptocurrencies, anybody can join the network and participate since they operate permissionless-based protocols. However, the JPM coin will utilize the Quorum network, a permissioned network where users will require JP Morgan’s approval for participation.
Possible Applications for JPM Coin
During an interview with CNBC, the Head of JPMorgan’s blockchain projects, Umar Farooq explained that the JPM coin could help establish a new long-form financial baseline with multiple applications.
According to him:
“The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this.”
Farooq also described the JPM coin as a “payment leg” for moving transaction into the blockchain and highlighted some key “early applications” for the coin:
- Massive Corporate Transaction Consolidation: JPMorgan facilitates more than $6 trillion transactions daily. The bulk of this comes from the bank’s institutional clients. The JPM coin will allow these institutional clients to transfer money to their subsidiaries around the world with better flexibility.
- Improved Transaction of Securities: Using the JPM coin to trade securities could result in faster transactions by collapsing the time gap between settlement and payment.
- Cross Border Settlement: JPM coin could bring an end to cross border settlement hiccups by avoiding delays which occur during the traditional wire transfer process.
Public vs. Private Blockchains
Many blockchain derivatives like Bitcoin and Ethereum utilize public permissionless ledgers that do not require the approval of any central authority. The idea was to create a system that anyone can freely access. However, corporations in the blockchain space favor private blockchains over their public counterparts. This is because they offer better protection, privacy, and security for their clients.
These two types of blockchains both have benefits and challenges; they are not one-size-fits-all solutions because different industries and businesses have different requirements. The superiority of one over the other is still being debated by various professionals within the niche.
However, blockchain experts on both sides of the aisle agree that the development of useful applications of the distributed ledger like the JPM coin is necessary for driving the global adoption of blockchain technology. According to a report by CNBC, JPMorgan is expected to roll out trials for this blockchain-oriented coin to its institutional clients later this year.