Help Me Understand This: The JPMorgan JPM Coin

by: John Lohr
Summary

Does it herald the future of blockchain, or the death of cryptocurrencies?

This must be the reason why Jamie Dimon backpedaled on his trashing of bitcoin.  He didn't want to taint the concept of blockchain.

Common crooks won't be able to use it, only the biggest corporate crooks can.  It's not for you and me.

So, the demon basher of bitcoin, Jamie Dimon, announced yesterday that his company, JPMorgan is launching a cryptocurrency of its own—the JPM coin. Here’s what I know:

What is it?

It’s a digital currency.

Like bitcoin?

Just the opposite.

How so?

Bitcoin is can be purchased by retail consumers, so it is available for public investment on a public blockchain.

JPM coin is only allowed to be used by pre-approved big corporate customers who are permissioned users, and JPMorgan’s clients. Only institutional customers complying with anti-money-laundering and know-your-customer rules can participate.

So, I can’t buy one?

No.

Bitcoin went up (and then down ) a zillion percent. People got rich (and some got poor). Won’t the JPM coin do the same?

No, it is a stable coin, fixed at $1.00 and backed by JPMorgan’s $2.6 trillions. No wild price volatility.

What exchange is it on?

None. It operates on JPMorgan’s own coin ledger, and can’t be moved off that ledger.

So, why would those anointed as permissioned big business use this?

Speed. Dizzying speed in processing payments among customers. JPMorgan’s head of blockchain technology, Umar Farood, said the current method of money transfer is the wire transfer, which has deadlines and could take even days to settle. Now transfers will happen almost instantly.

How does it work?

Say, you’re the big bull-moose company and get qualified. You have big money in JPMorgan and want to pay Yoyodyne Industries (also a Morgan client). You use your dollars to get issued JPM coins for a payment or security purchase on the blockchain. Transaction happens, the bank destroys the coins and gives clients back a commensurate number of dollars.

How does JPMorgan make money?

A charge for the service.

Is that such a big deal to JP Morgan?

JPMorgan says it provides banking services for about 80 percent of Fortune 500 companies. "Pretty much every big corporation is our client, and most of the major banks in the world are, too," Farooq said in an interview. They have a wholesale payment business that moves $6 Trillion ($6,000,000,000,000) per day among customers.

Finally, something new from banks, right?

Well, look at 1990 and businesses calling for intranet and extranet communications networks. The basic concept of blockchain is not so new; this is just bigger in scope.

Still, this will really change the financial world, won’t it?

Not really. Because a big US bank is running the system, it does not have the radical cryptocurrency characteristics that made them popular to users and abusers, which was freedom from regulatory oversight. You don’t get much more federally regulated than banks, do you?

So, that’s what I know. There are cryptocurrency and blockchain lovers and haters out there. What am I missing?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: For a serious or not so serious discussion of what's happening in the securities world, see John Lohr's somebodyelsesmoney.com. For a deep dive into fiduciary and regulatory issue for Advisors, see his Marketplace series, THE FIDUCIARY SALE here on SA.