Ordinary Stablecoin or XRP Killer? What We Know About JPMorgan Chase’s New Cryptocurrency

The article was updated on Feb. 20 to include a new comment.

On Feb. 14, United States banking behemoth JPMorgan Chase announced its own cryptocurrency. Significantly, it is the first time a major U.S. bank has tapped into digital assets for direct use in business operations.

It is fair to say that move comes unexpectedly for JPMorgan Chase, whose CEO, Jamie Dimon, is famous within the crypto community for his anti-Bitcoin (BTC) remarks. Here are the main outtakes from reports and comments about the new virtual currency, dubbed “JPM Coin.”

JPM Coin aims to increase settlement efficiency, initially within three of its operations

There are three early applications for the JPM Coin, as Umar Farooq, head of the lender's blockchain projects, told CNBC.

The first one is cross-border payments for large corporate clients, which currently rely on wire transfers provided by networks like SWIFT, meaning that they might take up to several working days to settle. According to Farooq, payments using JPM Coin will be instantly performed at any time of day.

As a result, SWIFT, which currently handles more than half of all high-value, cross-border payments, might be additionally challenged to update its remittance system. The 46-year-old Belgium-based interbank messaging service has already been confronted by Ripple (XRP), whose CEO, Brad Garlinghouse, had recently declared that “what we are doing on a day-to-day basis is in fact taking over SWIFT.” Ripple has reported various advancements on the field of international payments, allegedly saving transaction costs by 40-70 percent with its xRapid platform and adding several major banking institutions to its RippleNet network.  

SWIFT, in turn, has already started researching blockchain as one of the options to achieve quicker payments. Additionally, it has been boosting its Global Payments Innovation (GPI) payments platform — just recently, the banking network launched a proof-of-concept (PoC) of a gateway that would allow blockchain software firm R3 to connect to the GPI.

Secondly, JPM Coin will reportedly be used for securities transactions. In April, the bank tested its Quorum Blockchain platform, along with with the National Bank of Canada and other lending sector participants. The intent was to streamline origination, settlement and interest rate payments, among other financial processes.

Specifically, as Reuters wrote, the trial “mirrored the Canadian bank’s $150 million offering on the same day of a one-year floating-rate Yankee certificate of deposit.” Thus, institutional investors can use the JPM Coin for instant settlements, as opposed to waiting for a wire transfer to come through.

JPMorgan Chase created Quorum in 2016 as part of the Ethereum Enterprise Alliance (EEA), of which it is one of the founding partners. The platforms runs on the Ethereum (ETH) blockchain and is modeled after the Ethereum Go client. It is currently used by pharmaceutical companies Pfizer and Genentech as well as Microsoft Azure, among others. In March, JPMorgan Chase declared that they were considering making Quorum an independent entity as way to attract more partners that could be scared off if they are competitors of the bank.

Finally, the new cryptocurrency might be employed by large corporations including Honeywell International and Facebook, which will reportedly use JPMorgan Chase's treasury services business to replace the funds they hold in various subsidiaries across the world. According to CNBC, that businesses brought the lender $9 billion in revenue in 2018. Farooq explained in a comment:

"Money sloshes back and forth all over the world in a large enterprise. 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."

The trials for the token are set to start “in a few months.” However, only a small amount of the total funds involved in the three aforementioned areas would involve JPM Coin at first. In total, JPMorgan Chase moves more than $6 trillion across the world on a daily basis, according to CNBC. It is the largest bank in the country.  As Farooq told:

“Pretty much every big corporation is our client, and most of the major banks in the world are too. Even if this was limited to JPM clients at the institutional level, it shouldn't hold us back.”

He also added that, in the future, the lender’s token could be used for payments on internet-connected devices if they are migrates to blockchain. Overall, the JPM representative seemed enthusiastic about the technology’s perspectives at the bank.

“So anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction.The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this.”

JPM Coin resembles a stablecoin — which falls in line with a general trend

According to the CNBC report, JPM Coins are pegged to U.S. dollars so that its value stays stable — technically, that makes the new token a stablecoin, at least in its initial form.

Clients will reportedly be issued the coins after depositing dollars at JPMorgan Chase. After the tokens are used for a payment or security purchase on the blockchain, the lender will allegedly destroy them and give clients an equivalent amount of fiat in return.

Overall, stablecoins had a great year in 2018, becoming a growing trend among the market’s most compliance-oriented players. For instance, Goldman Sachs-backed startup Circle launched its USD Coin (USDC) in collaboration with major U.S. crypto exchange Coinbase, and the Winklevoss twins presented their own stablecoin dubbed the Gemini dollar after receiving the regulatory green light from the New York Department of Financial Services (NYDFS).

JPM Coin will run on Quorum, the bank’s private ETH blockchain

According to an FAQ released by JPM on the same day CNBC broke the news, its token will initially be powered by the aforementioned Quorum blockchain (which is permissioned, or, in other words, private), but will also become applicable to “all standard blockchain networks” in the future.

