Yesterday, global investment bank J.P. Morgan announced the creation and testing of its own cryptocurrency for facilitating payments among its institutional clients. The cryptocurrency called JPM coin will be based on a J. P. Morgan’s permissioned version of Ethereum called Quorum and be backed 1-to-1 by fiat currencies (initially, the U. S. dollar).
As described in the in-depth interview with the bank’s head of Digital Treasury Services and Blockchain Umar Farooq, clients will be able to deposit dollars with J. P. Morgan, receive JPM Coins, use them for making payments to other clients or redeem them back into dollars if they wish to do so. Farooq malso mentioned that while the coin will initially run on Quorum, in the future, it is supposed to be operable on all standard blockchain platforms.
This development was, of course, widely reported by the crypto and mainstream media. Writing for Barrons, Ben Walsh went so far as to claim that the arrival of JPM Coin was ominous for permissionless blockchains with their anarcho-capitalist disintermediate-everything ethos. His core point is that, instead of blockchain technology removing the intermediaries, massive intermediaries like J. P. Morgan can leverage it to strengthen their position.
It is true that the most optimistic blockchain proponents were probably wrong to believe that it will ultimately disintermediate everything or even sectors such as finance, and J. P. Morgan’s blockchain project is good evidence of this. However, commentators like Walsh are probably mistaken that this means no prospects for permissionless blockchains or that the libertarian vision of society necessarily implies the absence of intermediaries.
As concerns the prospects of public blockchains, Andrew Keys from Consensys made an astute observation that Internet also started out as a collection of highly-segmented internal networks but later on, the benefits of true interconnectedness outweighed the risks. The same may well occur in the blockchain space. Major companies like J. P. Morgan may begin by building their own permissioned networks, while the public blockchain ecosystem matures, and then switch to it when time is ripe.
With regard to the libertarian vision of society that arguably inspired the creation of blockchain technology, it does not actually have to oppose the existence of intermediaries, even large ones like J. P. Morgan. It is intrinsically hostile to intermediaries only where their continued existence is artificially maintained by government regulations, as in the case of taxi monopolies.
All that, commentators like Gerelyn Terzo are probably right to draw attention to the threat JPM Coin and potential similar initiatives may pose to the currently third largest cryptocurrency by market capitalization, Ripple’s XRP. Even if XRP turns out to be necessary for the best use of Ripple’s ledger tech, the broad client base of J. P. Morgan, as well as its coin’s compatibility with different blockchain platforms and the fact that the coin will be backed by fiat currency on the giant global bank’s accounts may make its payment facilitation services superior to Ripple. It may even be argued that the promise of J. P. Morgan’s approach has already been demonstrated by a smaller competitor Signature Bank and its Signet platform.
However, it has to be noted that at the time of writing, XRP markets have not demonstrated any major XRP investor anxiety with regard to JPM Coin.