As far as news announcements go, JPMorgan Chase’s release last week of a new cryptocurrency was a winner. In a moribund crypto market suffering from a bear market hangover, the JPM coin announcement kickstarted a frenetic news cycle. Some opined that the bank’s entry into cryptocurrencies was a validation of sorts for crypto and puts “the rest of the industry on notice“. Others pointed out that JPM coin was not exactly a cryptocurrency. Despite a flood of opinion regarding the coin, details regarding its actual implementation and uses are few.
JPM Coin is a token built on top of the Ethereum blockchain. Each coin is backed by an equivalent US dollar and is only available for purchase to corporate customers of the bank. The restrictions in issuance of the coin makes it easy to comply with AML and KYC requirements.
According to a CNBC article, the bank envisages three uses for the coin: transfer between corporate customers, issuing debt certificates on the blockchain, and use in JP Morgan’s treasury services business in which they will hold JPM coin for corporate customers instead of US dollars across their various subsidiaries around the world, thereby making it easy to transfer funds across their geographies.
In the short-term, the bank intends to use the digital coin, such as it is, in its wholesale payments business. The long-term goal is more ambitious and encompasses use of blockchain and its distributed ledger technology (DLT) to bring assets of all kinds, including physical ones, onto the bank’s ledgers. “So, anything that currently exists in the world as that moves onto the blockchain, this would be the payment leg of that transaction,” Umar Farooq, head of JP Morgan’s blockchain projects, told CNBC.
Will JPM Coin Kickstart a Crypto Revolution on Wall Street?
Not likely. The bank’s media-savvy CEO Jamie Dimon has bashed bitcoin in the past and this bit of news may be construed as a turnaround of sorts. Except, even as its CEO has publicly criticized bitcoin, JPMorgan has been among the pioneers on Wall Street in incorporating DLT for its business. Quorum – its enterprise-focused version of ethereum – has already signed up 175 institutions for its information network.
Still here are a couple of things to note about the venture.
The most important thing is that it is not a cryptocurrency, at least in terms of standard definitions for a coin. It is not decentralized because control of the network is held by a single entity i.e., the bank. Jerry Brito, executive director for the Coin Center, pointed out that JPM Coin is not open or permissionless, unlike typical cryptocurrencies, in an interview with online publication Marketwatch.
JPM Coin also resembles a stablecoin in its functioning because each coin in its reserves is backed by fiat currencies. The backing is intended to maintain parity. However, the release does not make clear whether the bank intends to submit itself to audits. (Not that that should be a problem for a bank that counts 80 percent of the world’s top banks among its customers).