JPM Coin Is a Blockchain for Settlements, Not a CryptoCoin

JPMorgan - JPM Coin Is a Blockchain for Settlements, Not a CryptoCoin

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The collapse of bitcoin is now over a year old, so why not use it to cast fear, uncertainty and doubt (FUD) over the latest blockchain experiment by JPMorgan Chase (NYSE:JPM)?

Source: Shutterstock

What the crypto lovers and rival banks want you to believe is that JPMorgan, once the scourge of the cryptocurrency market, now has its own crypto. It’s called JPM Coin, and the bank’s rivals wasted no time throwing cold water on the whole idea. 

Famed cryptocoin hater Nouriel Roubini also called JPM Coin “a joke.” If this were, indeed, a cryptocoin launch, it would be a joke.

But it’s not. It’s an experiment in using blockchain — one that’s far more dangerous to the bank’s rivals than to JPMorgan, or the financial system.

How JPM Coin Works

The bank’s chair of global research, Joyce Chang, telegraphed the move a few weeks ago, saying blockchain technology will have a real impact on trade finance within a few years.

The JPM Coin is built on Quorum, a blockchain originally created for the Ethereum (ETH) coin. The effort is based on an experiment Singapore launched two years ago, with JPMorgan’s cooperation, dubbed Project Ubin.

The goal is to create real-time gross settlement (RTGS) on trades.

Instead of making a trade by running several transactions through a central bank, Quorum converts the value of a trade into JPM Coin, at 1 coin to the dollar, and places that trade on its encrypted general ledger, which is held by the bank. The other party then does a transaction on the same encrypted ledger to take possession of the coins and convert them back into dollars. 

Both parties to the transaction must be authorized by JPMorgan, through Quorum’s permissioning layer, and the JPM Coin doesn’t trade — it merely stands-in for real currency in the blockchain.

Settlement Costs

Every small merchant knows about settlements and how much it costs.

If you sell me a doughnut, my money doesn’t go directly to you. It goes through a settlement process, which costs both time and serious money. My doughnut cash may take days to get to your doughnut shop bank account, during which time the transaction processor can hold the money and profit. The processor also takes out a transaction fee and a “discount” — based on the risk of the transaction blowing up. On Square (NASDAQ:SQ), for instance, this comes to 2.75%. I pay you $1 for a donut today, and you get about 97 cents next week.

JPMorgan’s effort isn’t for donut shops. It’s for big traders, for whom settlement fees are a huge cost of doing business, like Signature Bank (NASDAQ:SBNY), which has been using a similar system for over a month.

Brad Garlinghouse, CEO of Ripple (XRP), a publicly-traded “stablecoin,” also pegged to the U.S. dollar, insists that JPM Coin “misses the point” of crypto, pointing to a 2016 piece he wrote on LinkedIn attacking such “settlement coins.” 

But the fact that it’s not crypto is a feature, not a bug.

The Bottom Line on JPM Stock

Transferring funds and settling trades, whether for a tanker full of oil or a tasty doughnut, may be the biggest profit center in international banking.

In settlements banks routinely take on both currency risk and the chance a trade may blow up. They figure their computers are working hard for the money.

The JPM Coin blockchain won’t stop the settlement profit train all by itself, or right away. It’s designed for big players only, trustworthy counterparties looking to save billions in costs over the course of a year, not 3 cents on a donut.

But it’s a step in that direction, which is why everyone who’s not on the JPM blockchain is attacking it.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in JPM.


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