Stop Calling JPMorgan's JPM Coin A Cryptocurrency, Because It's Not

Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., speaks during an Economic Club of New York (ECNY) event in New York. Photo Credit: Peter Foley/Bloomberg© 2019 BLOOMBERG FINANCE LP

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JPMorgan announced plans to launch JPM Coin on Thursday and expressed love for digital tokens on Valentine’s Day, despite Jamie Dimon having slammed bitcoin as a fraud in the past. JPM Coin, the first cryptocurrency created by a major U.S. bank, will be used to settle payments between clients and the lender will then work to transfer cross-border payments or corporate debt issuance services on to the blockchain - which could make a significant impact on the financial technology, or fintech, industry.

According to CNBC, JPMorgan needed to transfer money at the speed at which smart contracts close rather than relying on old technology like wire transfers. Umar Farooq, head of JPMorgan’s blockchain projects, said: “So 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.” But is JPM Coin a cryptocurrency?

Each JPM Coin is redeemable for one U.S. dollar which means that it is not as volatile as cryptocurrencies such as bitcoin and is similar to what is referred to as a stablecoin - which JP Morgan has made clear its coin is not. This new digital token will be used international payments for large corporate clients, securities transactions and for larger corporations that use JP Morgan’s treasury services business to replace dollars held in subsidiaries and could perhaps be used for payments on internet-connected devices, according to CNBC.

Would JPM Coin simply be a digital currency, rather than a cryptocurrency? If JP Morgan’s new coin operates privately and is only used for money transfers between the lender and its clients, it would not operate on a public network in the same way that cryptocurrencies such as bitcoin or ethereum do.

In addition to this, cryptocurrencies operate on public networks that anyone can join without permission and while in this case, it means that the many computers working together on the shared ledger is said to improve security (according to a recent Motherboard article), JPM coin will run on a blockchain network called Quorum, which requires permissions and users must be approved by JP Morgan.

Jerry Brito, executive director of research group Coin Center, highlighted that it’s “the same distinction between AOL and the internet. The internet is open, so anybody who wants to create a blog, website, or consumer service can connect a server to the network without asking permission from anybody. Compare that to AOL - it was a permissioned network where if you were a publisher, you had to go to the company and seek their permission.”

Jemima Kelly from the FT had a similar attitude and said that because JPM Coins will mimic real currency, blockchain may not be needed at all and “some might argue JPM Coin already exists and that it’s just a JPM deposit by another name.” But why call it a cryptocurrency when it is just an internal payments system? - for press coverage? This doesn’t make sense after the volatility experienced at the end of 2017 and the current attitude towards ICOs.

What about Dimon’s comments in 2017? Although the JPMorgan CEO took back his negative comments about bitcoin last year, many questioned if this announcement was a direct contradiction. As reported in Yahoo Finance, a spokesperson said: “I think Jamie has been more consistent than people give him credit for. He’s always separated cryptocurrency from the underlying value and the use of blockchain.”

The spokesperson went on to say: “We have always believed in the potential of blockchain technology and we are supportive of cryptocurrencies as long as they are properly controlled and regulated. As a globally regulated bank, we believe we have a unique opportunity to develop the capability in a responsible way with the oversight of our regulators.” But what is the reasoning behind this endorsement of blockchain now? Are all banks changing their tune on the subject? Or is the space mature enough for real use cases?

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