When JP Morgan, the largest bank in the world by market capitalization, announced that it was launching the ‘JPM Coin,’ the news was met by speculators and HODLers alike with great furor. It seemed as if Jamie Dimon, CEO of JP Morgan and avid crypto critic, who had slammed the asset class countless times in the past, had finally caved in and bought into the ideology. The one thought running across everyone’s minds was ‘Surely this signified the mainstream adoption of cryptocurrency by financial institutions across the globe.’
However, once further details emerged about the true nature of the coin, the initial ecstasy died down and was replaced by the question, ‘Can this coin even be classified as a true cryptocurrency?’
The JPM Coin
JP Morgan introduced the coin on Valentine’s day, 2019, but ironically enough, showed no love for the crypto industry whatsoever. Umar Farooq, Head of JP Mogan’s blockchain projects declared it a bid to replace transactions taking place on the old system of wire transfers with smart contracts on a distributed ledger using blockchain technology. However, according to Forbes, the JPM Coin will be issued on a private blockchain network called Quorum and be used to facilitate transfers between the company and its clients. All users and permissions operating on this network must be mandatorily approved by JP Morgan. However, according to sources within JP Morgan itself, the JPM Coin will eventually be operable on all standard Blockchain networks.
Additionally, it is important to note that each coin has a value equal to that of one US dollar and can be readily converted to the same. Hence, if that is the case, the coin can neither be classified as a true cryptocurrency or a stablecoin. It can be simply labeled as a digital token which can be used to facilitate international transactions for large clients. Its further uses may include facilities to companies that use JP Morgan’s treasury services business and could perhaps even be used for payments on various mobile and laptop devices for various clients.
Mainstream utility of crypto
The JPM Coin has been successfully tested and measures are being undertaken to extend its use to other currencies as well, so as to operate on a global scale. JP Morgan believes that the coin can yield significant benefits by reducing counter-party and settlement risk of its clients, and lead to decreasing capital requirements while enabling the instant transfer of value.
However, the company has no plans yet of extending the service to retail and individual customers in these early stages. Hence, it is safe to conclude that big banks are still miles away from formally adopting blockchain technology for everyday use and for their customers on every level.
In fact, Citigroup’s attempt into the space ended abruptly with the “Citicoin” project never even being formally announced even as a proof of concept. In fact, according to CoinDesk, Gulru Atak, Citi’s innovation lab chief, global head of innovation for treasury and trade solutions, the bank had instead decided to make meaningful improvements within the existing rails and considering tying up with fintech and regulatory bodies as well as SWIFT.
It is important to note that Citigroup has been looking for ways to integrate legacy systems, and launched CitiConnect in 2017. This was designed to streamline payments around private securities and has parallels with the JPM Coin. While no coins or tokens were issued by CitiConnect, the infrastructure used for the project was similar to issuing coins on a blockchain-based platform. Furthermore, Citi also continues to explore the use of blockchain technology in areas such as trade finance and letters of credit.
Global conglomerate HSBC too has made headways in the space. In January 2019, The bank announced that it had settled $250 billion of foreign exchange trades using a blockchain network over the past year. As a real-time, highly encrypted system, integrating this technology could help banks not only reduce the cost related to processing payments but also generate new revenue streams for institutions by creating a new variety of blockchain-based products and services.
With all the various tie ups-with the technology taking place, there is still some hope for the future of blockchain-based technology being utilized by financial institutions around the world. However, these are merely taking place on a small scale and in niche areas, and the technology has many issues to address. Banks are skeptical to operate via decentralized networks and are working towards more permissioned based systems. Additionally, critics have often panned it for its regulatory issues, scalability, real-world applications and the lack of accountability.
Hence, it is safe to conclude that while blockchain technology could have a significant impact on financial institutions, it has many kinks to sort out and a long way to go before it can truly be adopted for mainstream use.
Read more from the same author: How blockchain technology can improve the banking industry?
Can blockchain technology revolutionize the banking and financial industry? Will it truly ever be adopted by institutions around the world? Please let us know your thoughts and views on the subject in the comments section below.
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Finance student who has a keen interest in securities markets and new technologies.