JP Morgan’s new digital asset, announced on Valentine’s Day, reflects the company’s two-sided relationship with the blockchain — which began with allegations of fraud and has now progressed to the testing of the bank’s own digital coin.
Despite being labeled as a cryptocurrency, the JPM coin is squarely aimed at corporations and operates on a permissioned blockchain solely within the walls of JP Morgan.
This has led several commentators to suggest that the crypto is closer to a "unit of account" than a cryptocurrency, and could be more of a publicity stunt than a real foray into blockchain-based transactions.
Why JPM coin?
Each JPM coin is redeemable for a single US dollar, and institutional clients will be issued the coins after depositing dollars at the bank. Then, after using the tokens for a payment, the bank destroys the coins and returns the dollars to the client.
JP Morgan claim the coins — which run on Ethereum’s Quorum network — could be used to ease the passage of funds between fractured sections of the global bank, reducing costs and cutting settlement time for large corporate clients.
Millions of dollars are processed every minute by JP Morgan; sent to different countries on behalf of corporate clients, and between the many divisions of the bank. This relies on the outdated infrastructure of SWIFT — a decades-old technology which can take days to manually settle between different time zones.
JPM coin, however, "could cut settlement times from days to just moments", says Umar Farooq, JP Morgan’s blockchain lead. That, and also make the process of issuing securities more efficient, allow safe storage of funds on the blockchain, and potentially open up the bank to other, future blockchain applications: "Anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction. The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this."
Bankcoin or cryptocoin?
Greater security, faster payments, and easy international transactions are all fairly standard promises made by cryptocurrencies, but many have suggested that JPM coin barely qualifies as such, and is perhaps the most centralized "cryptocurrency" yet.
As all the applications described in the press release involve moving money around different branches of JP Morgan, the network has been criticized for using the word cryptocurrency to describe something that is more like an Excel spreadsheet.
Writes crypto commentator David Gerard in a blog post on the subject. "JP Morgan has a new unit of internal accounting for transfers between its large customers — but they put out a press release about it using the words ‘blockchain’ and ‘cryptocurrencies,’ so, you know. It’s literally the 180-degree opposite of Bitcoin — a centrally-administered invitation-only dollar-backed stablecoin."
As a private blockchain aimed at facilitating corporate transfers, JPM coin is less similar to bitcoin, and more similar to other blockchains designed specifically for international settlements; such as Ripple Labs’ XRP token, Goldman Sachs’ SETLcoin, and Citibank’s Citicoin that aim to use partnerships to help banks cut out the intermediary fees of SWIFT, which has a monopoly on cross bank transactions.
JP Morgan however, is big enough to challenge SWIFT on its own: As the bank services 80 percent of the companies in the Fortune 500, it barely matters that the JPM coin is not yet usable by other banks or businesses. As Farooq said."Pretty much every big corporation is our client, and most of the major banks in the world are, too. […] Even if this was limited to JPM clients at the institutional level, it shouldn’t hold us back."
If even a small portion of the trillions sent by JP Morgan each day makes its way on to the blockchain, then it will dwarf even bitcoin. But, the coin will still be unlikely to win over the crypto community, as even famous crypto critics like Nouriel Roubini are suggesting the project has missed the point: "In which way has the new alleged JP Morgan crypto coin anything to do with blockchain/crypto? It is private not public, permissioned not permissionless, based on trusted authorities verifying transaction not trustless, centralized not decentralized. Calling it crypto is a joke" Roubini tweeted.