“The JPM Coin will be issued on Quorum Blockchain and subsequently extended to other platforms. JPM Coin will be operable on all standard Blockchain networks,” the guide says.

Based on that, Jerry Brito, executive director at Coin Center, a nonprofit research and advocacy center focused on cryptocurrencies and blockchain, told MarketWatch that JPM merely launched an in-house payments system rather than an actual cryptocurrency:

“There’s a lot of confusion. [...] I see folks referring to it as a cryptocurrency. It’s not a cryptocurrency. A cryptocurrency is one that is open and permissionless. If you want to download it, you don’t need permission, you just need some software.”

Further, JPM Coin will eventually expand its role beyond being a stablecoin, as per the FAQ:

“Over time, JPM Coin will be extended to other major currencies. The product and technology capabilities are currency agnostic.”

As for now, the token is designed to be used by JPM’s institutional clients only.

Michael Dowling, CEO and founder of FairX, a financial services company involved with banking and cryptocurrencies, and former chief technology officer at IBM’s blockchain division, told Cointelegraph that JPM Coin is “no different/better than any other stablecoin issued by a fintech rather than a bank.”

Dowling argues that JPMorgan Chase’s new digital asset has not been approved as a value transfer instrument by the Office of the Controller of the Currency (OCC), the bank’s chief regulator. Further, he stresses that it is only usable within JPMorgan Chase's “little walled garden,” and has allegedly been tested with just one client.

“My guess is this is JPM poking the regulatory bears,” Dowling added.

The bank’s CEO, Jamie Dimon, might be anti-Bitcoin, but he is also pro-blockchain

JPMorgan Chase became notorious among cryptocurrency participants in 2017, when its CEO, Jamie Dimon, openly called Bitcoin a “fraud.” In 2018, Dimon reterierted his position by saying that he doesn’t “really give a s---” about Bitcoin.

However, at the 2019 World Economic Forum in Davos, when the JPMorgan Chase CEO was asked if he took any satisfaction when the cryptocurrency plunged last year, he replied negatively and followed with positive comments about the technology that backs it.

Specifically, Dimon noted that he is pro-blockchain, despite the excessive hype around the technology. In his view, blockchain is a better replacement for certain online databases:

“Blockchain is a real technology — it’s just a database we can all access that’s kept up-to-date.”

Indeed, the banking giant has been researching blockchain since 2016, when Quorum’s white paper was first published.

The announcement has received mixed reaction from the community

Changpeng Zhao, the CEO of Binance, greeted the first U.S. banking cryptocurrency, referencing Mahatma Ghandi’s "first they ignore you, then they laugh at you, then they fight you, then you win” alleged quote:

First they ..., then they ..., then they..., then you win!Welcome to the real world, JPM! https://t.co/RH7LwWPCSi

— CZ Binance (@cz_binance) February 14, 2019

Cointelegraph has reached out to Ripple for an additional comment on the matter. In response, the Ripple team sent the link to the tweet of their CEO Brad Garlinghouse, who, in turn, criticized the concept of bank-issued digital coins (which he calls “bank coins”) and JPM Coin specifically, citing its centralized structure:

As predicted, banks are changing their tune on crypto. But this JPM project misses the point – introducing a closed network today is like launching AOL after Netscape’s IPO. 2 years later, and bank coins still aren’t the answer https://t.co/39EAiSJwAz https://t.co/e7t7iz7h21

— Brad Garlinghouse (@bgarlinghouse) February 14, 2019

Notably, two years ago, Garlinghouse wrote an article in which he argued that such projects — where bank remittances are performed using unique digital tokens — are misguided and would inevitably result in “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!”

However, some community members seem more confident about JPM Coin, suggesting that the new token is capable of achieving widespread use, and hence might overtake Ripple in the future. Multicoin Capital partner Tushar Jain wrote:

Banks were obviously never going to use XRP for settlements and enrich Ripple Inc (who owns more than half of all XRP). They would rather enrich themselves instead!Kudos to JPM for being first. They are going to wipe the floor with Ripple. https://t.co/Jkfkvr7BnE

— Tushar Jain (@TusharJain_) February 14, 2019

Bloomberg business editor Joe Weisenthal expressed a somewhat similar viewpoint:

If it turns out that the Blockchain/Coin framework turns out to be a good one for banks transferring money around, then the JPM Coin should absolutely obliterate Ripple

— Joe Weisenthal (@TheStalwart) February 14, 2019

While it might be too early to tell whether JPM Coin will be transferred to public blockchains and gain wider recognition among crypto market participants, some seem perplexed by its current capabilities. Thus, Nathaniel Popper, author of the book “Digital Gold, a History of Bitcoin,” tweeted:

The JPM Coin makes it possible to move dollars between JPMorgan bank accounts instantly. That raises the question: Why was it not already possible to move dollars between two JPMorgan bank accounts instantly?

— Nathaniel Popper (@nathanielpopper) February 14, 2019