JPMorgan has a new cryptocurrency running on its blockchain
by Alberto Cellini on ALTCOIN MAGAZINE
Let’s count the mistakes in this sentence
Recently CNBC has released the news that JPMorgan is about to launch its own cryptocurrency making a lot of noise.
In this article I want to explore what this means, who are the winners and losers and whether it’s the case to call it a breakthrough or not.
First of all: what are we talking about?
JPMorgan is one of the major bank and financial services providers in the world, with a portfolio of clients that counts more than the 80% of the companies in the Fortune500. Under its wholesale payment services it clears and settles currencies, shares and derivatives for $5 Trillion a day across 120 currencies (source: latest JPM Annual Report). In comparison Fedwire, the alternative FED controlled domestic large-value fund transfer system, moves $2.8 Trillion a day.
JPMorgan is currently one of the most reliable service provider in the financial world and its network is one of the most trusted. It partners with a large number of intermediaries such as broker dealers, derivative dealers and clearinghouses that require a portion of the funds moved at any payment settled. In other words, moving money through JPMorgan is quite expensive, involves too many intermediaries and the settlement must go via an old and controversial network like the SWIFT.
The background
JPMorgan itself recognizes the limitations of this system and is now proposing an alternative to its clients. It knows that its strong position in the market could grant a serious first mover advantage.
JPMorgan has been working few years now to the development of its own permissioned blockchain, Quorum. Quorum is a DLT based on Ethereum that differs from it by few key elements:
1. The permission to run a node for example is not open, but only the internal pre-authorized JPMorgan network is granted access;
2. The possibility to hold private transactions not exposed to a public ledger;
3. A more agile consensus mechanism called QuorumChain that brings the TPS to 100 against the 20 of Ethereum (but the 1,500 of Ripple).
Calling this “a blockchain” might make tech purists jump on their chair! Especially if we compared to Ethereum, born from opposite principles and raised to be very distant to this vision. A comparable project can be considered XRP, that shares the same institutional orientation and the simple settlement purposes, but not its economic system.
The news
JPM is now launching a JPM Coin on top of this DLT, a settlement instrument for its wholesale business. Umar Farooq, the director of blockchain projects indicated it as the “payment leg for the wholesale transactions” that allows to settle payments without wire transfers from accounts.
JPM Coin is a stablecoin backed by USD. Clients that want to use it must deposit dollars upfront in their bank accounts. Of course, to open a bank account at JPM customers need to go through a KYC and AML procedures therefore each JPM Coin holder must be compliant.
So, where is the breakthrough?
Well, conceptually there isn’t any. Quorum is not a blockchain and JPM Coin is not a currency, nor a proper stablecoin. Quorum it’s a closed distributed network and JPM Coin is the digital representation of a right to redeem USD at JPMorgan, therefore are an instrument to reduce settlement time and fees.
JPM is betting that this new service will open the road to a reorganization of the current payment system and a shift from wire transfers to a different solution. Last but not least, we have to remember that banks like JPMorgan are there to make money and create innovation while doing it, not the other way around: the promise of quicker, cheaper payments will likely bring more customers open accounts at JPMorgan.
If there is a breakthrough, that would be that a major institution has publicly and volunteerly associated its name to cryptocurrencies, a bold initiative that is now awaiting for a second mover.
Why did this make so much noise?
This is not a new idea. A similar solution has been proposed with the Utility Settlement Coin (USC) already quite a bit of time ago by a consortium of banks for the same purpose. This makes me think that the reason why this news made so much noise is primarily because of the hostile words towards Bitcoin an cryptocurrencies pronounced by the JPMorgan’s CEO Jamie Dimon. He first called Bitcoin a fraud and then later this year added that he “couldn’t care less about crypto” — in less elegant words.
Reactions to the JPM Coin
Nouriel Roubini aka Dr. Doom, the professor that predicted the 2008 financial crisis and fierce opponent of cryptocurrencies tweeted that “calling JPM Coin a crypto is a joke”, and I couldn’t agree more. JPMCoin misses the culture and the most basic concepts that brought cryptocurrencies to us: trustless network, decentalized consensus and open surce!
Ripple’s CEO Brad Garlinghouse said that JPM Coin “misses the point of crypto”. Again, I agree. But I also feel that he might be quite afraid of this move. JPM becomes now a competitor of its Ripple network an most importantly does it with an instrument that differently from XRP is stable because backed by USD and by one of the most trusted institutions in the world.
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