JP Morgan Chase, the largest bank in the United States and the sixth largest in the world, announced the plans to launch JPM Coin last week which will be the first cryptocurrency created by a major U.S. bank. JPM Coin is a digital asset that represents the USD held by the bank and each JPM Coin is redeemable for $1 USD. This digitized token will be used to settle payments and transactions for JPM’s institutional clients over the blockchain. Speaking to BlockPublisher, founder of Signal Profits, Mark Moss points out that JPM Coin fits the bill as per the definition of cryptocurrencies. He said;
Technically speaking, JPM coin “IS” a cryptocurrency as it fits the definition. However this brings us to a better conversation as to what are the differences of major cryptocurrencies and JPM coin.
A cryptocurrency by definition, means an asset or sum of value that is maintained cryptographically (encrypted) over the blockchain. Blockchain is a digital ledger that records each and every asset detail and transaction in an intangible space where everything exists digitally, is secured through encryption and is visible to everybody. Cryptocurrencies are the most inherent use cases of blockchain, as a combination of cryptos and blockchain represents a fair and transparent financial system.
If JPM Coin is a cryptocurrency, it is the first-of-its-kind interest by a U.S. bank to make a move in the crypto space. If it is not, it may be an attempt to redefine the true ideology of bitcoin and other cryptocurrencies.
JPM Coin lacks the most essential element that all traditional “cryptocurrencies” cater to, which is decentralization. Decentralization refers to a complete disassociation of any third party entity to monitor, influence or carry out transactions between two parties. This property has been the basis of cryptos since the inception of bitcoin and it pertains to a degree of transparency all cryptocurrency transactions ensure.
JPM Coin operates under the influence of JP Morgan Chase itself and any transactions that take place with it are sanctioned by the bank. It operates privately and uses blockchain only to transfer and record transactions over it. It does not mimic the operation of bitcoin or ethereum by operating on a public network. To join the JPM Coin blockchain (called Quorum), user permission is required to be granted by the bank.
This is in contrast to normal crypto operation, which takes place as a shared ledger where anyone can join. Moss further stated;
“The big difference is that Bitcoin and Ethereum are “Open and Trustless” networks meaning everyone can see the code and the transactions so there is no need to “Trust” the network as its visible and open for everyone to see that there is no manipulation going on. They are also “permission less” meaning anyone can join the network and participate.”
Then why call it a cryptocurrency when it is just another banking scheme only with blockchain as its underlying aspect? JP Morgan chief, Jamie Dimon criticized bitcoin in 2017, labeling it as “fraud” and “stupid” and now has gone on to extract an important idea out of it, the blockchain technology. He has cleverly separated cryptocurrencies and blockchain and has tried to merge blockchain over the traditional banking system. He would do that, just to validate his stance that JP Morgan gave cryptos consideration and took from it the only viable entity, the blockchain. Such an attempt would further instigate banking authority to the public as these institutions could then start to sell the concept of an institution-backed cryptocurrency. The JPM Coin is an example of such an asset.
Lizzie Parmentar, consultant for Pelicoin in the Middle East agreed to the notion that financial institutions are only keen on making blockchain-based tokens, instead of exploring the decentralized structure of them. She told BlockPublisher:
Use of JPM Coin requires approval from JP Morgan, making it just a new form of digital currency backed by a traditional institution. Although financial institutions are developing blockchain-based digital tokens, they will likely remain reluctant to open up to truly decentralized currencies.
If more banks follow suit to JPM, it is to be felt that institutionalized blockchain tokens will become a rather more common form of payment and transaction in the near future. While it may not make much of a difference at the user end of things as it does not tap any decentralization and transparency, it may just begin yet another era of financial domination by institutions like JP Morgan Chase.