JPM Coin Is the Wildest Big Bank Idea in Many Years
bloomberg.com
bloomberg.com
But setting that aside, here's my best guess at what JPM is trying to do: Maybe it's not the blockchain as storage that matters but the programming API that their institutional customers can use for transferring money between accounts.
Maybe instead of thinking of JPM's blockchain as a broken version of Bitcoin's ideals for public money creation, JPM's main use is to let the big customers move money on their own -- using a forked version of Ethereum (called Quorum). Some of JPM's code examples on github.[0]
There are pre-existing places where JPM customers can move financial instruments. Their dark pool exchange called JPMX is one example.[1] JPM's customers can trade stocks there outside of NASDAQ/NYSE.
But what about cash instead of stocks? I think that's what JPMCoin tries to be. Yes, their's already the SWIFT network[2] for wire transfers but I don't think banks want to expose that to account holders to the same flexible degree that the Quorum programming language would allow.
So, JP Morgan wants to enable their customers to instantly transfer money with their other customers without the legacy of SWIFT messages. For obvious reasons, they won't use the PayPal API, or the Stripe API. Instead, they use a flavor of the Ethereum API to let their customers execute "programmable money".
The real Ethereum is too volatile for business-to-business money transfers. But with JP Morgan's financial backing to reliably convert JPMCoin to $USD, that would instill confidence for account holders to use it.
In my opinion, JPMCoin isn't that revolutionary since it's only intended for their big institutional customers. Time will tell if their customers will adopt it or ignore it.
[0] https://github.com/jpmorganchase/quorum-examples/tree/master...
[1] https://en.wikipedia.org/wiki/Dark_pool#Broker-dealer-owned_...
The general public's trust in JPMorgan is probably higher than their trust in any crypto company that has yet to exist for an entire decade.
JPMorgan - and other banks - have a huge incentive to run their own "stablecoin" creation/redemption business, because it can in some ways allow them to skirt their reserve requirements, while also possibly netting them a tiny operating profit if they sell newly-minted JPMC above the price they redeem them for (leading to profit on the spread).
It's handled by CENTRE who's founding members are Circle and Coinbase.. but the network will grow to include any compliant banking institution.
> because it can in some ways allow them to skirt their reserve requirements
It can do what now??
> and other banks - have a huge incentive to run their own "stablecoin"
Every bank can release their own version of Paypal too. Why would the network effect of JPMC overtake USDC when any regulated bank can become a USDC issuer? USDC is sitting at a 255MM market cap.
There is one sense in which a private cryptocurrency could be tremendously useful: a currency with a ledger maintained by a TTP but where transactions were authorized with proper digital signatures would be both more efficient and much more resistant to fraud than any other current (no pun intended) method of transferring money.
I think people don't want other people to know their balance, but remember, Uncle Sam prints the money, so he gets what he wants.
I do think we'll move to a cashless society exactly for this reason. It might be blockchain based. But I'm skeptical it will be a utopian move where we can all inspect the chain and verify no one is cheating.
I am pretty sure in the future the IRS will have the ability to know the details of every USD denominated transaction. Even still, I'm skeptical this will do much to stop tax evasion and fraud.
Whether or not such a system exists is mostly orthogonal to the question of whether or not cash exists. Cash can be eliminated whether or not it's replaced with a reasonable alternative, and the reasonable alternative can exist without eliminating cash. The nightmare scenario is the elimination of cash, and replacing it with an insecure, inefficient system run by a bunch of rent-seeking oligarchs. (Sadly, that outcome also seems to be the most likely in the U.S.)
But then how do you order them to know which one came first. What if two transactions come at the same time? Let's split them into chunks that will be added every X minutes.
And how do you make sure that the chunks aren't messed with/reordered/whatever? Let's make each chunk reference the previous one through a hash.
Oh wait.
With both a private blockchain and a signed transaction log you have to rely on the tx log/blockchain being published so that third parties can verify that all updates are consistent.
