
JPM Coin Is the Wildest Big Bank Idea in Many Years - adventured
https://www.bloomberg.com/opinion/articles/2019-03-21/jpmorgan-proposes-a-wild-idea-for-crypto-and-banks
======
jasode
If one views blockchain money in the distributed spirit of Bitcoin, the idea
of a _" private cryptocurrency"_ will seem like an oxymoron. If it's a private
blockchain JPM controls, JPM might as well run a traditional database. Yes, I
agree.

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...](https://github.com/jpmorganchase/quorum-
examples/tree/master/examples/7nodes/samples/simple-event)

[1] [https://en.wikipedia.org/wiki/Dark_pool#Broker-dealer-
owned_...](https://en.wikipedia.org/wiki/Dark_pool#Broker-dealer-
owned_dark_pools)

[2]
[https://en.wikipedia.org/wiki/SWIFT_message_types](https://en.wikipedia.org/wiki/SWIFT_message_types)

~~~
briatx
> Maybe it's not the blockchain as storage that matters but the programming
> API

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).

~~~
philwelch
You could implement a compatible API, but it turns out that consistent
distributed payment systems are a hard problem, and blockchains are a solution
to that.

~~~
hobs
It's not a distributed payment system, its a centralized one (owned and
controlled in every way by JP.)

There's no reason to add the problems of distributed data to your payment
systems unless you HAVE to.

~~~
philwelch
There's distributed and there's distributed. Blockchain might be overkill, but
it solves the "JPM's transactional database of financial transactions is down"
problem.

------
helpme3
This is terrifying. If this, and similar ideas, gain adoption, this will
undoubtedly lead to the next financial crisis.

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.

~~~
yingw787
> skirt their fractional reserve requirements.

...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.

~~~
elliekelly
> ...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?

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.

~~~
yingw787
I mean for things like CDs and savings accounts, JPM Coin is irrelevant. I'm
concerned more if JPM decides to use JPM Coin for higher-risk activities. What
happens if they decide they would treat a supply of JPM Coin as a supply of
USD, with the knowledge that if things go south, they could change the value
of the pegged psuedo-currency and get a slap on the wrist?

Every bank could then conceivably be a central bank, except as a central bank
that is profit-driven.

------
hybridsole
Why does JPM Coin need a distributed ledger if it will inevitably have
identity requirements and central control by the bank itself? This is
something like when CompuServe wanted to create their own version of the
internet, and pretend it was still open. No thank you. Bitcoin is both open,
distributed, and has a non-inflationary gold-like token as its underlying
currency.

~~~
gervase
The way I see it, most existing financial transactions are trust- _based_.
Many cryptocurrencies aim to be trustless. I see this as a compromise, with
the visibility and implementability of cryptocurrencies, while still being
trust- _backed_.

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.

~~~
nwah1
One of the main benefits of trust is to be able to rollback transactions. A
warm fuzzy feeling of trust is not what is needed.

This provides the fuzzy feeling without any tangible benefit, and all the of
the downsides of trustlessness.

------
duxup
JPM coin just seems like someone put some money into some blockchain / coin
like projects at JPM and came up with this product as a way to have something
to show for it.

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....

~~~
ackbar03
Lol that's exactly my view as well. They hired some crypto whizkid a while
back who didn't stay long and left, probably just tying up remains of their
project just to have something to show for

~~~
duxup
I know there was talk of a lot of hiring in the financal sector of bitcon
guys, talk of culture mismatches, and folks leaving.... makes you wonder.

------
johnnycab
It seems rather farcical, after Jamie Dimon openly rubbishing cryptocurrency,
we now have another stablecoin competing with Tether.

[https://cointelegraph.com/news/jamie-dimon-comments-on-
bitco...](https://cointelegraph.com/news/jamie-dimon-comments-on-bitcoin-yet-
again-says-he-doesnt-give-a-sht-about-it)

------
currymj
as media luminary Matt Levine has often pointed out, the blockchain doesn't
solve a technological problem in cases like this, it solves a social and
organizational problem.

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.

~~~
shepardrtc
> at a big bank, managing the process of modernizing or replacing legacy
> databases is a very low-status job

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".

------
aphextim
I'll put my money on an actual tech company coordinating with banks rather
than a bank itself for the mere fact that a tech company most likely will know
it better and attempt to do it more securely than outsource consultants to put
it together for me.

IBM's World Wire -
[https://www.youtube.com/watch?v=GtQY8Jfa4NA](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.

~~~
solotronics
I had a realization the other day when I rented a sports car on vacation. In
the future you will just show up to a garage and scan QR code to view and
accept contract for car rental. It would charge you by the minute so you can
drop it off whenever you want. Also, if something came up and you wanted to
leave the car somewhere else or switch cars, the cost to transport the car to
another "share garage" would be easily calculated.

~~~
dmitriid
Car2Go, DriveNow, Sunfleet, countless others have existed for years with more-
or-less literally that model.

------
tyingq
I really don't get the point of a blockchain in these situations where you
start with a hard requirement for a central authority.

What advantage does this offer over a normal database ledger, in this
situation?

~~~
stale2002
Transparency is the big usecase.

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.

~~~
lawn
Which does not need a cryptocurrency.

A public SQL database (which only they can alter) works just as well.

~~~
sjg007
You would still want to gpg sign your withdrawal and deposit transactions. You
would need and want to audit for fraud etc... control the key server, manage
write/update operations etc... At this point you've basically written a block
chain

~~~
bduerst
Which can also be done by adding an extra layer to a public SQL database.

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.

~~~
stale2002
What if I were to tell you that Git is a Blockchain? Would you think that Git
is useless, and should just be a SQL database?

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.

~~~
bduerst
I would say that you are diving into the semantics of the word _blockchain_ in
an attempt to redefine the word to fit this project.

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?

~~~
stale2002
My point is that a public append only database (AKA, a Blockchain) is useful
for a whole lot of things, in a whole lot of different usecases.

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).

------
abakker
I wrote this a while ago when this was first mentioned:

“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.

------
lifeisstillgood
So, do I read this right?

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.

~~~
weedking
The transition between chains will happen via blockchain middleware like
Chainlink.

------
BubRoss
I actually thought this was always going to happen, I just didn't know which
bank would do it first, and I'm surprised it is a bigger bank.

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.

~~~
cremp
> use all the deposits for fractional reserve banking

They already do, and it's supposed to be limited per law, it's called the
leverage ratio.

~~~
BubRoss
Yes, that is the point I was making and why I pointed out that they only have
to keep 10% on hand. Once the coin is connected to fractional reserve banking
the same way deposits are, the path to monetization becomes much more clear.

------
sidlls
Other than the ceremony around the tech how is this much different from the
practice of banks issuing their own notes that was the norm forever?

------
cwkoss
This is just self-issued credit which can be transacted on the blockchain.
That a mega-bank would want to issue credit in a novel way should not be
surprising to anyone. This plan is essentially "digital IOUs with blockchain
record-keeping". I'm not sure how they will entice consumers, but seems like a
good play for JPM if they can get people using it.

------
buckthundaz
Is it? Citi had started one in July 2015 [0]

[0] [https://blockmanity.com/news/citicoin-in-the-dump-as-citi-
gr...](https://blockmanity.com/news/citicoin-in-the-dump-as-citi-group-scraps-
their-cryptocurrency/)

------
tantalor
From the article:

> 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?

~~~
csomar
It's an unsecured deposit. lol.

------
nfriedly
Mr. Robot really was a dramatized version of real life.

