Altcoin News: Is JPMorgan's Coin Serious Competition for Ripple?
February 15, 2019, by Marko Vidrih on ALTCOIN MAGAZINE
Cryptocurrencies in parallel with the blockchain technology are beginning to gradually enter the banking sector. Yesterday it became known that the large American investment bank JPMorgan in the next few months will begin testing its own digital currency — JPM Coin.
JPMorgan makes daily transfers of more than 6 trillion dollars worldwide. It is expected that a small part of settlements between customers of the bank’s payment unit will be carried out using JPM Coin.
The investment bank is gradually creating a foundation for the transition to the future, where all cross-border payments will be carried out using blockchain technology. However, in order for such a future to come, banks must create an appropriate infrastructure that will allow making payments with lightning speed. In such a reality, there will be no room for old technologies, such as electronic money.
In a conversation with the CNBC channel, the head of the blockchain development department at JPMorgan Umar Farooq identified 3 main areas of application of bank tokens: international payments with the ability to instantly make payments that are made between large corporate clients; operations with securities, which will minimize the time lag between the settlement of the transaction and its payment; and the replacement of dollars that are at the disposal of the divisions of corporations that use the services of JPMorgan stores.
“Money sloshes back and forth all over the world in a large enterprise,” Farooq said. “Is there a way to ensure that a subsidiary can represent cash on the balance sheet without having to actually wire it to the unit? That way, they can consolidate their money and probably get better rates for it.”
JPM Coin is a stablecoin provided by the US dollar. Clients will receive this token immediately after the payment of fiat money to the bank. Once all the calculations have been completed successfully, JPMorgan will burn JPM Coin and return the corresponding amount of fiat dollars to the deposit to the owner. According to preliminary data, access to the token can be obtained only by tested large institutional clients, for example, corporations, banks, and broker-dealers.
Faruk also admits that it is likely that in future the bank will be used to perform settlements between devices connected to the Internet:
“But we can talk about this after the application of the blockchain technology is finally tested, and we will be sure that this direction is promising”.
Recall that the head of JPMorgan Jamie Dimon has relatively recently been one of the most ardent opponents of Bitcoin and cryptocurrency. However, he subsequently stated that he regretted the past negative comments about Bitcoin.
Today JPMorgan is not only one of the main supporters of cryptocurrency technologies but is actively involved in the development of this area. A week ago, JPMorgan analyst Nikolaos Panigirtzoglou said that the cryptocurrency market had gone through a “bubble” phase and looked quite reliable.
Is JPM Coin Serious Competition for Ripple?
The launch of JPMorgan, the financial giant’s own digital asset, has sparked fierce discussions in the international crypto sector. Some experts see a great opportunity in this step, other prominent voices such as the CEO of Ripple sees the project is not sustainable.
Already In 2016, four major banks entered into a cooperation agreement to launch the Utility Settlement Coin, a digital asset designed to streamline cross-border transactions, reduce fees and speed up processing of remittances. UBS presented the idea too, among others, Deutsche Bank, Santander and BNY Mellon. NEX, Barclays, CIBC, Credit Suisse, HSBC, and MUFG are also on board. The test phase was already started in the middle of last year, but only a few results have been leaked to daylight.
Ripple boss, Brad Garlinghouse, sees bank-issued digital assets as an unrealistic and misguided solution for the industry. In an article on his LinkedIn profile, Garlinghouse explains why bank-sponsored cryptocurrencies are doomed to failure. Here are two different scenarios conceivable:
“A bank-issued digital asset can only really efficiently settle between the banks who issued it. Then, two scenarios can play out. Scenario one: all banks around the world put aside competitive and geopolitical differences, adopt the same digital asset, agree on its rules, and harmoniously govern its usage. Fat chance. Scenario two (the more likely scenario): banks not in the issuing group issue their own digital assets with their own sets of rules and governance.
We’re kinda seeing this already, as the FT points out, with Citi’s Citicoin and Goldman Sachs’ SETLcoin. The result would be an even more fragmented currency landscape than what we have today. If banks of different digital asset groups want to settle trades with one another, they’ll have to make markets between their unique digital assets or trade between their digital assets and a common fiat currency. What a mess!
The second big problem with the ‘utility settlement coin’ is it seems it’ll be backed by a basket of currencies. Once backed by cash, it’s no longer an asset; it’s a liability. Trading liabilities then ultimately requires moving cash across borders, re-creating today’s system but adding more friction!”
If each bank launches its own digital asset to handle payments across the globe, over time it could create a wealth of new currencies that flood the market. Ripple tries to prevent this and therefore provides an infrastructure that can be used easily and quickly by any financial institution worldwide:
“We strongly believe banks need an independent digital asset to enable truly efficient settlement and we believe XRP is best positioned for that role. It goes back to the fundamentals of what makes digital assets unique and special — they’re universal currencies, meaning anyone can use them as units of value anywhere in the world. That universality gives digital assets global reach and the ability to settle much faster than traditional assets.
Compared head to head with other independent digital assets (like Bitcoin or Ether), XRP settles the most efficiently cross-border, in just seconds. In fact, we’ve run tests with global banks to prove XRP can lower liquidity costs for cross-border trades.”
Author: Marko Vidrih