April Fool's Came Early this Year, or Why JPM Coin is a Joke

Thursday last week the world was hit by some relatively breaking news - JPMorgan Chase publicly announced they are moving to be the first big U.S. bank with its own cryptocurrency.

I have covered this on my Weekly Blockchain & Crypto Digest, and here is a quick recap of what you need to know.

Dubbed the JPM Coin, the crypto experiment will be redeemable for a single U.S. dollar, so it is similar in concept to so-called stablecoins. Clients will be issued the coins after depositing dollars at the bank; after using the tokens for a payment or security purchase on the blockchain, the bank destroys the coins and gives clients back a commensurate number of dollars.

According to one of the biggest banks in the world by assets, there are 3 early applications for the JPM Coin:

• The first is for international payments for large corporate clients, which now typically happens using wire transfers between financial institutions on decades-old networks like SWIFT. Instead of sometimes taking more than a day to settle because institutions have cut-off times for transactions and countries operate on different systems, the payments will settle in real time, and at any time of day, he said.
• The second is for securities transactions. In April, J.P. Morgan tested a debt issuance on the blockchain, creating a virtual simulation of a $150 million certificate of deposit for a Canadian bank. Rather than relying on wires to buy the issuance — resulting in a time gap between settling the transaction and being paid for it — institutional investors can use the J.P. Morgan token, resulting in instant settlements.
• The final use would be for huge corporations that use J.P Morgan's treasury services business to replace the dollars they hold in subsidiaries across the world. Unseen by retail customers, the business handles a significant chunk of the world's regulated money flows for companies from Honeywell International to Facebook, moving dollars for activities like employee and supplier payments. It generated $9 billion in revenue last year for the bank.

It is important to stress that the New York-based lender says the system is designed for institutional clients and it does not have plans to make the JPM Coin available to consumers.

Why JMP Coin is a Joke

First and foremost, we need to understand that JPM Coin has nothing to do with Crypto or Blockchain.

• It is private, not public. JP Morgan’s new coin will operate privately and will only be used for money transfers between the lender and its clients, it will not operate on a public network in the same way that conventional cryptocurrencies such as Bitcoin or Ether do.     
• It is permissioned – not permissionless. Cryptocurrencies run on public networks that anyone can join without any permission, whereas JPM Coin will run on its internal blockchain network called Quorum (created in 2016 as part of the Ethereum Enterprise Alliance (EEA), of which JPM is one of the founding partners), which requires permissions and users must be approved by JP Morgan. 
• It is based on trusted authorities verifying the transaction – not trustless. For example, Bitcoin is trustless because the system was designed so that nobody has to trust anybody else in order for the system to function. Other forms of digital currency (such as the JPM’s experiment) usually require a central authority you have to trust in order to use the currency, and that central authority is argued to be the central weakness of the whole system.
• It is centralized – not decentralized. The central authority is JPMorgan, which controls everything, as opposed to Bitcoin or other cryptos which are not controlled by anyone.

Yet Another Stablecoin

As noted earlier, the crypto experiment by JMPorgan resembles yet another stablecoin, at least in its initial form.

We could probably say that 2018 was a year of stablecoins, and this is starting to become a growing trend among the market’s most compliance-oriented players. For instance, Goldman Sachs-backed startup Circle launched its USD Coin (USDC) in collaboration with major U.S. crypto exchange Coinbase, and the Winklevoss twins presented their own stablecoin dubbed the Gemini Dollar after receiving the regulatory green light from the New York Department of Financial Services (NYDFS).

Compared to the latter, the major difference between the two is that JPM Coin is geared toward institutions on a private network, whereas the Gemini Dollar is geared toward individuals on a public network (the Ethereum blockchain).

Should Ripple be Worried?

Some were arguing that JPMorgan’s entrance into this space might seem like a death sentence for Ripple, but probably this is not the case (to be fair, it is hard to tell right now what effect it might have in the long-run).

The fact is that the XRP market hardly responded to JPMorgan’s announcement. Ripple’s clients have used an XRP-based settlement system when they lack pre-existing correspondent banking relationships. It is not a secret that XRP faces many challenges to adoption independent of any competition, including limited market depth, price volatility (the token’s price floats), and a disproportionate distribution of XRP to its founders.

You can read more about Ripple in my article titled All you need to know about Ripple.

The Most Important Question

Putting everything into perspective, there is one key question that has to be answered.

Based on the above, the JPM Coin makes it possible to move dollars between the JMP's bank accounts instantly.

So why on earth was it not already possible to move dollars between two JMPorgan bank accounts instantly?

P.S. You might enjoy my earlier pieces as well:

?? Lithuania's 10 Years Challenge - from Developing Country to European FinTech Hub

?? 7 Facts about Bitcoin You Should Know

?? Forget Bitcoin - Cannabis is the New Crypto

?? Crypto is NOT a Bubble. Never was, and hardly ever will be

?? Investors won't see Bitcoin ETFs any time soon. Here's why

?? All you need to know about Bitcoin ETFs now

?? Bitcoin is NOT a Currency, and Never Will Be

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About: I am a business developer, sales professional, FinTech strategist, as well as Cryptocurrency and Blockchain enthusiast. I'm highly passionate about Financial Technology and Digital Innovation, and strongly believe that it will change the world for the better. Apart from my daily job at one of the leading alternative banking and payments providers in EEA, I'm an active member of FinTech community and a TechFin evangelist.

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