Maybe it is?
You don't need the batching mechanism quite so badly and ACID databases have a pretty good track record at establishing a trustworthy ordering of events.
If the system allows customers to verify the ledger it makes compromising the system much harder.
Even if that was true, you could easily implement a compatible API that doesn't use a blockchain under the hood, especially seeing as it is centralized by JPM.
I see this as JPM just trying to ride the hype wave, and as a contingency if blockchains go mainstream (spoiler: they won't).
There's no reason to add the problems of distributed data to your payment systems unless you HAVE to.
The benefits of private transactions without notifying the processor (and circumventing financial regulation, or at least delaying it), is immediately obvious. It's a distributed payment system. The control you mention, is subjective.
That's what we need to do business here on earth, not volatile currencies lead by shady entities.
From my understanding, JPMC wants to issue a new coin and make the market for that coin by buying the coin for $1. Then, they plan to use this coin for it's normal banking tasks, such as lending money, except they would use JPM Coins instead of dollars. By using this coin, they would be able to skirt their fractional reserve requirements. Of course, this coin only has value because of trust in JPMC. If this trust or breached, or if external economic events cause a large amount of JPM Coin to be sold, then this will effectively be a run on JPMC. Given JPMC's size and importance in the marketplace, the aftermath would not be pretty.
...wait you can just do that? Just declare a "thing" to equivalent but not identical by reference to a dollar and go around laws using dollars because you technically aren't using the dollar?
Yeah that's terrifying.
Yes, they're basically taking dollars out of demand deposit accounts and putting them into brokerage accounts. Demand deposit accounts are liquid, guaranteed with FDIC insurance, and the account holder is entitled to the funds at any time. JPM Coin is theoretically liquid and "guaranteed" by JPM in the form of a promise to purchase it for at least $1 (up until they can't of course) but from the article it seems the funds won't be immediately available to account holders:
> Purchases and redemptions may not always be immediate, but once converted to JPMCoin, transfers should be quick and error-free.
The benefit of JPM Coin for JPM is a quicker/cheaper way to facilitate transfers between and among their various legal entities while also reducing the bank entity's total deposits (which in turn reduces the bank's capital and reserve requirements).
The benefit of JPM Coin for JPM customers on the other hand, is not immediately obvious to me.
Every bank could then conceivably be a central bank, except as a central bank that is profit-driven.
Except they're not doing anything of the sort. They've created a stablecoin backed by their balance sheet. They plan to use it for reducing the friction on payments and payment like processes.
That's it pretty much. TBH if JPM were going to attempt a major violation of their regulatory constraints, I'd expect them not to publish it on their website.
And it is. Until it isn't.
Think like Disney bucks, but a larger scale.
I would not trust JPMC but fiat money (dollars, euros, etc) only has value because of trust in governments.
"Fiat" is latin for "because I said so". I'm only half joking.
That's not really true. the value of a currency comes from what you can do with it. E.g. I think $20k is a lot of money because I know it is enough to buy a car. That has nothing to do with the government, only the market.
From JPMorgan’s Q&A on JPM Coin [0]:
> 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. 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.
[0] https://www.jpmorgan.com/global/news/digital-coin-payments
Is there any visibility/transparency on how JPM might change the terms of issuance in the future? If not, then the expected value of 1 JPM coin going forward doesn't always match the current face value of 1 JPM coin/1 U.S. dollar, no?
I'm interested to know what percentage in fees/opportunity costs JPM saves when shaving off settlement times by using JPM Coin; if it's the big real reason behind its conception or if there are other plans.
This way, if there is a problem with a transaction, or the currency, etc. there is someone left holding the bag, which is a better fit with the existing legal infrastructures that are already in place.
I'm actually pretty surprised that this is coming from a corporation, and not a national government. SWIFT can be an absolute bear, and providing a programmable currency interface à la Stripe, but with lower fees and the full backing of a government could be a killer app for international trade facilitation.
