JPM Coin Is the Wildest Big Bank Idea in Many Years

https://www.bloomberg.com/opinion/articles/2019-03-21/jpmorgan-proposes-a-wild-idea-for-crypto-and-banks

by adventured • 7 years ago

101 100 7 years ago

nfriedly• 7 years ago

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

aphextim2• 7 years ago

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

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• 7 years ago

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.

Nursie4• 7 years ago

They have this with car clubs all over the place already.

dmitriid• 7 years ago

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

Nursie4• 7 years ago

I'll put my money on an actual tech company coordinating with banks rather than a bank itself

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)

aphextim2• 7 years ago

I guess people can change, I just trust someone who went into the space willingly rather than doing it only after they realize there is money to be made and fear of being left behind.

https://99bitcoins.com/jpmorgan-ceo-jamie-dimon-says-bitcoin...

qaq• 7 years ago

https://github.com/jpmorganchase You are selling JPM short they have pretty good tech talent and a lot of resources and domain expertise.

BubRoss2• 7 years ago

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• 7 years ago

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.

BubRoss2• 7 years ago

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.

Nursie4• 7 years ago

It's more of an inter-bank settlement coin isn't it, than anything business oriented?

hybridsole• 7 years ago

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• 7 years ago

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• 7 years ago

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.

duxup4• 7 years ago

You raise an interesting idea.

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.

bduerst5• 7 years ago

That just makes it redundant though, right? A trustless coin from a trusted vendor isn't going to be used because it's trustless, and it's introducing extra complexity.

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.

dractori• 7 years ago

Bitcoin is also 5-10%+ owned by an unknown person/entity.

asasidh• 7 years ago

how does that work for USD cash ?

wtfrmyinitials• 7 years ago

Ok... and? Ownership != control on the Bitcoin network.

thefounder2• 7 years ago

Bitcoin is the most expensive and risky(for the client due volatility) method of payment I've ever used. Why would a bank or a client use it?

Source: We used to accept bitcoin(via bitay).

olefoo2• 7 years ago

This is not Bitcoin, it's a stablecoin with a guarantor.

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.

stale20025• 7 years ago

All a crypto currency is, is a public, append only database. Your question is like asking "why does JPM need a public append only database".

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.

scottlocklin• 7 years ago

Because there are counterparties. Duh. Quorum is a perfect case study for an actually useful blockchain use case.

jasode• 7 years ago

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...

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

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

smokeyj2• 7 years ago

I'm confused what this offers over USDC. Banks can already issue USD backed tokens with this model. USDC is already being traded on several exchanges. I'm sure I'm missing something obvious.

DylanBohlender• 7 years ago

It comes down to who is doing the coin creation and redemption. In the case of USDC, Coinbase is handling it. In the case of JPMC, JPMorgan would handle it.

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).

lisper5• 7 years ago

a "private cryptocurrency" will seem like an oxymoron

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.

fwip• 7 years ago

Can you not trivially build a traditional server that requires API requests to be signed?

briatx• 7 years ago

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).

philwelch2• 7 years ago

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.

StacyC• 7 years ago

I’m curious why you don't think DLT will find traction. I don't have a strong opinion either way, but it seems that a number of good use cases have been floated for it to replace “trusted third parties” and other intermediaries, minimize corruptibility, etc.

thefounder2• 7 years ago

Excellent point! Now let's hope the governments follow the example and provide a similar blockchain for their fiat currency.

That's what we need to do business here on earth, not volatile currencies lead by shady entities.

helpme3• 7 years ago

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.

yingw7875• 7 years ago

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• 7 years ago

...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.

lucozade2• 7 years ago

Yeah that's terrifying.

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.

seppin4• 7 years ago

Nope you can't, unless you can convince everyone else that "thing" is just as good, and can be exchanged for USD at any time, which it can't.

nradov• 7 years ago

Skirting fractional reserve requirements is unnecessary, and obviously not the real motivation for this move. The fractional reserve requirements are already so low as to present virtually no constraint on lending. In reality lending is limited mostly by lack of credit worthy borrowers.

yingw7875• 7 years ago

I think lending environments are temporary. The current environment has a glut of reserves, but I don't think there's anything systemic about that. Wouldn't this be the best time for JPM to release a new currency, so that it has some runway to gain acceptance before the lending environment changes?

seppin4• 7 years ago

They aren't issuing loans with JPM Coins, because those coins would have to either be transferred into USD by the loanee or accepted as currency by the school, home seller, etc. Which won't happen.

pier252• 7 years ago

Of course, this coin only has value because of trust in JPMC

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.

https://www.merriam-webster.com/dictionary/fiat

TheSoftwareGuy• 7 years ago

I would not trust JPMC but fiat money (dollars, euros, etc) only has value because of trust in governments.

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.

chumali• 7 years ago

I think you might have misunderstood. JPM will not create a market for the coin or use it for lending. The coin will be 100% backed by deposits in client accounts and used to facilitate instantaneous transfers between clients in order to reduce settlement times (initially it will be utilised for dollar transfers with the possibility of extending it to other currencies and financial assets). Given it will be 1:1 backed by client deposits it cannot be used to skirt fractional reserve requirements (unless JPM changes the terms of issuance).

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

yingw7875• 7 years ago

unless JPM changes the terms of issuance

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.

currymj• 7 years ago

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.

shepardrtc3• 7 years ago

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".

tyingq• 7 years ago

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?

seppin4• 7 years ago

None, but it's blockchain so it gets a thread on HN

jki275• 7 years ago

Nothing at all.

stale20025• 7 years ago

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• 7 years ago

Which does not need a cryptocurrency.

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

sjg0072• 7 years ago

One idea is that it will provide faster transaction and settlement times. Basically JPMC is a bunch of individual companies that buy and sell with each other already. Each time they transact and transfer money everything has to be proofed and verified. Adding crypto would ensure this condition by default at the protocol level basically. And using the distributed open ledger, they can have some supervisor process checking the chain to understand where the money is going. If this is successful they could expand to outside partner companies etc..

bduerst5• 7 years ago

Is JPM really going to let everyone see every customer transaction on the open ledger? Are they really allowing third parties to mine blocks outside of their own servers?

If not, this is just a database transaction with bells and whistles.

Max_aaa• 7 years ago

It looks they want to move from a medium that they do not control (dollars) to a medium that they have full control over (their own coin).

johnnycab• 7 years ago

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...

duxup4• 7 years ago

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• 7 years ago

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

duxup4• 7 years ago

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.

shepardrtc3• 7 years ago

JPMC hired Accenture last year to build out a blockchain solution using Quorum to compete with Ripple's various solutions. I believe this arose from that work, but I don't know for sure.

duxup4• 7 years ago

It would be interesting to know what was actually asked for them at those meetings ... and later meetings.

sidlls• 7 years ago

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?

abakker• 7 years ago

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• 7 years ago

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• 7 years ago

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

cwkoss• 7 years ago

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• 7 years ago

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

[0] https://blockmanity.com/news/citicoin-in-the-dump-as-citi-gr...

tantalor• 7 years ago

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• 7 years ago

It's an unsecured deposit. lol.

JPM Coin Is the Wildest Big Bank Idea in Many Years

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