JP Morgan creates crypto for international settlements

US bank JP Morgan announced this week that it would be launching its own cryptocurrency, JPM Coin, claiming to be the first US bank to do so. JPM Coin will initially be offered to corporations for  international settlements, and be used to increase the speed at which transactions move. The coin will be issued on the firm’s Quorum blockchain system and then “extended to other platforms”. Its value will be set at $1 per coin.

But JPM Coin lacks the defining features of a cryptocurrency, according to Dr Tom Robinson, cofounder and chief data scientist at cryptocurrency analytics firm Elliptic.

“At first sight [JPM Coin] looks very similar to the ‘stablecoins’ issued by various cryptocurrency exchanges and other entities over the past few years,” said Robinson, in an emailed comment. “However, whereas these stablecoins have been issued on public, permissionless blockchains (bitcoin and ethereum), JPM Coin is issued on its own ‘permissioned’ blockchain, making it questionable whether it can be called a cryptocurrency at all.

“Perhaps the most well-known is Tether, a US dollar backed token issued on the bitcoin and ethereum blockchains. Over $2bn of Tether is in circulation. These stablecoins combine the stability of fiat currency with the easy transferability of cryptocurrencies, proving a hit with crypto-traders looking to transfer funds quickly between exchanges.

“What this means in practice is that while Tether can be held and transferred by anyone, doing so with JPM Coin requires the permission of JP Morgan. Cynics will argue that a blockchain-based system is unnecessary for JP Morgan’s use-case – that it can already quickly and easily move funds between its clients’ accounts. Even if the system was expanded to allow inter-bank payments, centralized systems such as Fedwire already achieve the same thing.”

Umar Farooq, head of digital treasury services and blockchain at JP Morgan, wrote in a statement accompanying JP Morgan’s announcement that the bank believes “JPM Coin can yield significant benefits for blockchain applications by reducing clients’ counterparty and settlement risk, decreasing capital requirements and enabling instant value transfer.”

Farooq added: “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.” JP Morgan CEO Jamie Dimon previously said he “could care less” about bitcoin: “if you’re stupid enough to buy it, you’ll pay the price for it one day,” he stated during a post-earnings conference call in 2017.

“Financial institutions like JP Morgan have rapidly been changing their tune on cryptocurrency – validating crypto where previously the company had publicly dismissed it,” said Matt Hawkins, CEO of cryptocurrency mining software firm Cudo Miner, in an email. “There will be others following in the footsteps of JP Morgan, now that the bank has put the wheels in motion: very few want to lead, but many will be happy to be second.

“This is great public validation for the cryptocurrency industry as a whole, and it’s good to see banks realizing the use-case for crypto in solving backend liquidity problems. 2019 is the year we will begin to see scale in the adoption of cryptocurrency for genuine transactional purposes, and this is one of the many steps to moving away from the legacy banking systems.”

JPM Coin is a prototype and is being tested “with a small number of JP Morgan’s institutional clients,” though the bank plans an expansion of the pilot program 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,” wrote Farooq in an FAQ.

The bank is also running a blockchain payments trial – the Interbank Information Network – alongside Australia-based ANZ and the Royal Bank of Canada, which was kicked off in October 2017.

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