On February 14, 2019, Wall Street bank J.P.
Morgan announced the launch of a blockchain-powered digital currency called JPM Coin, which is pegged to the US dollar.
What Is JPM Coin?
In a press release, Umar Farooq, Head of Digital Treasury Services and Blockchain at J.P.
Morgan, defined the JPM coin as “a digital coin designed to make instantaneous payments using blockchain technology.”
Through the use of blockchain technology, the JPM Coin is designed to enable the fast transfer of value between parties that hold accounts in the bank.
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The JPM Coin is a stablecoin pegged 1:1 to the US dollar.
“Exchanging value, such as money, between different parties over a blockchain requires a digital currency, so we created the JPM Coin,” Farooq added.
While JPM has revealed that the coin is still at the prototype stage, the bank was able to successfully execute a transfer between a client’s account and a J.P.
Morgan account using the digital coin. JPM Coin runs on the Quorum Blockchain. Quorum is J.P.
Morgan’s internally developed blockchain ledger based on the Ethereum network.
It is important to note that the bank plans to extend the JPM Coin beyond the Quorum blockchain. The coin should be able to operate on other blockchain networks.
Similarly, there are plans to extend the fiat currency support to other currencies beyond the US dollar.
The JPM coin is currently only available to a select few of the bank’s institutional clients as it is still in the pilot stage.
However, as explained in the press release, Farooq maintains that while private individuals are not able to access the services currently, they will likely still benefit from the coin.
“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,” he stated.
How Does It Work?
The JPM coin acts a settlement layer between J.P. Morgan and its clients. To start the process, a J.P.
Morgan client sends funds to a pre-specified account, after which the client receives the same amount in JPM coins. Once clients receive their JPM coins, they can then use these digital tokens to facilitate transactions over the Quorum blockchain.
To finalize the process, a recipient of JPM coins is able to redeem them for US dollars at the nearest bank branch.
Because these transactions happen over a blockchain network, there are significant cost saving advantages in comparison to traditionally processed transactions, plus much faster settlement speeds.
How Can You Buy it?
The JPM coin runs on a privately commissioned blockchain and is currently only available to a small number of institutional clients at the multi-national bank.
It is, therefore, not possible to buy JPM Coin on a digital asset exchange as you normally would for blockchain-based digital currencies.
However, the bank has intimated that it has plans to expand the reach of the coin.
Hence, it may be possible to access the coin if you have an account at the bank in the future. However, there are no plans to provide support for OTC trading for JPM Coin.
Additionally, if you are looking to purchase the JPM coin as an investment, you need to be aware of the fact that it is a dollar-backed stablecoin.
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A coin that is pegged to a fiat currency does not experience any of the fluctuations seen within the digital currency market. Its value is always tied to the value of the fiat currency backing it, which, in this case, is the US dollar.
Buying the JPM Coin would be the same as placing your funds in US dollars.
Hence, unless you would like to place your funds into a tokenized form of the US dollar that is centrally issued and controlled by one entity, there is no reason to want to purchase this coin.
Is JPM Coin Necessary?
Following the announcement by J.P.
Morgan, many within the digital currency community ruminated over the features of the stablecoin and whether it is indeed a cryptocurrency.
By their own admission, J.P. Morgan states:
“The JPM Coin isn’t money per se.
It is a digital coin representing United States Dollars held in designated accounts at JPMorgan Chase N.A. In short, a JPM Coin always has a value equivalent to one U.S.
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Due to its private and commissioned nature, as well as the fact the transactions are verified by the bank, many within the community are of the opinion that the JPM coin does not fit the criteria of a cryptocurrency.
Additionally, there are questions regarding whether the coin is a necessity because banks already process payments in a similar manner.
Martin Walker, Director for Banking and Finance at the Center for Evidence-Based Management and Head of Product Management, Securities Finance and Collateral Management at Broadridge Skeptics, says:
“Fundamentally, for firms to make payments to each other instantly when they share the same bank and the same currency there is absolutely no need to use blockchain.
There are no technical, credit or liquidity implications [of such payments]. Many banks do it already.”
Conversely, some believe that JPM Coin is the answer to the SWIFT payment system, featuring much faster settlement times, smaller costs as well as reduced error margins.
While the bitcoin community may not take kindly to a bank-issued blockchain-based digital currency, the launch of JPM Coin marks a milestone for blockchain technology adoption in the financial industry.
This is a development that we are almost guaranteed to see more of in the future.
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