JP Morgan’s announcement on Valentine’s Day that it plans to launch a digital coin, dubbed JPM Coin, designed to make instantaneous payments using blockchain technology, may have been the perfect love gift to the cryptocurrency space.
Aside from throwing a lifeline to a market that was in dire need of self-assurance, what made it more remarkable was it came from an institution whose head, Jamie Dimon, had expressed very scathing sentiments against the leading cryptocurrency in the market. The CEO had in 2018 described bitcoin as a fraud that is worse than tulip bulbs. Although he later said he regretted making the statement and apologised, the market effect has not been forgotten.
It is therefore not surprising that hours after the announcement, prices of major cryptocurrencies began to inch up. The price of bitcoin went up by hundreds of dollars and other leading cryptocurrencies including Ethereum and EOS, experienced significant gains. Total market capitalisation rose by more than 4 per cent from $121 billion to $126 billion, with overall volume increasing more than 30 per cent.
In Nigeria, local cryptocurrency platforms like Luno saw price surges trading as high N1.410 million on Tuesday afternoon compared with about N1.2 million in early January.
Below are some of the things to know about the JPM Coin.
It is unlike any normal cryptocurrency.
Umar Farooq, JP Morgan’s head of Digital Treasury Services and Blockchain explains in a blog post that JPM Coin is a digital coin representing US dollars held in designated accounts at JPMorgan Chase N.A.
The JPM Coin will have a value equivalent to one US dollar. When a client of the bank sends money to another client over the blockchain, JPM Coins are transferred and instantaneously for the equivalent amount of US dollars, reducing the typical settlement time. Unlike normal cryptocurrencies, JPM Coin is not as volatile as normal cryptocurrencies like bitcoin. In that respect it appears similar to a stablecoin but JP Morgan insists it is not.
The JPM Coin will be used in international payments involving large corporate clients, securities transactions and for larger corporations that use JP Morgan’s treasury services business to replace dollars held in subsidiaries and could perhaps be used for payments on internet-connected devices. Once transfers are completed, the coins can be converted back to dollars.
It should be noted that experts at Forbes have argued that the JPM Coin may not be a cryptocurrency in the broader sense rather just a digital currency. Madhvi Mavadiya a contributor in Forbes points out that, if JP Morgan’s new coin operates privately and is only used for money transfers between the lender and its clients, it would not operate on a public network in the same way that cryptocurrencies such as bitcoin or Ethereum do.
“Cryptocurrencies operate on public networks that anyone can join without permission and while in this case, it means that the many computers working together on the shared ledger is said to improve security (cites a recent Motherboard article), JPM coin will run on a blockchain network called Quorum which requires permissions and users must be approved by JP Morgan.”
Farooq explained in the FAQ released by JP Morgan that the Quorum run is for the short term. The long term plan is to extend the coin to other platforms. Similarly, JPM Coin will not be exclusive to the dollar in the long term.
“Over time, JPM Coin will be extended to other major currencies,” says Farooq. “The product and technology capabilities are currency agnostic.”
JPM Coin will be first real world application of blockchain in banking.
It is also the biggest move yet into the sector by an American bank. Goldman Sachs which once led the cryptocurrency adoption charge had in September 2018 ditched its ambitions of opening a desk for trading cryptocurrencies over unclear regulatory framework.
“At this point, we have not reached a conclusion on the scope of our digital asset offering,” Michael DuVally, spokeperson for Goldman Sachs said in an interview.
JP Morgan may be the first in the US banking system but it would likely find company elsewhere in Europe. The New York Times reports that a consortium of European banks is finalising a similar product, Utility Settlement Coin that would make it possible to move money between banks more quickly.
However, the possibility of more banks releasing their own coins in the long term could be dependent on how JP Morgan’s clients embrace the coin.
