JPM Coin a significant step for fintech
Recently, JP Morgan introduced its own cryptocurrency, JPM Coin. This is big news for the fintech and cryptocurrency community because it showcases how mainstream players are experimenting with the technology.
In order to understand what this could mean it’s important to understand where we are and where we’re going. The technology isn’t mature enough for large-scale global use and so we’re seeing growth in more localised and private use by companies like JP Morgan. It’s kind of like the days of the internet’s infancy when intranets were all the rage.
Back in the 1990s, the internet was rather immature. You would “dial up” using a horrendously slow connection commenced by a complex beep-bloop, whuur sequence of sounds. A webpage and its images would load, line by line down the page taking long enough you could make a coffee in the meantime.
The internet in those days was effective for sharing basic information but if you wanted to share more complex information, say within a company or within your home, you relied on a much faster local network called an intranet.
An intranet is a network of computers connected similarly to the way computers are on the internet, however they’re connected in a closed private network usually controlled by a company or household. This is different from the internet where computers are connected in an open public network distributed among many companies.
In the early days of the internet, the technology simply wasn’t mature enough for people to use it to share things the way we do today. We take services like Dropbox for granted as they allow us to mass-share documents and files over the internet and in many cases we’ve forgotten about the older forms of intranet storage. Yet, in those early days they were essential.
Intranets played an important role in getting us where we are today. It taught people and companies how to connect to a network, share knowledge and exchange information. They changed how we thought about computers and opened people’s minds to thinking of devices as gateways to a larger network rather than just a stand-alone device.
Public blockchains like Ethereum are like the early internet, they’re simply not fast enough or mature enough to handle most of today’s work loads. So, companies like JP Morgan are exploring the option of leveraging a special version of Ethereum called Quorum that can be run privately by JP Morgan and among its customers to experiment with. These private versions of blockchain technology are similar to early intranets in that they are local to the company.
It may well be that we will see the emergence of private blockchains like that which JP Morgan is employing, acting similarly to early intranets that were later connected to the larger internet. In the same way intranets played an important role in teaching people about the possibilities of networking technology, these sorts of private experiments can showcase what will be possible on a larger global scale in the future.
As the technology evolves and becomes more mature we may see whole new approaches for global commerce become unlocked, particularly where global transfers of wealth, not only in the form of currencies but also assets, take place via public blockchains, while much of the localised management takes place with corporations like JP Morgan who run their own private version.
In terms of early applications of the technology, JP Morgan’s is a good example. Though they call it a “cryptocurrency”, the reality is more nuanced than that. Really, in this case, it is more of the application of a token on top of a private distributed ledger network acting as an accounting mechanism. It isn’t a replacement for actual money, it’s a more efficient means of tracking who owns what and where.
JP Morgan sees three potential immediate use cases for JPM Coin. The first is for international payments similar to wire transfers to reduce settlement times so that payments can happen in real time at any time of day. The second is to provide faster settlement of payments for securities like bond offerings. The third is to allow global subsidiaries of companies to represent cash on their balance sheets without having to continually wire money around the world.
Now you might be thinking: isn’t Jamie Dimon the CEO of JP Morgan and didn’t he famously declare bitcoin a fraud back in 2017? Well, yes he did. But for those who weren’t paying attention, he and his managers have consistently said that blockchain, as well as digital currencies that were regulated, hold promise. While he may not be a fan of the bitcoin global cryptocurrency, he and his company have invested considerably in exploring the technology that powers it.
This is a nuance that many have not appreciated. This technology holds a lot of promise for providing greater traceability and transparency in processes today, where it is lacking and reducing the burdens of regulations rather than simply eliminating them. Indeed, JP Morgan has made it clear in their JPM Coin that “Only institutional customers passing JP Morgan KYC can transact with these coins”. Thus JP Morgan is exploring how these technologies can be used to both better address regulatory constraints as well as provide improvements over existing financial technology.
This lends itself well to Bermuda’s positioning in this space. Bermuda is setting itself apart by combining our world-renowned reputation for transparency and the highest standards of global regulatory compliance with a leading path to regulatory certainty, by providing specific laws and guidelines that companies can follow.
This, as opposed to the approach taken by other jurisdictions that want to provide guidance through court cases. The challenge of doing business under that approach is that even if you do everything right, you may still wind up spending time in court defending your decisions rather than being focused on building your business.
Companies looking to Bermuda are keen to be able to demonstrate to their customers that they are adhering to high regulatory standards that ensure their customer’s money is well protected. This has considerable value for companies that want to clearly demonstrate that they are nothing like bad actors like QuadrigaCX where the founder died and was the only one who held the keys to much of the company’s $150 million in customer assets.
Thus, Bermuda is best placed to advance the pace of the digitisation of global commerce as modern technology is applied to the highly regulated world of finance. As we see more companies like JP Morgan experiment with the technology, we will see overall growth and capabilities, that previously haven’t been thought of, emerge.
•Denis Pitcher is a Bermudian tech entrepreneur with an interest in exploring the potential of blockchain and distributed ledger technologies for Bermuda. He is a fintech consultant to the Bermuda Government’s fintech Business Unit as well as a tech cofounder and chief architect of resQwest.com, a global tourism technology solutions provider. He can be reached at firstname.lastname@example.org