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February 19, 2019

JPM Coin: the First US Banking Cryptocurrency or Just Another Stablecoin

Probably the most curious and at the same time controversial development for the crypto community last week came from the US banking giant JPMorgan Chase, which made the news of its own cryptocurrency public. This effectively made it the first major American bank to tap into blockchain and develop its own network for direct use in transactions. The move caught many by surprise given the fact that Jamie Dimon, the JPMorgan Chase CEO, was an outspoken Bitcoin critic.

 

According to Umar Farooq, head of the lender’s blockchain projects within the bank, the current early stage applications of the JPM Coin are three. The first and main one, of course, is cross-border transactions for big institutional clients. Up until this moment, the latter have relied solely on direct wires carried out by networks like SWIFT, the settlement of which has taken up to several business days. This is about to change soon, as payments utilizing JPM Coin would be carried out in real-time.

The coin will also be used for securities transactions. According to a report, JPMorgan tested its proprietary blockchain platform, Quorum, in a collaboration with the National Bank of Canada with the intent to streamline a number of financial processes, including but not limited to origination, settlement and interest rate payments. The results clearly indicated that the JPM Coin can be used for real-time settlements.

 

 

Last but not least, the new crypto could be used by large international companies, including Facebook and Honeywell, which are apparently looking for more rational alternatives to holding billions of funds in different subsidiaries across the world. This would do good to the treasury services business of JPMorgan Chase, which anyway accounted for $9 billion in revenue for the US banking behemoth in 2018.

 

As indicated by Umar Farooq, the trials of the technology will start in a few months. At the beginning, only a tiny amount of the funds involved in the three areas described above are going to utilize JPM Coin. In the more distant future, the application of the token could be substantially broadened to include “anything where you have a distributed ledger which involves corporations or institutions”, Farooq was quoted saying.

 

As a mean for achieving price stability, JPM Coins are pegged to the US dollar, which practically makes them a “stablecoin”. Customers would be issued tokens when they deposit fiat currencies with JPMorgan Chase. Once the coins are used in a transaction, they would be destroyed by the bank, and clients would receive the equivalent amount of fiat.

 

Generally speaking, 2018 was a really good year for stablecoins, which became the preferred choice for a large number of compliance-oriented business entities on this market. Just a couple of the most notable examples are: the USD Coin (USDC) launched as a result of the Goldman Sachs startup Circle’s partnership with the major crypto exchange Coinbase; and the Gemini dollar, launched by the Winklevoss twins after the explicit approval of the New York Department of Financial Services.

 

 

The reactions to the JPM Coin announcement within the crypto community were rather mixed. As widely expected, probably the most sound criticism came from Ripple. The company’s CEO Brad Garlinghouse denounced the concept of bank coins and specifically the JPM Coin due to its centralized nature. He went further by saying that introducing a closed network nowadays is not the right way for a bank to tap into digital assets.

 

Other members of the crypto community, however, expressed positive comments about JPMorgan Chase’s new technology. Some shared the opinion that the new coin has the potential of overtaking Ripple. What the future holds for the bank’s token is yet to be seen. One thing is sure: everyone with interest on the crypto market needs to carefully monitor how the situation around JPM Coin will unfold.