Imagine you traveled back in time to 1886 and witnessed the first automobile, the Benz Patent Motor Car. You were impressed with the concept but skeptical that a one-cylinder, two-stroke engine mounted on a three-wheeled bench would ever amount to much.
Frank Lee McGreedy, at that time head of one of the largest horse-and-buggy companies in the world, called that motor car a scam. McGreedy spent the next two years repeating this claim, referring to it as a fraud, a ponzi scheme, worthless, bad, horrible, evil, rat poison, every bad name in the book, while acknowledging that the internal combustion engine may have some potential.
Then, out of the blue, McGreedy announced he created his own automobile, except instead of calling it a motor car, he called it an “HB car” and insisted it’s totally different than a motor car. What would you think?
That’s what JP Morgan just did with cryptocurrency. After lambasting bitcoin for years and banning his traders from trading it, chairman and CEO Jamie Dimon created his own version of bitcoin: a cryptocurrency called “JPM Coin.”
People say this is a big deal. Forbes, Barron, Bloomberg, CNN, and other mainstream press outlets covered the news. As expected, opinions ranged from eye rolls to shrugs to scorn to proclamations this would set off a new bull market for cryptocurrency. Some analysts said this was huge news. Others called it a non-story.
Nouriel Roubini, a well-known economist and cryptocurrency skeptic, called JPM Coin a joke and not a real cryptocurrency. I’ve heard blockchain experts disagree about whether to consider JPM Coin a “true” cryptocurrency. From what I can tell, JPM Coin is just the unit of account for JP Morgan’s blockchain-based payment network. It doesn’t look like a joke but I’m pretty sure you can’t put JPM Coin in the same class as bitcoin.
JP Morgan will only offer the coin to wholesale clients. It will control the supply and distribution of tokens as well as the associated payment network. It will restrict access to authorized holders who will use JPM Coins to settle international transactions. Holders can redeem their JPM Coins for dollars on-demand, enabling near-instant payments and giving JPM clients access to more of their money at any one time (since less of it will be stuck in transit from one part of the world to another).
Further applications include debt issuance, securities exchanges, and streamlined accounting for businesses that have subsidiaries in countries that use different currencies (all entities can hold JPM Coin as a sort of universal reserve they can draw on-demand, rather than each entity keeping its own stash of local currency).
Essentially, JP Morgan created its own XRP, the token Ripple uses to settle international money transfers.
Hence, may cryptocurrency analysts claim JP Morgan will kill XRP.
I doubt it. JPM Coin validates XRP and Ripple’s value proposition. Ripple’s representatives can walk into any bank and say “we’re JPM Coin but better. Unlike JPM Coin, you don’t need a JP Morgan account. Everybody can use XRP and when you do, you control your money, not JP Morgan. You can even replace your nostro and vostro accounts with XRP. The only thing you get with JP Morgan is peg to USD, but you can use our services to instantly convert your XRP to USD on-demand, any time you want.”
Some think JP Morgan’s actions bring legitimacy to cryptocurrency in the eyes of normal people. Maybe, maybe not. When I talk to people about my book, Consensusland, I’m surprised how many people don’t know how money works and can’t comprehend the notion of using currency that’s not issued by a government. You may think people will say “oh, JP Morgan has cryptocurrency, so cryptocurrency must be legit.” I think you’re more likely to hear “JPM Coin is backed by the U.S. dollar, what’s bitcoin backed by?” or “oh no, JP Morgan uses blockchain not cryptocurrency.”
In other words, a few people will change their opinion on cryptocurrency based on JP Morgan’s new coin but most will not.
Don’t worry about it. There are many people working on cryptocurrency projects that do not depend on JP Morgan’s success. There are many people who believe cryptocurrencies are better than databases for managing digital exchanges between people who don’t know each other, trust each other, or have no common connection. There are many businesses that believe there might be value in having “one true global record” that doesn’t rely on a single person or entity to update. There are many traders who think they can make money from changes in the price of cryptocurrencies. There are many developers who are curious about how far they can take the technology.
You can now count JP Morgan among them.
That may not move cryptocurrency into the mainstream, but it can’t hurt.
Mark Helfman is a cryptocurrency commentator and author of Consensusland, a novel about a country that runs on cryptocurrency.