An article in Barron’s written by Ben Walsh on Valentine’s Day is titled “JPMorgan Just Killed the Bitcoin Dream”.
JPMorgan Chase has announced an altcoin, a stable coin, for use by institutional customers. It will be tethered to the US dollar.
This development is the first such stable coin issued by a US bank. So that is noteworthy. And no doubt it will be useful in expediting transactions for corporate clients. But this is no Valentine’s Day Massacre of cryptocurrencies, no murder of Bitcoin, with its $63 billion market cap.
The major use cases envisioned are (1) securities settlement, (2) international payments processing, and (3) cash management for corporate subsidiaries. It is designed to increase speed and efficiency for these cases, and add flexibility in the cash management case.
Bitcoin does not put faith and trust in JPMorgan, the trust comes from the mining process. In that process, hashing algorithms encapsulate value and security, as transactions in validated blocks. These blocks are widely decentralized and replicated across the Internet.
Bitcoin already allows anyone, retail users as well as corporate clients, to send value across the globe in an hour or less, with fees less than a dollar. The Lightning Network second layer to Bitcoin allows even the tiniest transactions at extremely low cost.
So why use or trust JPMorgan’s coin? After all they have paid over $29 billion in fines and penalties for banking violations since 2000. It seems unlikely that the JPM coin would ever reach even that total valuation, since it is created and then destroyed after transactions have completed.
Retail users won’t have access to the JPMcoin. Actually if they want a dollar-tethered stable coin, there are already a slew of alternative coins for that, today. Perhaps in some distant future, JPMorgan would consider entering the retail stablecoin space.
Certainly for some corporate customers there will be a degree of convenience and familiarity with their existing banking relationship. And banking is ultimately all about trust.
In the immediate term, this coin might be a significant competitor to Ripple and its XRP, another centralized altcoin that has found traction in the international banking payments market. XRP is the third most valuable by market cap, after Bitcoin and Ethereum.
Bitcoin will be around at least until 2140, when the new coins issued as mining rewards have stopped, and after that it will be solely supported by transaction fees in what is already a trillion dollar economy, and growing. We cannot be as certain about the longevity of JPM’s new coin.
A privately issued stablecoin is nothing like Bitcoin. Let’s check in on Valentine’s Day 2020.
Stephen Perrenod has lived and worked in Asia, the US, and Europe and possesses business experience across all major geographies in the Asia-Pacific region. He specializes in corporate strategy for market expansion, and cryptocurrency/blockchain on a deep foundation of high performance computing (HPC), cloud computing and big data. He is a prolific blogger and author of a book on cosmology.