JP Morgan, the largest bank in America and, by some measures, the world, will launch a dollar-backed, blockchain-based digital currency called “JPM Coin” to settle payments between the bank’s clients. According to CNBC, the token will be tested starting in a few months. It would be the first blockchain-based currency created by a major U.S. bank.
This is epochal if complicated news. On the one hand, it is a seemingly ringing endorsement of the underlying blockchain technology’s ability to make global payments fast and inexpensive. On the other hand, it is yet another example of the growing adoption of that technology by players viewed with some hostility by principled crypto advocates, and seems unlikely to advance the sector’s broadly-shared ethos of financial self-determination.
The JP Morgan announcement is particularly ironic in that regard, since the bank’s head, Jamie Dimon, was one of the loudest critical voices bashing bitcoin. He has referred to the original cryptocurrency as a “fraud.” He later attempted to walk those comments back, and emphasized that “blockchain is real.” Then in October of last year, he said “I don’t really give a shit about bitcoin.”
Dimon’s skepticism towards bitcoin seems to be more rooted in worry over government reactions to decentralized cryptocurrency (and perhaps the challenge it represents to his business) than in any substantive critique of its technological or economic foundations. In fact, perhaps the most striking element of CNBC’s report reads: “J.P. Morgan is preparing for a future in which parts of the essential underpinning of global capitalism, from cross-border payments to corporate debt issuance, moves to the blockchain,” and cites smart contracts and growing financial automation as requiring blockchain to work. Though CNBC isn’t specific about its source for those sentiments, they suggest a broad belief within Morgan itself that blockchain and cryptocurrency will become essential to global finance.
What’s less clear is exactly why “JPM Coin” needs to be blockchain-based—or even whether it will be, in any real sense. CNBC writes that “retail investors will probably never get to own a JPM Coin,” and Morgan’s coin will run on Quorum, a private, “permissioned” version of the tech developed by the bank. Morgan’s token will be tested primarily to fuel international payments for large corporate clients, and CNBC says “clients will be issued the coins after depositing dollars at [Morgan]; after using the tokens for a payment or security purchase on the blockchain, the bank destroys the coins and gives clients back” their dollars. Its use will be limited to J.P. Morgan’s institutional customers, and to transactions involving J.P. Morgan and its partners.
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That could easily be accomplished with a centralized database—though a blockchain maintained by multiple parties within a private organization can still provide some security advantages, and it seems likely Morgan aims to expand the JPM Coin ecosystem. There’s also little reason to believe this is a pure hype play by the bank, given how dramatically broader sentiment has turned against cryptocurrency with the deflation of the 2017-2018 crypto bubble.
So, much like Facebook’s accelerating push to develop its own blockchain-based payments system, this appears to be great news for blockchain and cryptocurrency as an industry, but much more ambiguous for the broader goals that drive many in the sector. The very creation of bitcoin, remember, was driven by deep skepticism of banks, bankers, and their relationships with governments. JP Morgan getting onboard with some version of digital currency could help make grassroots cryptocurrencies less scary to the mainstream, but could also siphon attention and energy from the development of a truly alternative system.
In short: Be more wary than excited.