One of the world’s biggest bank has launched a prototype of a USD pegged stablecoin that runs on a private blockchain forked from ethereum, Quorum.
“The JPM Coin isn’t money per se. It is a digital coin representing United States Dollars held in designated accounts at JPMorgan Chase N.A.,” says Umar Farooq, head of Digital Treasury Services at JP Morgan, adding:
“In short, a JPM Coin always has a value equivalent to one U.S. dollar. When one client sends money to another over the blockchain, JPM Coins are transferred and instantaneously redeemed for the equivalent amount of U.S. dollars, reducing the typical settlement time.”
Making this Tether or USDC, but while everyone can verify blockchain balances even for Tether, here access is limited to only institutional customers, such as banks, broker dealers and corporations.
The way this works is somewhat simple. An account manager at the institution gives JP Morgan dollars, they receive 1:1 JPM Coins, the account manager can now send them to whoever they want within the Quorum private blockchain, whoever receives them can now give them back to JP Morgan and receive dollars.
That’s a bit how fiat started. Our grandfathers would give gold to the bank and receive a paper token that said how much gold they had at the bank. They could then give this paper token to whoever, with the receiver eventually redeeming it for actual gold if they wished.
Gradually that 1:1 became 0.70 to 1, then 0.30 to 1, and finally in the 70s it was no longer redeemable for gold at all. Fiat itself became “money.”
This money had no competition until bitcoin launched amidst a banking collapse last decade. The act itself was technically illegal and Satoshi Nakamoto, bitcoin’s inventor, had good reason to fear imprisonment. Thus he never revealed his identity, which remains unknown.
New Money, Same Old Banks
The invention is a work of genius because it transforms accounting fundamentally by automating it. That, and the fact some from the centre-right like the idea of competing money, led to a seismic political shift in 2014 when the then British Prime Minister David Cameron and Chancellor George Osborn very publicly backed this space.
A former JP Morgan executive then started talking about the blockchain, with awareness growing somewhat exponentially to culminate in a price frenzy at the end of 2017.
During that period Jamie Dimon, the CEO of JP Morgan, bashed cryptos a number of times. They lost the debate, however, as Nakamoto’s checkmate was way too fine.
This move now implicitly acknowledges a structural change in the matter of money. JPM coin can be redeemable for dollars for now, but everyone knows the tiniest bank run might mean it isn’t redeemable.
So everyone might now wonder if JPM can launch its own token, why shouldn’t all in a free market competition for the best money that holds its value in the short and long term in an algorithmic manner that can’t be gamed by Dimon, Fed Chairman Powell, or Trump.
In short, cryptocurrencies have upgraded from a geeks’ toy to the dawn of a new era in finance that in about a decade may well transform everything as something very new begins: a free market race to find or create the best money.