This provides the fuzzy feeling without any tangible benefit, and all the of the downsides of trustlessness.
One of the issues with concurrency is the assumption that the transaction is between two non trusting parties (obviously it doesn't have to be that way). Most business don't want to / don't do business if they don't trust each other... and if they do trust then there are other ways to do business.
Not sure if this JPM coin addresses that exactly, but it is kind of interesting.
Also, any international benefit is just temporary arbitrage. The increased costs associated with international transactions comes from the high risk, which will inevitably catch up to any system that becomes popular.
Source: We used to accept bitcoin(via bitay).
The failure modes of DLT are going to be interesting. But the currency risk is far lower than with regular bitcoin since it's not an independent currency but is pegged to the dollar.
Well, there are lots of reasons why this is useful. The biggest reason, IMO, is that it allows customers who use it, to transparently see the ledger. This reduces (but does not entirely get rid of!) trust requirements. That's useful, in and of itself.
I'm not really sure if the resulting product is really the result of some big idea, or just an amalgam of things / ideas put together in a way JPM finds acceptable, even if to show something for their own work.
This is a weird situation where I can't tell if this is just some wonky homognized or otherwise last ditch effort idea that isn't anything, or is super complex and really a big idea....
https://cointelegraph.com/news/jamie-dimon-comments-on-bitco...
at a big bank, managing the process of modernizing or replacing legacy databases is a very low-status job. on the other hand, pioneering a new initiative with distributed ledger technology is much higher status.
Its also incredibly high-risk, so it generally doesn't happen. They'll keep ancient software running as long as they can until they need to switch over to something new. So, yes, you're right, they use separate, new initiatives with newer tech to essentially do "upgrades".
IBM's World Wire - https://www.youtube.com/watch?v=GtQY8Jfa4NA
Also full disclosure I have been buying a little bit of stellar here and there since it was less than 2 cents, before IBM even partnered with Stellar. Now IBM attempting to coordinate many banks worldwide to be able to transfer money seamlessly.
I'm still waiting for the day we get payed per minute our salary and have to manage cash flows rather than balances.
Banks basically are tech companies these days. I'd put JPMC's development capabilities over and above IBM's any day, and their domain knowledge much higher.
(Disclaimer - I've worked for both, but obviously speak for neither)
https://99bitcoins.com/jpmorgan-ceo-jamie-dimon-says-bitcoin...
IBM is a technology company that wishes it wasn't involved in technology any more. They want to be a business services company, and that's where they make a lot of their money. The tech side is old, mostly using out of date working practices, creating software slowly and (IMHO) badly.
JPMC are a huge bank and will do anything that makes money.
But OTOH - so what if he thinks BTC is a huge fraud? That doesn't stop them using a blockchain in a different way, does it?
What advantage does this offer over a normal database ledger, in this situation?
All a crypto currency is, is a public append only database. There is no need to overcomplicate this.
There are lots and lots of reasons why a transparent append only database could be useful.
A public SQL database (which only they can alter) works just as well.
It becomes a blockchain when JPM allows third-party, anonymous actors to mine the blocks and take control of the network, which JPM is certainly not going to do.
A Blockchain is just a public append only database that multiple people have a copy of.
Despite people incorrectly thinking that this I'd a break concept, lots of things in the world follow this pattern, and it has been useful for a very long time.
The method of "commiting" things to a Blockchain have nothing to do with proof of work, or mining or whatever. You can "commit" things to Blockchains in many different ways.
GitHub, for example, allows owners of a repository to designate specific users with the permissions to "commit" code to their repo/Blockchain (which just happens to represent source controlled code, in their case).
But there could be lots of ways of determining what is the next block in that Blockchain.
If we're talking semantics now: Do people think, 'Oh, that's a blockchain!' when they think about Git? Is JPM building a new code repository?
And just because JPM isn't following the exact same formula that other people are following, doesn't mean that an append only public database is useless to them.
