When you are in the business of digital asset tools, people approach you with any questions about cryptocurrencies. On the day of JPM’s coin announcement, my phone would not stop ringing. To my surprise, there are varying levels of understanding of the JPM coin, and here is my attempt to demystify it.
I got too many phone calls asking about cryptocurrencies and how to invest in one. I could only talk about what cryptocurrencies are. I can’t comment on how and when to buy, as I am not a qualified financial advisor. I was intrigued by how the biggest bank in America legitimized cryptocurrencies. Suddenly people began to believe in Bitcoin. Many declared that current gains in Bitcoin prices are a consequence of JPM announcement. I don’t know for sure if that is accurate, but I am sure about something — JPM coin is not a general purpose cryptocurrency like Bitcoin.
So what is it then? JPM coin is a digital currency which is built using Blockchain — only similarity with Bitcoin. However, unlike Bitcoin blockchain, JPM blockchain is private. Each coin is equivalent to 1 US dollar which makes it a stable coin and JPM promises this. So for every JPM coin, there is 1 US dollar in JPM reserves. So in a nutshell, JPM owns and controls the blockchain, controls the reserves backing the value of these coins, and only they can redeem these coins back to US dollar — welcome to banking 2.0!
JPM intends to use this coin for processing fund transfers and payments for their corporate clients. They want to use blockchain for instantaneous payments although it is not clear what the cost of such transactions would be.
JPM’s CEO slammed Bitcoin calling it a scam while JPM is now saying they always believed in Blockchain technology as long as they are regulated. I am not sure how JPM coin is going to be regulated but indeed controlled by the bank. For many of us, cryptocurrency was all about building an open financial system. The whole point of a trustless distributed ledger was not to have a middle man dictating terms. We have to wait for JPM coin to evolve as it is only in a prototype right now. We are still to see the usage — although to be used only by JPM’s institutional customers.
Let us agree to stop calling JPM coin a cryptocurrency. It is merely a privately held and controlled digital currency for a private purpose. Given that, I am not sure if the JPM coin announcement had anything to do with Bitcoin gains last week.