J.P. Morgan has created and successfully tested a digital coin representing a fiat currency — the US dollar. The blockchain-based JPM Coin enables the instantaneous transfer of payments between institutional accounts.
Umar Farooq, head Digital Treasury Services and Blockchain at J.P. Morgan, said:
“JPM Coin is a digital coin designed to make instantaneous payments using blockchain technology. Exchanging value, such as money, between different parties over a blockchain requires a digital currency, so we created the JPM Coin.”
The JPM Coin will first be issued on the Quorum blockchain, J.P. Morgan’s enterprise version of Ethereum. According to J.P. Morgan, “Quorum is ideal for any application requiring high speed and high throughput processing of private transactionswithin a permissioned group of known participants.and subsequently extended to other platforms.”
The JPM Coin is a stablecoin pegged to the US dollar. Over time, J.P. Morgan plans to extend JPM Coin to other major currencies.
CNBC notes that this is the first real-world use of a digital coin by a major U.S. bank. J.P. Morgan, which moves more than $6 trillion around the world every day, “is preparing for a future in which parts of the essential underpinning of global capitalism, from cross-border payments to corporate debt issuance, move to the blockchain.”
It seems that this move by one of the top financial players in the world represents a boost for cryptocurrencies. As reported by CNBC, Farooq emphasized that:
“Pretty much every big corporation is our client, and most of the major banks in the world are, too.”
Not so fast.
While it seems evident that blockchain technology is able to streamline the mainstream financial system, replacing obsolete legacy systems with better alternatives, I wish to point out the obvious: The JPM Coin is not a cryptocurrency. J.P. Morgan says:
“[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.
“[The JPM Coin is permissioned] (i.e., enterprise grade secure blockchain solutions built by J.P. Morgan and/or partners). Only institutional customers passing J.P. Morgan KYC can transact with these coins.”
These statements negate the very defining features of cryptocurrencies. Real cryptocurrencies are permissionless, open to anyone, work around regulatory oversight, and allow anonymous use just like cash. Real cryptocurrencies are digital cash that can be exchanged anonymously through the internet. Period.
It’s important to make a strong distinction between blockchain technology and cryptocurrencies. Blockchain technology is neutral, and can be used for all purposes, from empowering individuals to reinforcing state control. But cryptocurrencies are meant to protect individuals from state control.
So, kudos to J.P. Morgan — a more efficient mainstream financial system would be cool. But J.P. Morgan’s move has nothing to do with real cryptocurrencies like Bitcoin and Ethereum, which were created as decentralised, privacy-friendly alternatives to the mainstream financial system.
Picture from Wikimedia Commons.