Lots of people have used append only public databases for all sorts of things, for decades. (My example being Git).
To give another example, Git arguably a Blockchain. (Public append only database, that everyone has a copy of).
Are you going to argue that Git is useless? It is exactly the same as any other Blockchain.
If not, this is just a database transaction with bells and whistles.
No
> Are they really allowing third parties to mine blocks outside of their own servers?
No
> If not, this is just a database transaction with bells and whistles
Bitcoin is just a database txn with bells and whistles.
JPM are making use of the time ordering immutability aspects of "traditional" blockchain tech. They're using normal distributed consensus on that because they don't need to solve the Byzantine Generals problem. They also have split public and private portions of the txns. They don't distribute the latter. I doubt even the public parts are distributed to non-participating parties (except maybe regulators) but I haven't looked that hard at it.
All seems reasonable to me. And sure one could build time ordered immutability with Paxos consensus on top of an Oracle DB but why would you? It's not a particularly relational problem and a chunk of it already exists in open source. Which is presumably why they built on top of go-ethereum.
“JP Morgan says that it is trialling crypto-currency and blockchain in order to speed up payment transfers, as well as reducing clients' counterparty and settlement risk, and decreasing capital requirements.” Is a pretty frightening thing to read. Specifically, the way that sentence reads, JP Morgan would be issuing coins to reduce capital requirements…which means either:
The journalist is confused, and they are using blockchain to speed up payment speeds which reduces risk, and the lower risk is what reduces capital requirement. in essence, faster transactions and settlement allows lower leverage/short term borrowing and therefore a slightly reduced capital buffer.
They are issuing the coin as a security, which means the coin is actually raising capital. And so the sentence should say it reduces other capital requirements.
They are issue the coin as “corporate points” which are redeemable for money from JPM, but which others cannot actually treat like capital. I.e. If I end up with a bunch of JPM coins on my balance sheet, I would treat them as an non-interest-bearing debt instrument? Kind of?
I guess it isn’t clear yet, but I presume that these will only be used over short settlement times to facilitate easy transfer but there will be some kind of real money settle up at some point? Holding someone else’s non-interest-bearing loan certificate doesn’t sound that attractive in the long term. But, presumably #1/3 are the likely options because #3 means no new capital is actually generated, and #1 means that it is really transaction speed arbitrage.
JPM issues a coin for every dollar it holds of client money - presumably to the client who has to have a wallet. Clients can then move that money to other JPM accounts using the blockchain transfers. As long as they somehow remove a coin from the chain when client walks out of the bank with it, then what we get is ...
Bank Of America and Deutsche can issue BoACoin and DBCoin doing exactly the same thing, and then those coins, all being worth $1 and on the (an) blockchain can be transferred between BoA and JPM.
So we get trusted third parties asserting that a coin is actually real fiat money, and then actual workable cryptocurrency. It seems ... credible.
My concerns are what ensures that BoA and JPM dont issue coins for the same dollar (ie how does JPM revoke a coin)
I would be interested in any feedback - if I understand this right, it might be time to look into github for the python client wrappers again.
Think about what a bank account is. You give up your money for a voucher and the bank keeps a ledger of all transactions. Turning it into a token that you can exchange for dollars really isn't that much of a stretch.
They now have a 'currency' of sorts where they get to use all the deposits for fractional reserve banking, keeping only 10% available at any one time. Money out into this token is basically free money to lend out, just as bank deposits are. The difference here is that the liquidity is higher, since they don't need to use it through the traditional banking system.
I would expect it to have some traction with business and internationally.
They already do, and it's supposed to be limited per law, it's called the leverage ratio.
[0] https://blockmanity.com/news/citicoin-in-the-dump-as-citi-gr...
> JPM coin... are unsecured promises by a bank to give you dollars
From JPM:
> JPM coin... represent United States Dollars held in designated accounts at JPMorgan Chase
So, is it secured by deposits or not?