The United State of America’s largest bank, J.P. Morgan has launched its own bank-backed cryptocurrency. What does this mean for investors and the industry itself?
As major cryptocurrencies like bitcoin continue to fluctuate in value and governments from around the world all work on their own regulatory frameworks, J.P. Morgan has announced that it’s launching the first US bank-backed cryptocurrency called JPM Coin.
The press release states: “The JPM Coin is based on blockchain-based technology enabling the instantaneous transfer of payments between institutional accounts”.
“Exchanging value, such as money, between different parties over a blockchain requires a digital currency, so we created the JPM Coin.”
This new solution will give their bank the ability to transfer money at the same speed as smart contracts, which is essential in today’s fast-moving society.
What makes JPM Coin special?
According to the creators at J.P. Morgan, the new coin is vastly different from other cryptocurrencies as it isn’t collateralised, meaning its value is specific to the coin itself.
Furthermore, the JPM Coin is also uniquely distinguishable from fiat-back Stablecoins, which are reserves kept at banks that have a 1:1 fiat collateral.
However, it’s worth noting that the JPM Coin will only be accessible to institutional customers associated with J.P. Morgan.
“JPM Coin is currently a prototype that will be tested with a small number of J.P. Morgan’s institutional clients, with plans to expand the pilot programme later this year.”
“JPM Coin is currently designed for business-to-business money movement flows, and because we are still in a testing phase, we don’t have plans to make this available to individuals at this stage. That said, the cost-savings and efficiency benefits would extend to the end customers of our institutional clients.”
As the sixth largest bank in the world, J.P. Morgan undoubtedly has a huge opportunity to develop this new coin in a way that regulators prefer. In the long-run, there’s no reason why it can’t help decrease clients’ counter-party and settlement risk, plus reduce capital requirements and allow instant value transfer.
Can J.P. Morgan really call JPM Coin a form of cryptocurrency?
Despite the major coverage of J.P. Morgan’s JPM Coin, there have been a few challenges from top industry experts.
The executive director of Coin Center, Jerry Brito, says 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 also shared a similar opinion, stating that “some might argue JPM Coin already exists and that it’s just a JPM deposit by another name.”
In other words, is it just an alternative internal payments system that has been ‘coined’ as cryptocurrency in a bid to make it appeal to the crypto-community?
It’s an interesting U-turn, after the CEO of J.P. Morgan, Jamie Dimon, made some negative comments about cryptocurrency. Nonetheless, J.P. Morgan has gone on to say that “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.”
So, why has J.P. Morgan suddenly started to back blockchain technology and cryptocurrency now? Have they realised the true potential of this new innovative technology? Is this the dawn of a new attitude on the subject matter from banks? Or is it just a marketing stunt and cash cow exercise? Only time will tell.