JP Morgan Chase Will Create Its Own Digital Coins For Blockchain Payments Network

Blockchain, FinTech, Innovation, Investing, News, Regulation | February 14, 2019 By:

JPMorgan Chase & Co plans to launch the JPM Coin, the financial giant said, allowing customers to use it for instant transfer of payments over a blockchain network.

The move by JPMorgan Chase is a crucial step for Wall Street into cryptocurrencies by the largest US Bank by assets. JP Morgan customers will deposit fiat to obtain the coins, which can be used for transaction over a JPMorgan proprietary network with other clients.

The stablecoin can be redeemed for US $1, the bank said. Transfers on JPM Coins will instanteously be redeemed, according to JPMorgan.

In May of last year, JPMorgan Chase applied for a patent to use blockchain technology for the reconciliation and facilitation of financial transactions between banks.In a patent application published by the US Patent and Trademark Office, JPMorgan said it was seeking to use distributed ledgers to keep track of payments that are sent between banks using a peer-to-peer (P2P) network. The technology would provide “a unique system for recording transactions and storing data.”

“In one embodiment, a method for processing network payments using a distributed ledger may include: (1) a payment originator initiating a payment instruction to a payment beneficiary; (2) a payment originator bank posting and committing the payment instruction to a distributed ledger on a peer-to-peer network; (3) the payment beneficiary bank posting and committing the payment instruction to the distributed ledger on a peer-to-peer network; and (4) the payment originator bank validating and processing the payment through a payment originator bank internal system and debiting an originator account,” the filing said.

The patent also criticizes the existing systems in which banks move money around the world, calling the status quo slow and expensive.

“For a cross-border payment to be made from a payment organization to a payment beneficiary, a number of messages must be sent between the banks and clearing houses involved in processing the transaction,” the filing said. “This often results in a slow transaction, as there may be delays in service due to correspondent banking, messaging networks, and clearing intermediaries in the payment flow. The transaction may also be expensive, as there are duplicative reconciliation and reporting costs across participants and within banks to enable transparency and payment tracking.”

That JPMorgan Chase is a first-mover into cryptocurrency is somewhat ironic.  CEO Jamie Dimon once crashed the market by terming bitcoin a “fraud,” comparing it to the Dutch tulip craze bubble.

JPMorgan’s head of digital treasury services and blockchain Umar Farooq said the company expects the new cryptocurrency to reduce client counterparty and settlement risk, decrease capital requirements, and enable instant value transfer.

JPMorgan said the new coin, to be issued on its in-house blockchain Quorum, was just a prototype at present. But future plans include making the coin compatible with all standard blockchain networks, it said.

Joe DiPasquale, CEO of BitBull Capital, a cryptocurrency hedge fund, called the JPMorgan move “a vote of confidence for blockchain technology, and yet another indication that blockchain and cryptocurrencies are part of the future of finance.When it comes to the crypto market in general, it should not have any price effect. Still, it’s a good indicator of institutional interest in the technology underlying cryptocurrencies.”

DiPasquale said that JPM Coin “may even be able to compete with Ripple (XRP) in the future, and given JP Morgan’s reputation and branding, it may be more successful in garnering support and adoption from major financial institutions, compared to Ripple or Stellar (XLM).”